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China is growing, London remains crucial as a global financial centre, but the real money in investment banking lately is in Canada.

For the first time since Thomson Reuters began tracking fees in 2000, Canadian deals produced more investment banking fees than those in any country save the United States last year. Canada jumped to the No. 2 spot globally in 2012 from No. 4, according to Thomson Reuters, leapfrogging much bigger countries.

Canada generated almost $4.9-billion (U.S.) of investment-banking fees for banks, a 9.1-per-cent increase from 2011 and about 6.5 per cent of the global total. In comparison, the United Kingdom, home to the global financial centre that is London, generated $3.76-billion and the United States rang up $35.6-billion.

Canada's economy is far smaller than that of countries such as China, Brazil, the United Kingdom and Germany, but the deal economy is much stronger as foreign capital floods into Canadian resources and strong Canadian companies look to acquire abroad.

Every time they do make a purchase, or raise money through a loan or a stock sale, that means fees for banks. And that revenue is drawing banks to Canada even as they retrench in other financial centres.

"If you look at where the growth is in that fee wallet, it's clearly cross-border," said Bruce Rothney, Canadian country head for Barclays, one of the global banks that has made a big investment in Canada in recent years.

"We think about bringing Canada to the world and the world to Canada, and I think everyone is thinking along those lines," Mr. Rothney added.

The result is that the investment banking hubs of Toronto and Calgary are thriving, relative to cities such as New York and London. Employment in the securities industry in Canada has held steady at around 40,000 people in recent years, while other global financial centres have seen mass layoffs. International firms are in many cases expanding in Toronto and in the oil patch.

Jefferies & Co., one of the big independent U.S. firms, last year opened up an investment-banking business in Canada. Stifel Nicolaus, another independent in the U.S., has quietly been growing. Merger advice boutique Evercore Partners set up shop. The locals are also doing well, with four Canadian firms making the Thomson Reuters ranking of the top 25 banks by fees won.

"We had one of our best years that we've ever had," said Darryl White, head of global corporate and investment banking at Bank of Montreal's capital markets unit, which jumped six spots to 18th place.

Canada has consistently punched above its weight in fees, ranking in the top five for many years running with China, Japan, the U.K. and the perennial No. 1, the U.S. That's something Mr. Rothney said he was surprised to find when researching the market when joining Barclays in 2010 to lead its expansion in Canada.

"Canada has been very strong for a number of reasons," he said. "Clearly the resource economy piece is a long-term secular trend that we don't see going away."

However, it's also easy to forget, with all the hooplah generated by big foreign acquisitions of Canadian resource producers, that Canadian firms spend a lot of money acquiring companies abroad – more than flows into Canada in many years.

Big drivers of that are Canada's huge pension funds, which buy assets all over the globe. The pension funds have more than "$1-trillion of buying power there and they are pound for pound among the smarter investors," Mr. Rothney said.

If there's one underlying concern, however, it's that Canada is "dumping all eggs into one basket," said capital markets recruiter Bill Vlaad, head of Vlaad & Co. Many firms are largely focused on commodities, and still adding. Mr. Vlaad says he knows of about a half dozen openings for senior mining bankers.

If there's a sustained downturn in deal making in those sectors, serious downsizing in groups dealing with mining, energy and agriculture could be the result.

"We are right out at the end of the diving board when it comes to the mining and oil gas focus, which is great when we are digging and drilling but what happens when we are not?" Mr. Vlaad said.

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