The Political Economy of Canada's 'Widely Held' Rule for Large Banks
36 Pages Posted: 18 May 2001 Last revised: 28 Dec 2011
Date Written: 2001
When NAFTA was first adopted, both Mexico and Canada negotiated protectionist provisions designed to ensure that the largest banks in the two countries remained under domestic control. Over time the Mexican scheme has been changed by domestic legislation, but Canada clings to a protectionist policy for its largest banks (known under the Canadian regulatory scheme as "Schedule I" banks). Under current Canadian law, no one shareholder group can own more than 10% of the stock in a Schedule I bank. This provision is known as the "widely held" rule. Parliament is currently considering a broad revision of the Bank Act, under which the widely held rule will be liberalized, but will not be eliminated. Oddly, while the widely held rule looks like a classic piece of rent-seeking legislation designed to benefit the Canadian banking industry, in fact the big Canadian banks no longer desire the protection of the rule and would prefer that it be eliminated. Other political, economic, and social concerns in Canada, however, have weighed in favor of retaining the rule. This article examines the political economy of the widely held rule and discusses its possible future implications for Canadian banks.
Keywords: Canada, banks, protectionism
JEL Classification: F12, F14
Suggested Citation: Suggested Citation