Federal budget aims to boost competition in banking sector

OTTAWA · The federal budget released Thursday proposes legislative changes designed to increase competition in Canada's banking industry. The government plans to amend the law governing the banking regulator, the Office of the Superintendent of Financial Institutions, to add a secondary competition objective. This new goal will sit alongside OSFI's existing mandate, which is focused on maintaining a stable and sound financial system. The changes aim to make it easier for new financial institutions to enter the market and gain a foothold.

Further legislative amendments will set a one-year deadline for decisions on applications to create new banks, trust companies and insurers. The budget also includes measures to allow more flexible ownership structures for smaller banks. The equity threshold that triggers a requirement for a bank's shares to be widely held will be raised from $12 billion to $25 billion. Foreign bank subsidiaries with less than $8 billion in equity will be exempt from this public shareholding rule if their parent is widely held and listed on a recognized foreign exchange. "Expanding OSFI's mandate to include growth and competition is an important step in balancing financial stability and economic resilience," said Anthony G. Ostler, chief executive officer of the Canadian Bankers Association. The plan would also provide credit unions with easier ways to access capital and expand their reach. OSFI superintendent Peter Routledge has previously emphasized the need for more competition in a sector dominated by the Big Six banks, which hold over 90 percent market share.

Routledge launched a pilot project in June to shorten the lengthy process of becoming a bank. He said in an October interview that OSFI will regulate through a period of immense change in the financial sector over the next decade. "Canadians want more competition," Routledge said at the time. The regulator has also been examining how its capital requirements may create a disadvantage for small and medium-sized lenders compared to larger banks. Other measures in the budget include plans to give troubled banks more options to transfer assets and liabilities during periods of stress. Ottawa also intends to update the deposit insurance framework, raising the coverage limit to $250,000 from $100,000 and removing limits on eligible deposits in registered accounts. The budget describes these financial sector measures as part of a plan to responsibly modernize the industry.

With files from The Globe and Mail