Have Canadian Banks Played It Too Safe

Consequently, Canadian banks haven’t felt the need to expand or innovate new financial instruments that could be used to earn more revenue.

For example, in March of 2008, following the financial meltdown, the market capitalization of the Canadian banks exceeded many of their US counterparts, such as those of Merrill Lynch and Morgan Stanley. This placed the Canadian banks in the optimal position to continue expansion into the States.

But it did not happen as simply as it seems it could have. In fact, although there have been numerous ‘scouting’ opportunities for Canadian banks since the crisis began in September 2007, many of these opportunities have been turned down or ignored as a result of risk avoidance.

[pullquote]In the end, this is the optimal time for Canadian banks to take advantage of their positions and begin to find ways to become more globally competitive.[/pullquote]

American banks meanwhile, such as JPMorgan Chase, Goldman Sachs and Wells Fargo, all made purchases and expansions within the States. Across the ocean, Barclays (based out of London) purchased Lehman Brothers after it sank, and BBVA of Spain bought what was left of Guaranty Financial.

Canada doesn’t have much to say in response, aside from TD purchasing Commerce Bancorp and CIBC unveiling its plans to purchase Citigroup’s $2.1 billion Canadian MasterCard credit card portfolio last month. Overall, Canadian banks have been quite lethargic in making use of these basement-bargains.

In the end, this is the optimal time for Canadian banks to take advantage of their positions and begin to find ways to become more globally competitive. Whether this means a more extensive expansion into the American and other world markets, committing to the research and development of other not so dangerous financial instruments, or a little bit of both, these choices are up to each individual bank.

One thing that should be agreed upon though, is that Canadian banks should not be relying on their current profit structure any longer, as it has resulted in stagnation while the rest of the financial world has become much more developed.