Hours after imposing strong tariffs on Canada, the President Donald Trump He raised an issue that even American lenders, whose cause defends, considers disconcerting: access, or lack of access, from US banks to the Canadian market.
On Tuesday, Trump wrote in a publication in Truth Social: “Canada does not allow US banks to do business in Canada, but their banks flood the US market.” And he added sarcastically: “Ah, it seems fair to me, isn’t it?
Although this issue does not usually come to light in conversations with outstanding US banking executives, it seems that the president is increasingly present.
Trump mentioned the banking issue of Canada at the beginning of last month as part of a broader criticism against what he considers an unequal economic balance between the United States and his northern neighbor. Trump wrote in Truth Social that Canada “does not even allow US banks to open or do business.”
Here is the real situation of US banks in Canada:
Can US banks operate in Canada?
The Canadian banking sector is dominated by the “six greats”, the half dozen institutions that include the Royal Bank of Canada and the TD Bank. They can receive deposits, grant mortgages and advise corporate clients: all the basic activities of the banks. And Canadian clients continue to disproportionately prefer their banking operations in person, instead of online, which means that an important physical presence would be necessary for any operator to try to enter the market.
In addition, US banks have restrictions on what they can do in Canada.
Foreign banks, including Americans, must work with a Canadian intermediary, establish a Canadian subsidiary or receive a special government permit to do business. Retail branches cannot operate that receive deposits of less than about $ 100,000, unless they accept to follow the strict Canadian banking standards, which include keeping at all times a large sum of cash -equivalent assets.
Given how dominant Canadian national banks, any international bank to compete faces “an additional regulatory charge, so it would initially be a small award,” said James R. Thompson, associate professor of finance at the University of Waterloo.
The result is that US banks have minimal operations in Canada. The largest American lender, JPMorgan Chase, says he has about 600 employees in Canada, of the more than 300,000 he has throughout the world. Many international banks are limited to areas that do not imply the granting of loans, such as offering advice on investments to Rico Canadians or local companies.
Thus, Trump is wrong to affirm that US banks cannot do any business in Canada, but it is true that they are limited in their activities.
Why is Canada so restrictive?
While in the United States there are more than 4000 banks, in Canada there are only a few tens, and more than three quarters of the deposits are in the hands of the large six.
For decades, Canadian political leaders have boasted of that restrictive financial regulation model. They argue that avoiding the entry of foreigners into the country’s mortgage market helped him greatly avoid the collapse of 2008 south of his border.
In the light of Trump’s criticism, Maggie Cheung, spokeswoman for the Association of Canadian bankers, hastened to point out on Tuesday that foreign banks were an essential part of the banking landscape. He said that 16 American banks operated to some extent in Canada, with an accumulated total of almost 79,000 million dollars in assets, a statistic that the country’s prime minister, Justin Trudeau, also cited Tuesday.
“American banks are alive and well and thrive in Canada,” said Trudeau.
But in relative terms, their successes are small. The assets of US banks represent between 1 and 2 percent of the 6.5 billion dollars possessing banks operating in Canada in general.
“The main impediment that American banks face,” said Laurence Booth, a professor of finance at the University of Toronto, “it is simply that they cannot compete with Canadian banks, since they do not have the scale, and at the same time they cannot absorb any of them, since there are restrictions on foreign property.”
Does Canadian banks ‘flood’ United States?
International banks – including Canadians – have great freedom to establish branches in the United States. The United States is a more attractive objective for international banks than Canada, both because it is a nerve center of world finances and because its market allows more exotic credit activities and of greater gain, such as 30 -year -old mortgages. (The most common mortgage in Canada has a period of five years).
The largest Canadian bank in the United States, TD Bank, has more than 1000 branches in the country through a subsidiary in Delaware. That size is at the height of well -known regional lenders such as Citizens and Fifth Third.
The Association of Canadian bankers said that the six largest Canadian lenders had less than 3.5 percent of US bank assets.
Is this even a problem for Wall Street?
The great American banks had many hopes that Trump reduced the regulations, fuses and cut taxes. Expanding his presence in Canada was not on the list.
A commercial group of the American banking sector, the Bank Policy Institute, said Tuesday that he had not made statements about it. And, for the moment, no bank executive director has made the call.
For the world banking sector, Trump’s tariffs are more pressing, which have contributed to the actions of the sector deciding 8 percent during the last month, according to the KBW Nasdaq banking index.
Rob Copeland is a financial journalist who writes about Wall Street and the bank industry. More from Rob Copeland