Chapter 15 – The Financial Services Industry in Canada
The financial services industry in Canada
Every day across the country, consumers, businesses and governments depend on the
products provided by financial institutions.
The environment in the financial services industry is supported by features provided by
the Financial Consumer Agency of Canada, including:
Model credit card application form
Cost of banking guide
Ten tips you need to know before signing any contract
The financial services sector plays an important role in the Canadian economy:
It employs more than 600,000 Canadians
It provides a yearly payroll of more than $35 billion
It represents 6 percent of Canada’s GDP, exceeded only by the manufacturing sector
It yields more than $13 billion in tax revenue to all levels of government
It’s widely recognized as one of the safest and healthiest in the world
Until the 1980s, the financial services industry in Canada was termed a “four-pillar system.”
These were: banks, trust companies, insurance companies and securities dealers.
Regulation was designed to foster competition within each pillar, but not among them.
Changes in regulations have eliminated many of the old barriers that prohibited financial
institutions from competing against each other, and today is difficult to distinguish firms by
type of function.
Participants in the financial services industry
Canada’s financial services industry consists of traditional banks (also called commercial
banks), credit unions, caisses populaires, and trust companies.
Credit unions: non-profit, member-owned financial co-operatives that offer a full variety
of banking services to their members.
Caisses populaires are a form of credit unions, located predominantly in Quebec.
Trust company: a financial institution that can administer estates, pension plans, and
agency contracts, in addition to other activities conducted by banks.
Non-banks: financial organizations that accept no deposits but offer many services
provided by regular banks.
Pension funds: Amounts of money put aside by corporations, non-profit organizations, or
unions to cover part of the financial needs of their members when they retire.
Life insurance companies provide financial protection for policyholders, who periodically
pay premiums.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. Interest rates are normally higher.
How the financial services industry is regulated
The financial industry is one of the most regulated sectors in the country.
Regulation is a responsibility shared among different organizations and levels of
For institutions under federal responsibility, the Department of Finance is charged with
overseeing what they can and cannot do. The DOF relies on three federal agencies to
supervise the ongoing operations of these institutions and their compliance with
The Office of the Superintendent of Financial Institutions monitors the day-to-day
operations of institutions with respect to their financial soundness.
Overseeing the deposit insurance system is the Canada Deposit Insurance
Corporation, which protects deposits that Canadians have in their federal financial
The Financial Consumer Agency of Canada monitors financial institutions to ensure
that they comply with federal consumer protection measures, which range from
disclosure requirements to complaint-handling procedures.
Institutions under provincial jurisdiction, the province(s) in which a company is
incorporated or registered is (are) responsible for regulating the company’s overall
powers. As at the federal level, provinces are supported by agencies and organizations that
supervise the ongoing operations of these institutions.
The Canada deposit insurance corporation
CDIC if a federal Crown corporation that was created in 1967 to provide deposit insurance
and contriute to the stability of Canada’s financial system. It guarantees deposits up to
$100,000 in each member institution and is funded primarily by premiums paid by banks
and trust companies that belong to this program.
CDIC does not cover foreign currency accounts, term deposits with a maturity date of
greater than 5 years, and investment in mortgages, stock and mutual funds.
Why money is important
Economic growth and the creation of jobs depend on money.
Each day more than $1.5 trillion is exchanged in the world’s currency markets.
What is money?
Money: anything that people generally accept as payment for goods and services.
Cowrie shells were one of the world’s most abundant currencies.
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:
Portability – coins are a lot easier to take to market than pigs or other heavy
Divisibility – different-sized coins could be made to represent different values.
Stability – when everybody agrees on the value of coins, the value of money is
Durability – Coins last for thousands of years, even when they’ve sunk to the bottom
of the ocean.
Uniqueness – It’s hard to counterfeit, or copy, elaborately designed and minted coins.
Russian money is so unstable (rubles), that other countries won’t accept it.
Electronic cash (e-cash) is the latest form of money.
What is the money supply?
Money supply: the amount of money the Bank of Canada makes available for people to buy
goods and services.
The money supply can be measured in a number of different ways. Some are called
M1 represents money that can be accessed quickly and easily. M2, M2+ and M2++ are even
broader measures of the money supply.
Why does the money supply need to be controlled?
When too much money is printed, prices go up, called inflation.
When too much money is taken out of the economy, prices go down, called deflation. If too
much money is taken out of the economy, a recession may occur.
The money supply needs to be controlled because doing so allows us to manage the prices
of goods and services somewhat. Controlling the money supply affects employment and
economic growth and decline.
The global exchange of money
A falling dollar value means that the amount of goods and services you can buy with a
dollar decreases. A rising dollar value means that the amount of goods and services you
can buy with a dollar goes up.
What makes the dollar weak or strong is the position of the Canadian economy, relative to
Control of the money supply
Inflation control target range is 1-3 percent.
Prime rate: the interest rate that banks charge their most creditworthy customers.The banking industry
Following legislative changes in 1992, banks were allowed to own insurance, trust and