Canadian Banking System Overview

Canadian Banking System

• Over 30 domestic Schedule I banks operate in Canada, with six major banks dominating asset sizes.
• Canada’s Big Six Banks:
  • Bank of Montreal (BMO)
  • Canadian Imperial Bank of Commerce (CIBC)
  • National Bank of Canada
  • Royal Bank of Canada (RBC)
  • Scotiabank
  • Toronto-Dominion Bank (TD Bank Group)
• These banks have extensive networks of retail branches and ATMs, attracting savings from Canadians.
• Schedule I banks have international operations through acquisitions and investments in foreign financial institutions.
• Large Schedule I banks are required to have widely held voting shares, limiting any shareholder or group to a maximum of 20%.
• Medium-sized banks (equity $2B to $12B) allow single shareholders up to 65% ownership of voting shares, with 35% needing to be publicly traded.
• Small banks (equity less than $2B) can be wholly owned by an individual or organization.

Banking Products and Services

• Canadian banks offer a variety of consumer and commercial services: mortgages, loans, accounts, and investments.
• Savings deposits are insured by the Canada Deposit Insurance Corporation (CDIC).
• Additional offerings include financial planning, cash management, and wealth management services.
• Subsidiaries within banking groups provide investing, self-directed investing, and insurance product sales.
• The Bank Act regulates activities and information sharing within banks in the financial services industry.

Financial Intermediaries and Services

• Financial intermediaries deliver overlapping services such as deposit-taking, lending, and mutual funds.
• Investment funds create portfolios from public share sales often through closed-end or open-end structures.
• Loan companies provide direct cash loans to consumers for repayment in installments.
• Pension plans serve as a savings mechanism for employees across various organizations.
• Robo-advisors present a modern approach for online investment management, utilizing algorithms and goal-based portfolios.

Capital Market Overview

• Investment capital comprises real (e.g., land, buildings) and representational assets (e.g., stocks, bonds).
• Indirect investment involves purchasing securities from issuers who use funds for productive purposes.
• Capital is characterized by mobility, environmental sensitivity, and scarcity, influencing where it is invested.
• Factors affecting country risk evaluations include political stability, economic trends, and non-financial corporation savings.

Users and Suppliers of Capital

• Users include individuals, businesses, and governments; capital can flow in and out of Canada from foreign users.
• Foreign investors view Canada as an attractive investment destination, seeking to diversify by accessing Canadian markets.
• Governments may source capital through surplus operations or borrowing in the capital markets.

Capital Market Structure

• Primary markets involve the sale of newly issued securities from companies and governments to investors.
• Secondary markets facilitate trading of existing securities among investors, with the issuing entities not receiving proceeds from these trades.
• Auction markets involve investment dealers executing buy and sell orders, where bids and offers compete until matched.
• Bid-ask spread represents the price difference between the highest buyer bid and the lowest seller ask, crucial in securities trading.