Hours after imposing huge tariffs on Canada, President Trump raised the question of the confusion that even American lenders advocated by American lenders: U.S. access to the Canadian market or lack of access.
“Canada does not allow American banks to operate in Canada, but their banks flood the U.S. market,” Mr. Trump wrote in an article about the Truth Society on Tuesday. He added sarcastically: “Oh, it seems fair to me, doesn't it?”
Although this issue is not common in conversations with famous American bank executives, the president seems to have more and more ideas.
Mr. Trump mentioned the Canadian banking issue earlier last month, a widespread criticism of his view as an inequitable economic balance between the United States and its northern neighbors. “Bank of America is not even allowed to open or conduct business,” Mr Trump wrote.
Here is the actual game status of Bank of Canada:
Can Bank of America operate in Canada?
Canada's banking industry is dominated by the “big six” institutions (including RBC and TD Bank). Allow them to make deposits, expand mortgages and advise corporate clients – all core activities of the bank. Moreover, Canadian customers disproportionately tend to bank in person rather than online, meaning that any contestant entering the market needs to have an important physical state.
Additionally, there are restrictions on what Bank of America can do in Canada.
Foreign banks including the United States must work with Canadian middlemen to establish Canadian subsidiaries, or obtain special government licenses to conduct business. Unless they agree to comply with Canada's strict banking rules, including always holding a huge cash-based asset, they are unable to operate retail branches that have deposits of less than $100,000.
Given the dominance of Canadian local banks, any international bank trying to compete faces “an additional regulatory burden on the start of small awards,” said James R. Thompson, associate professor of finance at the University of Waterloo.
As a result, Bank of America has the least operating in Canada. JPMorgan Chase, the largest lender in the United States, said it has about 600 employees in Canada and more than 300,000 people worldwide. Many international banks limit themselves to areas that do not involve loans, such as providing investment advice to wealthy Canadians or local companies.
Therefore, Mr. Trump asserted that Bank of America could not do so any Business in Canada, but their activities are indeed in trouble.
Why is Canada so restricted?
Although there are more than 4,000 banks in the United States, there are only a few dozen banks in Canada, and the Big Six have more than three-quarters of their deposits.
Canadian political leaders have been confused by this restrictive financial regulation model for decades. They believe that foreign contestants who resisted the country's mortgage market helped the country largely avoid the collapse south of the border in 2008.
In view of Trump’s criticism, Maggie Cheung, spokesman for the Canadian Bankers Association, was quick to point out that foreign banks are an integral part of the banking industry. She said 16 U.S. banks have some level of operations in Canada, with a total of nearly $79 billion in assets, a statistics cited by Prime Minister Justin Trudeau on Tuesday.
“Bank of America is still alive and rich in Canada,” Mr Trudeau said.
But relatively, their success is very small. Bank of America accounts for 1% to 2% of Canadian dollars 6.5 trillion held by Canadian banks operating in Canada.
“The major obstacle facing banks in America is that they have no scale, and they can't limit any of them to foreign ownership restrictions because they can't compete with Canadian banks,” said Laurence Booth, a finance professor at the University of Toronto.
Will Canadian banks “flood” the United States?
International banks (including Bank of Canada) are largely free to build our weapons. The U.S. aims for international banks to be a more attractive goal than Canada, both a hub for world finance and because its market allows for more exotic, higher lending activities (such as 30-year mortgages). (The most common mortgage term in Canada is five years.)
TD Bank, the largest Canadian bank in the United States, operates more than 1,000 U.S. branches through its subsidiary in Delaware. This scale makes it consistent with well-known regional lenders such as the well-known regional lenders and the fifth-thirds.
The Canadian Bankers Association said Canada’s six largest lenders hold less than 3.5% of U.S. bank assets.
Is this even a Wall Street problem?
The big U.S. banks have a lot of hope for Mr. Trump to reduce regulations, encourage merger activities and cut taxes. Expand their presence in Canada is not on the list.
The Banking Policy Institute, a U.S. banking trade group, said Tuesday it did not release any statements about the matter. So far, no bank CEO has accepted the call for the rally.
Trump’s tariffs are even more pressing on the global banking industry, which has helped drive stocks in the industry down 8% in the past month, according to the KBW Nasdaq Bank Index.
