Leonard Waverman was the dean of the DeGroote School of Business at McMaster University and the Haskayne School of Business at the University of Calgary. He is a former director of BNP Paribas Canada and the C.D. Howe Institute.
As a former business school dean and as an economist, I’m happy competition policy is in the headlines these days, even for the wrong reasons.
Why do people suddenly care? The Rogers-Shaw drama is certainly a big part of it. The Competition Bureau repeatedly lost in opposing a deal that gives it everything it wants. The Canadian debate always remains focused on the wrong things. We point a finger at the Rogers-Shaw takeover but endure trade barriers between provinces, supply management in sectors such as dairy and government monopolies in alcohol.
Then there’s the public response to the proposed RBC-HSBC deal. I paid attention because I’m an HSBC customer. As someone who has lived and worked in the United States, the U.K. and France, I use foreign-currency accounts, and Canada’s big banks have traditionally offered me little choice.
Thus, when British multinational HSBC decided to abandon Canada, I was a bit worried. Looking more closely, however, I came to like this deal. With RBC RY-T as the buyer, the other big Canadian banks will now fight harder for customers like me, who need better, globally oriented banking services. Losing a bank with just 2-per-cent market share won’t make the sector less competitive. This is nothing like the banking megamergers that were proposed in the late 1990s and nothing like the Rogers-Shaw deal.
But the reaction? Some commentators have used terms like “monopoly” and “dominance,” even though the RBC-HSBC deal does little to change banking competition in Canada, except maybe increase its intensity.
Canada has six major banks, dozens of smaller ones and hundreds of credit unions such as Desjardins, ATB and Vancity. RBC would have less than a 25-per-cent market share even after the HSBC transaction. We also now have hundreds of innovative fintechs and specialized market players, including large mortgage brokers that originate most mortgages and steal customers from banks that don’t offer competitive rates.
It’s worrisome that some have been using this deal to suggest major changes to Canada’s Competition Act, a cornerstone piece of framework legislation. This is a mistake. Our law has worked well for decades, and major changes need to be based on evidence, not sloganeering.
Indeed, Canada’s banking sector is less concentrated than those of many of our international peers. According to TheGlobalEconomy.com, based on the percentage of assets held by a country’s top three banks, the Canadian banking sector is among the least concentrated in the Organisation for Economic Co-operation and Development (OECD), ranking below Germany, France, Spain, Italy, Australia, Switzerland, Belgium, the Netherlands, Austria and many more.
Some commentators look to the famously less concentrated and less regulated U.S. banking system. But that system is plagued by instability. I was a director of BNP Paribas Canada during the 2008 financial crisis. I saw first-hand the importance of Canada’s strong financial system, including the co-operation between our banks and their strong regulators. It’s why the Great Recession was more limited in Canada than elsewhere. More recently, we saw our banks working effectively with government during the pandemic.
Unfortunately, some ignore these facts in favour of their own reform agendas, often driven by the polarized debate in the United States. But using a specific transaction to rewrite the Competition Act looks to me like the proverbial tail wagging the dog.
The so-called efficiencies defence is a frequent target, but it has only been used twice in more than 35 years – and only after lengthy proceedings where evidence showed significant productivity gains, which Canada needs. But this is a red herring. This RBC-HSBC deal clearly doesn’t need to rely on that defence, and neither does the Rogers-Shaw takeover.
The bottom line is that Canada’s financial services industry is strong, stable and competitive, and Canadians have plenty of choice when it comes to where to park their money. This is a transaction to buy a minor player that put itself up for sale in a competitive industry. Canadians should be wary of commentators trying to stick the square peg of competition law reform where it doesn’t fit.