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Ban on bank mergers helped Canada withstand crash, IMF says

These are stories Report on Business is following Tuesday, Oct. 10, 2012.

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Why Canadian banks weathered the storm
The International Monetary Fund today takes a deeper look at why banks in Canada and a handful of other countries withstood the 2008-2009  meltdown, which could provide lessons going forward.

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In its financial stability report, the IMF concludes that the "funding structure of banks could be more important than a lack of foreign bank ownership for financial stability.

Canada, Australia, India and Malaysia, the four countries studied, have a "relatively low degree" of exposure to international banking, the IMF said in trying to gauge the connection with faring well in the crash.

Setting aside India and Malaysia, the IMF said the Canadian and Australian regulatory structures "share some features that might have resulted in less globally integrated banking systems."

Notably, the two countries share a "de facto" ban on big bank mergers.

Canada has six major domestic banks: Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Montreal, Bank of Nova Scotia and the smaller, Quebec-based National Bank of Canada.

Then Liberal finance minister Paul Martin rejected two huge mergers in the late 1990s – RBC with BMO, and CIBC with TD - and nothing has changed since despite the ascension of the Conservatives.

Mr. Martin killed the proposed mergers on grounds that there would be too much power in the hands of too few banks, reduced competition, and troubles for the government when problems arose.

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"While its primary objective is to retain competition, the prohibition has prevented an increase in the size of these banks and the creation of national 'champions' that could compete with major global financial institutions," the report said.

"This may have been a factor limiting their banks' international activities."

It also cited ownership restrictions.

In Canada, the major domestic banks must be widely held. In Australia, acquisitions representing more than 15 per cent of the votes in a major bank must be approved, taking into account "their ability to meet prudential requirements, the implications of foreign ownership, and the impact on competition."

BAE, EADS kill merger bid
A  $45-billion (U.S.) bid to forge the biggest defence and aerospace company on the globe has died on the order paper, The Globe and Mail's Eric Reguly reports.

EADS NV and BAE Systems PLC announced today that they have ended merger talks after the various governments involved - Britain, France and Germany - could not reach a deal.

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"The merger would have produced a combined business that would have been a technology leader and a greater force for competition and growth across both the commercial aerospace and defence sectors and which would have delivered tangible benefits to all stakeholders," they said.

"Discussions with the relevant governments had not reached a point where both companies could fully disclose the benefits and detailed business case for this merger."

Germany, in particular, opposed the deal, The Financial Times reports, as Chancellor Angela Merkel heads into next year's elections.

Starting to borrow less?
Repeated warnings from Bank of Canada Governor Mark Carney and others seem to be sinking in where consumer debt is concerned, The Globe and Mail's Bertrand Marotte reports today.

More Canadians are putting the brakes on their borrowing ways.

Twenty-six per cent of Canadians have no personal debt, up from 22 per cent in 2011, according to the results of the annual RBC Debt Poll. Canadians are now carrying on average $13,141 in personal debt, up $84 from a year ago.

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