BANK MERGERS WOULD SPREAD GAINS: DODGE

Canadian financial institutions could reap “untapped efficiency gains” that could spread across the economy if they are allowed to consolidate, Bank of Canada governor David Dodge said yesterday.

Speaking to the Toronto Chartered Financial Analysts Society, Mr. Dodge said lower-cost corporate and retail lending is among the benefits that mergers could bring.

But he noted “there are other relevant public policy questions here as well, including foreign ownership and concerns about the concentration of market power among very few players.”

Balancing these interests is challenging, Mr. Dodge said. However, he added mergers between banks or between banks and other financial-services firms such as insurance companies will not necessarily hurt competition.

“We should keep in mind that the level of competition can be maintained and indeed enhanced by new entrants in the marketplace or even just by the threat of new entrants,” he said.

Bank mergers have been a political hot potato for the federal government. In 1998, Paul Martin, then finance minister, stopped merger plans between Royal Bank of Canada and Bank of Montreal, and Canadian Imperial Bank of Commerce and Toronto-Dominion Bank amid criticism from the public.

Current Finance Minister Ralph Goodale has also repeatedly delayed the planned release of a paper on mergers.

Following his speech yesterday, Mr. Dodge also reiterated his belief that not enough is being done to enforce the country’s securities laws.

“Obviously, it’s not happening, so some changes are required,” he told reporters.

He said judges must be ready to levy stiff penalties in fraud and white-collar crime cases. Also, skilled investigators and prosecutors with adequate resources are needed, as is co-operation between police and the country’s securities commissions, he said.

In his speech, he also said the country needs a uniform set of securities rules, but the system must be tailored so its principles can be applied in a tiered manner that accounts for the varying sizes of different companies.

Financial Post wdabrowski@ nationalpost. com