Bank Mergers in North America: Comparing the Approaches in the United States and Canada

This Article provides a summary comparison of the processes in the United States and Canada for governmental approval of bank mergers. The topic came to prominence in 1998 when four of Canada's five largest banks unveiled plans that would have resulted in the Royal Bank of Canada merging with the Bank of Montreal and the Toronto Dominion Bank combining with the Canadian Imperial Bank of Commerce ("CIBC"). These proposed mergers were rejected by the then Finance Minister, Paul Martin. The reasons given included: (1) the resulting banking industry structure would have concentrated too much economic power in the hands of too few financial institutions; (2) the combinations would have reduced competition in the Canadian financial services sector; and (3) the reduction in the number of banks would have reduced the Canadian government's flexibility to address future concerns.\nAlthough the government rejected the 1998 mergers, the Finance Department in 1999 acknowledged that business combinations could be an appropriate business strategy in some circumstances. The government promised guidance as to when such combinations of large banks would be permitted. In 2001, the Department of Finance set forth its broad outlines for bank merger policy. One of the obvious differences with U.S. law is that the Canadian approach explicitly provides that the views of the public and political leaders are to be incorporated into the merger approval process. Since the issuance of the bank merger policy, the government has promised specific guidance about what types of combinations will be permitted, but it has yet to complete that policy document.\nThis Article provides a comparison, in summary form, of the U.S. and Canadian approaches to the approval of bank mergers. It starts with a brief explanation of U.S. bank merger law and then lays out the evolving Canadian approach to large bank mergers. It concludes with a discussion of whether the Canadian approach will help the regulators of Canadian financial institutions address the deficiencies identified in the 1998 transactions.

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