The financial services sector plays and important role in the Canadian economy, as it:
- Employs more than 600,000 Canadians
- Provides a yearly payroll of more than $35 million
- Represents 6% of Canada’s GDP, exceeded only by the manufacturing sector
- Yields more than $13 billion in tax revenue to all levels of government
- Is widely recognized as one of the safest and healthiest in the world
The financial services were termed a “four-pillar system”. Regulation designed to foster
competition within each pillar but not among them.
- Trust companies
- Insurance companies
- Securities dealers
Today, changes in regulations have eliminated the barriers that prohibited financial institutions
from competing in each other’s business.
- Non-profit, member-owned financial co-operatives that offer a full variety of banking
services to their members
- A financial institution that can administer estates, pension plans, and agency contracts,
in addition to other activities conducted by banks
- Financial organizations that accept no deposits but offer many services provided by
- Examples: insurance companies, pension funds, brokerage houses, finance companies
Pension funds - Amounts of money put aside by corporations, non-profit organizations, or unions to
cover part of their members when they retire
- Contributions are made either by employees, employers, or both
Life insurance companies provide financial protection for policyholders, who periodically pay
Commercial and consumer finance companies offer short-term loans to businesses or
individuals who either cannot meet the credit requirements of regular banks or have exceeded
their credit limit and need more funds. The primary customers of these companies are new
businesses and individuals with no credit history.
The financial industry is one of the most regulated sectors in the country. Regulation is designed
to ensure the integrity, safety, and soundness of financial institutions and markets.
In Canada, there is no single body that regulates the entire industry. It’s a responsibility shared
among different organizations and levels of government.
- Banks are federally regulated
- Securities dealers, credit unions and caisses populaires are provincially regulated
- Insurance, trust and loan companies, and co-operative credit associations may be
federally or provincially regulated
The Department of Finance relies on three federal agencies to supervise the ongoing operations
of these institutions and their compliance with legislation:
- The Office of the Superintendent of Financial Institutions monitors the day-to-day
operations of institutions with respect to their financial soundness
- Canada Deposit Insurance Corporation protecting deposits that Canadians have in
their federal financial institutions
- The Financial Consumer Agency of Canada monitors financial institutions to ensure
that they comply with federal consumer protection measure
CDIC does not cover foreign currency accounts, term deposits with a maturity date of greater
than five years, and investments in mortgages, stocks, and mutual funds.
- Anything that people generally accept as payment for goods and services Barter
- The trading of goods and services for other goods and services directly
Coins met all of the standards of a useful form of money:
- The amount of money the BoC makes available for people to buy goods and services
Prices would go up because more people would try to buy goods and services with their money
and would bid up the price to get what they wanted, what is called inflation.
Prices would go down because there would be an oversupply of goods and services compared
to the money available to buy them, what is called deflation.
A falling dollar value means that the amount of goods and services you can buy with a dollar
decreases. A rising dollar will react the opposite.
What makes the dollar weak or strong is the position of the Canadian economy relative to other
The Bank of Canada (BoC) monitors the money supply. Indicators such as M1 provide useful
information about changes that are occurring in the economy. The availability of money and
credit must expand over time, and the BoC is responsible for ensuring that the rate at which
more money is introduced into the economy is consistent with long-term stable growth.
The objective of the BoC’s monetary policy is to support a level of spending by Canadians that
is consistent with the Bank’s goal of price stability. This is defined as keeping inflation within the
inflation-control target range (of 1-3 percent).
The BoC manages the rate of money growth indirectly through the influence it exercises over
short-term interest rates. The B
The BoC has an influence on very short-term interest rates through changes in its target for the
overnight rate. The target for the overnight rate is the main tool used by the BoC to conduct monetary policy. It tells major financial instituions the average interest rate the BoC wants to see
in the marketplace.
- The interest rate that banks charge their most creditworthy customers
- A profit-seeking organization that receives deposits from individuals and corporations in
the form of chequing and saving accounts and then uses some of these funds to make
- Commercial banks have two types of customers: depositors and borrowers
- Commercial banks try to make a profit by efficiently using the funds that depositors give
- Commercial banks make a profit if the revenue generated by loans exceeds the interest
paid to depositors plus all other operating expenses
Individuals and corporations that deposit money in a chequing account have the privilege of
writing personal cheques to pay for almost any purchase or transaction.
A term deposit is a savings account that earns interest to be delivered at the end of the specified
Generally, loans are given on the basis of the recipient’s creditworthiness.
Internet Banks have been created that offer branchless banking. Such banks can offer high
interest rates and low fees because they do not have the costs of physical overhead that
traditional banks have. Customers feel nervous about online security. Some people want to be
able to talk to a knowledgeable person when they have banking problems.
The general insurance industry in Canada provides insurance protection for most homes, motor
vehicles, and commercial enterprises throughout Canada. Auto insurance is provided through a
combination of private and government-owned auto insurers. Another major category of general
insurances is liability of business interruption insurance. Liability insurance provides protection
in the event that the insured causes bodily injury or property damage to others for which the
insured is liable.
The idea of insurance is to share risk with others. Insurance companies collect insurance
premiums from literally thousands of clients, using them to pay for the cost of the relatively few
catastrophes that will inevitably occur. The insurance industry is able to cover this shortfall with the interest it earns on the premiums it
collects. Insurance premiums are set before the