BANK MERGERS: IS BIGGER BETTER? Introduction
BANK MERGERS: IS BIGGER BETTER? Introduction In January 1998, the Bank of Montreal and the Royal Bank of Canada announced plans to merge and create one superbank. A few months later, in April, the Toronto Dominion Bank and the Canadian Imperial Bank of Commerce announced similar plans. The proposed bank mergers caught many people off guard, including Minister of Finance Paul Martin. In a Macleans interview, Martin said, "Just because they decided to get into bed together doesnt mean that I have to bless their union." Martins message seemed to be that Ottawa, not the banks, would decide the future of banking in Canada. "There will be no mergers in the banking sector until we are convinced that [it] is what is best for Canadians, and we will not be stampeded into making that decision." According to the banks, the proposed mergers were a natural response to a changing and highly competitive global marketplace. Mergers, they said, provide a way of maintaining a strong Canadian presence in the banking industry. Certainly, recent technological advances have dramatically changed the manner in which the financial services industry conduct their business, and the above- mentioned banks feel, therefore, that they need to be bigger to compete and to have a substantial presence in the global banking community. Martin himself acknowledged the changed nature of banking when he said, "If you look back at banking five years ago, you might as well look back two centuries." While the proposed bank mergers brought attention to the challenges facing Canadas banks, these challenges are not peculiar to the banks alone.
[Show full text]