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Economy, Currency and Banking

Bank Act, large institutions, mortgage loan companies, major revision, s Ottawa

The unit of currency in Canada is the Canadian dollar, which consists of 100 cents (C$1.49 equals US$1, 2000 average). The Bank of Canada, which was founded in 1935 and is owned by the federal government, has the sole right to issue paper money for circulation.

All other Canadian banks had combined assets exceeding C$645 billion (over C$22,000 per capita) in 1995. About 90 percent of this capital is concentrated in six large domestically owned banks, known as the big six. In 1995 there were 9 domestic and 46 foreign-owned banks operating in Canada, employing 170,000 workers or 1.3 percent of the workforce. Most foreign-owned and major domestic banks have their head offices in Toronto, and a few are based in Montreal. Trust and mortgage loan companies, provincial savings banks, and credit unions also provide banking services. Securities exchanges operate in Toronto (which has the sixth largest in the world), Montreal, Winnipeg, Calgary, and Vancouver.

The recession of the early 1990s caused considerable problems for smaller banks and trust companies. Many had committed a high proportion of their loans to commercial real estate, which declined in value by an average of 40 percent between 1989 and 1994. Some 140 institutions either ceased operations or were purchased by more successful corporations. Even some large institutions were affected: In 1994 Confederation Trust, Canada’s fourth largest trust company, was declared insolvent and went out of business.

Meanwhile, changes in regulations have significantly affected the financial sector. Traditionally, the federal government has tightly controlled the number, ownership, and operations of Canadian banks. The process to acquire a charter was arduous; the proportion of foreign ownership was limited; and banks were prohibited from dealing in insurance and securities. During the 1980s Ottawa eased some regulations on foreign banks and began to grant charters more freely to them. Further, a major revision of the Bank Act in 1992 permitted banks, trust companies, and insurance companies to compete in each other’s markets. As a result of this change, the big six banks now offer a much wider range of services—including, for example, stock market transactions—and have significantly increased their control over the entire financial sector. They have also realized unprecedented levels of profit: over C$6 billion collectively in 1995, which equals nearly 1 percent of the entire Canadian GDP.



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