Globalisation, Deregulation and Financial Services Reform in Canada: Legislating Canada's "Superbanks"
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GLOBALISATION, DEREGULATION AND FINANCIAL SERVICES REFORM IN CANADA: LEGISLATING CANADA'S "SUPERBANKS" Russell Alan Williams Master of Arts, University of Victoria, 1997 Bachelor of Arts, University of Victoria, 1994 THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY In the Department of Political Science 0Russell Alan Williams 2006 SIMON FRASER UNIVERSITY Summer 2006 All rights reserved. This work may not be reproduced in whole or in part, by photocopy or other means, without permission of the author APPROVAL Name: RUSSELL WILLIAMS Degree: DOCTOR OF PHILOSOPHY Title of Thesis: Globalisation, Deregulation and Financial Services Reform in Canada: Legislating Canada's "Superbanks" Examining Committee: Graduate Chair: Dr. Tsuyoshi Kawasaki Associate Professor, Department of Political Science Dr. Stephen McBride, Senior Supervisor Professor, Department of Political Science Dr. Michael Howlett, Supervisor Professor, Department of Political Science Dr. Marjorie Griff~nCohen, Supervisor Professor, Department of Political Science Dr. Karl Froschauer, Examiner Assistant Professor, Department of Sociology and Anthropology Simon Fraser University Dr. Andrew F. 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UNMRHTY~I brary STATEMENT OF ETHICS APPROVAL The author, whose name appears on the title page of this work, has obtained, for the research described in this work, either: (a) Human research ethics approval from the Simon Fraser University Office of Research Ethics, (b) Advance approval of the animal care protocol from the University Animal Care Committee of Simon Fraser University; or has conducted the research (c) as a co-investigator, in a research project approved in advance, (d) as a member of a course approved in advance for minimal risk human research, by the Office of Research Ethics. A copy of the approval letter has been filed at the Theses Office of the University Library at the time of submission of this thesis or project. The original application for approval and letter of approval are filed with the relevant offices. Inquiries may be directed to those authorities. Simon Fraser University Library Burnaby, BC, Canada ABSTRACT When analyses of globalisation first emerged, it was argued that globalisation would expand a "democratic deficit" by reducing the power of public officials to regulate economic activities. The pressures of global economic competition would constrain the range of available public policies. In the case of financial services, both international political economy approaches to globalisation and public policy scholarship argued that the sector produced a unique "esoteric politics" in which there would be little scope for public accountability. Global competitive pressures, the technical complexity of the sector, and the close relationship between large financial services companies and policymakers isolated the sector from domestic politics. Despite these assumptions, the Canadian financial services sector has gone through a period of "re-politicisation" and re- regulation over the last decade. Sectoral policy outcomes are now more clearly driven by domestic political struggles than was the case in the past. This thesis argues that this "re-politicisation" is the direct long-term consequence of the deregulatory changes of the 1980s initiated, ironically, in response to "globalisation" and the policy demands of Canada's "big banks." Deregulation "opened" the policymaking environment to a wider array of organized interests. By collapsing the banking, insurance and securities policy subsystems into a single national financial services policy sector, and by expanding the responsibility of Parliament in an environment of weak state capacity, deregulation unintentionally created conditions in which groups pursuing new regulatory policy goals have been able to influence government policy. While globalisation might have further curtailed the importance of domestic politics in this sector, the institutional changes associated with deregulation ultimately opened a traditionally-closed policy network. This evidence requires that we change our traditional analysis of the "closed" financial services policy network in Canada. It also suggests the utility of middle level theories, like policy networks analysis, in explaining state responses to globalisation. The policy networks approach offers significant insights, overlooked in much conventional analysis of globalisation, regarding the importance of sectoral-specific domestic institutional arrangements in guiding how states will ultimately respond to the challenges and opportunities of globalisation. Keywords: Globalisation; Financial Services; Banking; Canadian Public Policy; Regulation ACKNOWLEDGEMENTS I would like to thank the many people who have provided their advice and comments on this project. Particular thanks go to my supervisory committee, Stephen McBride, Michael Howlett and Marjorie Cohen for the extensive time they spent mentoring this work. Thanks also to Andrew Johnson, Karl Frochauer, Daniel Cohn and Andy Hira for their feedback on the various versions of this dissertation, and to Amanda Bittner for her tireless editing. I would also like to thank all the colleagues at Simon Fraser University who supported my studies and provided their time, insight and advice over the years. This includes, but is by no means limited to, James Busumtwi-Sam, Greg Clarke, Theodore Cohn, Maureen Covell, Lynda Erickson, Andrew Heard, Tsuyoshi Kawasaki, David Laycock, and Patrick Smith. I would also like to acknowledge the financial support of the Social Science and Humanities Research Council of Canada Doctoral Fellowship, the Globalism Project Doctoral Fellowship and the CD Nelson Doctorial Fellowship of Simon Fraser University, all of which supported my studies and research at SFU. TABLE OF CONTENTS .. Approval ..........................................................................................................................11 ... Abstract ...........................................................................................................................111 Keywords: ......................................................................................................................iv Acknowledgements ............................................................................................................v Table of Contents ............................................................................................................. vi List of Figures .....................................................................................................................x List of Tables .................................................................................................................... xi .. Glossary .......................................................................................................................xi1 .. Glossary ......................................................................................................................xi1 List of Abbreviations: ....................................................................................................xv Chapter 1: "Globalisation. Deregulation and Financial Services Reform in Canada" .....................................................................................................................1 I) Introduction: The 1998 "Mergers Debate" and the Re-Politicisation of Financial Services ............................................................................................2 11) Canada's "New Politics" of Financial Services .Three Research Problems .............6 a) The Policy Problem .Deregulation: Pillarization to Universal Banking .................7 b) The Domestic Politics Problem: