We were fortunate to hear Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, recently address the Canadian Club in Toronto on this very topic. She stood up fiercely and advocated for better competition in the Canadian banking industry. Her initial comments were a response to growing fears about stagnant productivity growth. All of these concerns endanger our nation’s economic vitality and overall quality of life.
On that last point, Rogers was adamant that Canada has not shied away from the resources boom. This robust unrestricted trade relationship with the United States has long been an engine of economic growth. She warned this reliance resulted in a moment of hubris, which has resulted in an era of disinvestment and a productivity slowdown.
Perhaps we were just a bit overconfident and took far too much for granted with that partnership. We got a truly sobering dose of reality just recently. “That’s how we think the economy should work,” said Rogers, pointing to the need for radical disruption of business as usual.
Statistics reveal a concerning trend: productivity has declined in six of the last eight quarters in Canada. Rogers’ case on business investment levels continues to fall flat. Consequently, the quality of Canadians’ lives and the economy’s resilience to shocks are put at much greater risk. She pointed to work establishing an open banking framework. This smarter approach would increase competition in the financial sector.
Rogers explained that “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. We should lean into it.” This statement highlights her conviction that a competitive environment spurs the kind of productivity advancements that are key to our nation’s long-term economic prosperity.
The most prevalent feature of the Canadian banking sector is its oligopolistic nature, with the sector being essentially controlled by the Big-Six banks. Rogers warned that this excessive concentration stifles competition and innovation, the very forces necessary to drive productivity increases. She feared that Canada’s historic reliance on its proximity to the US might have aggravated the productivity crisis. This dependence might arguably have stunted the country’s construction and prosperity.
As Rogers explained, a more productive economy is one more able to absorb shocks. Perhaps most importantly, it must grapple with challenges posed by U.S. trade policy. She noted, “Higher productivity won’t make Canada immune to U.S. trade policy, but it would help buffer the effect of tariffs.” This new way of looking at things highlights the need to build up our domestic economic underpinnings in the face of external forces.
In her remarks, Rogers called on policymakers to find that balance in spades. She made the case for strong competition laws, but called for pro-regulatory actions that spur productivity growth. As she puts it, promoting competition is an important part of revitalizing Canada’s economic fabric and dealing with decades-old productivity issues.
Industry Minister Mélanie Joly expressed the need for such sentiment, confirming that her government would take a “hawkish” position on behalf of the feds for competition. By fostering competitive behaviour across the economy, including in banking, Ottawa hopes to create a more resilient economy in the long term.
