Canada's Policy on Financial System Consolidation: A Political Economy of Public Policy Transformation in an Era of Globalization By Abdulghany F. Mohamed A dissertation submitted to The School of Public Policy and Administration Carleton University Ottawa, Ontario Canada In partial fulfillment of the requirements for the degree of Doctor of Philosophy © Abdulghany F. Mohamed, 2007 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 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Abstract Positioning itself within the comparative and international political economy tradition, this study critically examines within a longer-term historical perspective and in a wider comparative context the transformation of the Canadian federal policy on financial system consolidation with a keen eye on whether or not, for the period between 1970 and 2005, the Canadian federal policy on bank mergers and acquisitions was converging on the U.S. model of bank merger governance. Special attention is focused not only on whether there are convergent trends or not, but also on understanding the dynamics involved particularly as regards to the role of globalization and regionalism in such transformation processes. The analytical framework developed in Part I is applied in Part II in the empirical investigation and comparison of the Canadian and U.S. bank merger policies. What emerge from this study are three key findings. First, while there has been a growing similarity in some aspects of the two countries’ bank merger policies (e.g., policy objectives, competitive reviews), these convergent trends have not always been about Canada converging on the U.S. as, in some cases, it was the U.S. that followed Canada (e.g., in the scope and types of mergers governed, and nationwide branching). Secondly, despite the tendencies for convergence, Canadian and U.S. bank merger policies continue to exhibit distinctive characteristics in several key aspects (e.g., in institutional arrangements, geographic scope, concerns about concentration of power, substantive issues of law, and policy styles). Thirdly, although globalization and regionalism are potent sources of institutional change and that while some of the pressures toward greater policy convergence are undeniable and significant, but given that each country has unique Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. iv historical, economic, political, ideological, and institutional conditions, all of which have (in varying degrees and at different historical moments) influenced and shaped the evolution, patterns, and directions of each country's financial regulatory regime, it is no wonder that there has not been substantial convergence around the American model of bank merger governance. These outcomes reflect the nature of globalization and regionalism (as both having homogenizing and heterogenizing tendencies) and the contested and historically contingent nature of the transformation processes of the Canadian and American bank merger policies. Thus, convergent tendencies have been just one of a number of possible (non-automatic, non-inexorable, and potentially reversible) institutional and policy outputs, outcomes and trajectories. These developments have serious economic, political and social implications that warrant further study. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. V Acknowledgements Completion of this dissertation would not have been possible without the inspiration, guidance and support of many people. I would therefore like to thank, first and foremost, my Ph.D dissertation committee (Professors Laura Macdonald, Manfred Bienefeld and Randall Germain) whose enthusiasm, insight, and critical observations were invaluable. Special thanks go to my supervisor (Prof. R. Germain) for his considerate, tireless, ongoing attention and patience throughout the dissertation process. I am truly grateful and highly indebted for his support and direction. I also very much appreciate the assistance from and cooperation by Mr. David Teal (Canadian Competition Bureau- Ottawa/Hull) for his time and insights. Special thanks also go to Christine Hinchley (Statistics Canada) and Jason Clemens (Fraser Institute) for their assistance. Information assistance from the Canada Payments Association (Ms S. Lalande) and the Financial Consumer Agency of Canada (Mr. L. Larose) is also greatly appreciated. Finally, I offer my greatest thanks and appreciation to my family whose inspiration, support and unconditional love helped me complete this phase of my safari. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table of Contents Abstract .....................................................................................................iii Acknowledgements.................................................................................... v Table of Contents..................................................................................... vi Acronyms.................................................................................................. ix List of Figures........................................................................................... xi List of Tables............................................................................................ xi List of Boxes.............................................................................................. xi List of Appendices.................................................................................... xi Chapter 1: Introduction...........................................................................1 1.1 The Research Problem................................................................................................... 1 1.2 Purpose of the Study ......................................................................................................7 1.3 Rationale and Significance of the Study ...................................................................... 9 1.3.1 Theoretical Significance........................................................................................ 9 1.3.2 Empirical Considerations..................................................................................... 12 1.3.3 Policy Considerations...........................................................................................14 1.4 Research Methodology................................................................................................18 1.5 Research Findings and Argument ............................................................................... 19 1.6 Organization of Chapters............................................................................................ 20 Chapter 2: Finance in a World of Varieties of Capitalism .................. 25 2.1 Introduction.................................................................................................................. 25 2.2 Varieties of Capitalism Approach: A Brief Overview.............................................. 27 2.3 Relevance of the VoC Approach for this Study........................................................29 2.4 Financial Systems: Mapping a Diverse and Dynamic Terrain.................................32 2.5 Financial System Governance in a World of Varieties of Capitalism..................... 40 2.5.1 Financial Sector Governance and the Governance of Non-financial Firms.... 57 2.5.2