Bank of Canada calls for more competition in banking sector

The Bank of Canada is urging the government to inject much-needed competition into the banking sector, a move that the bank says could provide relief for Canadians grappling with a sluggish economy.

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The Bank of Canada is urging the government to inject much-needed competition into the banking sector, a move that the bank says could provide relief for Canadians grappling with a sluggish economy. The central bank’s senior deputy governor recently slammed the current banking industry as an “oligopoly.”

Senior Deputy Governor Carolyn Rogers said a more competitive banking sector would stimulate labour productivity and better equip the economy against U.S. tariffs.

“Higher productivity won’t make Canada immune to U.S. trade policy, but it would help buffer the effect of tariffs,” said Rogers during a speech at the Canadian Club in Toronto on Thursday.

She added it’s also “the clearest path to boosting real wages in Canada and making life feel just a bit more affordable.”

Labour productivity is measured by how much Canadian industry produces per hour worked.

Canada’s labour productivity has been in a slump in recent years, dropping one per cent in the second quarter as manufacturing slowed in response to trade uncertainty.

However, even before U.S. tariffs, productivity had declined in six of the last eight quarters.

Rogers noted that studies from Statistics Canada, the Organisation for Economic Co-operation and Development and the International Monetary Fund all support a competitive marketplace when it comes to banking.

“When markets become more competitive, whether through deregulation, trade liberalization or competition enforcement, firms tend to become more efficient, adopt technology fast and innovate more,” she said.

“The bank’s own research highlights how important a dynamic business environment is to an economy’s productivity - an environment where underperforming firms continually exit the market and resources are reallocated to new, more productive firms.”

Removing interprovincial trade barriers will help bolster competition, but Rogers said Canada must begin to “think bigger than that.”

While Canada’s Big Six Banks: Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, Scotiabank, Canadian Imperial Bank of Commerce and National Bank of Canada have helped create stability in the financial sector, they are also why prices remain high.

“Greater contestability, more new entrants and more innovation in our financial sector would lead to competition that’s good for consumers, for productivity and for our economy,” said Rogers. “We should lean into it.”