March 29, 2019

What US Banks Need to Know about Banking Regulation in Canada

In Canada's federal system of government, legislative authority is shared between the federal government and ten provinces. The federal government has exclusive legislative authority over banking and incorporation of banks, while provinces retain jurisdiction over contract law, property and civil rights. As a result, both federal and provincial laws shape the regulation of banks and other financial institutions.

Federal regulation of banking and the dominant position of a small number of very large banks with nationwide branches have been the hallmarks of the Canadian banking system since its inception. The federal government’s express constitutional authority over banks has allowed the development in Canada of national banks with diversified loan portfolios across Canadian regions and has enabled them to capture scale economies.

Incorporated only federally, banks are by far the most dominant form of organisation for financial institutions in Canada. The legislation recognizes three categories of banks in Canada: Canadian-incorporated domestic banks (listed in Schedule I to the Bank Act), Canadian-incorporated foreign bank subsidiaries (listed in Schedule II to the Bank Act), and Canadian branches of authorized foreign banks (listed in Schedule III to the Bank Act). As of March 2019, 35 Schedule I banks, 21 Schedule II banks, and 32 Schedule III banks operate in Canada.

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