This week Alex Walker sat down with Keldon Bester, Executive Director of the Canadian Anti-Monopoly Project (CAMP), to chat about the concentrated power of Canada's banking sector and its implications for climate action. Keldon, who brings experience as a former Special Advisor at Canada's Competition Bureau and fellow at several prestigious institutions, discusses how Canada's highly concentrated banking system differs from more competitive markets, the historical regulatory approaches that have shaped today's landscape, and whether increased competition might drive greener financial practices.
Our key takeaways:
Banks love regulation
Canada has a tendency to slowly pull back on regulations
There is a perceived trade of in Canada between competition and stability in the banking sector
There is an understanding that banks have a close relationship with regulators
To learn more about CAMP you can subscribe to their newsletter here.
Note: This transcription differs slightly from the spoken word in the video and the closed captions as it has been edited to remove vocal ticks and fillers.
Alex 0:00
Hello folks. We're very excited to launch the first video interview of our Climate Cents newsletter. This is a way for us to sit down with experts and bring you some more in depth insight into some of the topics that we discuss in the newsletter. Today's conversation is a follow up from last week's long read about how Canada's banks work together and what this means for climate action. My name is Alex, and I'm the Climate Finance Program Manager at Environmental Defence Canada, and I am also the author of the Climate Cents newsletter. Joining us today, we have Keldon Bester. Keldon is the Executive Director of the Canadian Anti- Monopoly Project (CAMP), which is a think tank dedicated to addressing the harms of monopolies and building a more democratic economy, which we totally agree with here as well. He's worked as a Special Advisor at Canada's Competition Bureau, as a fellow at the Open Markets Institute, and also as a consultant, and he's also a fellow at the Centre for International Governance innovation. So a huge, huge CV there.
We first crossed paths with Keldon when we joined forces in 2022 campaigning to stop the HSBC/ RBC merger. Thank you so much for joining us today. We have a series of questions about competition and regulation in Canada's banking sector, and we're hoping to gain some insights from your experience that we can apply to climate-aligned financial regulation, which is obviously our jam if you've been reading our newsletter. Keldon, can you start by giving us a quick summary of the work you do with the Canadian Anti-monopoly Project.
Keldon 1:24
The Canadian anti monopoly project, or CAMP, as you said, is a think tank focused on the issue of monopoly and concentrated corporate power, and how that changes our society in our perspective, for the worse. And what are the things that policy makers and average Canadians can do to have a more free, fair, democratic, diverse and decentralized economy. So we've been around since about 2022 working on a range of things in partnership with you guys as well in the past, which was a lot of fun at the time, but really looking at different parts of the economy, where private power is concentrated. What is the cost to Canadians of that, and what can we do about it?
Alex 2:05
That's awesome. Thanks so much. So the first question writ large is, how does the power of Canada's big banks compare to other countries with more competitive banking sectors and what does that mean for Canadians?
Keldon 2:17
Canada's banking sector is similar and unique to global counterparts. It's not uncommon for a banking sector to have a handful of very large institutions. The US is really an outlier, with thousands of banks, but even on that scale, Canada's banking system is quite concentrated. The top five organizations control about 90% of the asset and deposit game. And the other thing that really stands out, even though other countries may have more concentrated banking sectors, is Canada's banking sector is very profitable, one of the most profitable in the world. And the most profitable part of the business is the day to day banking system that you or I or small businesses interact with for our saving and borrowing. Canada's financial sector is quite concentrated, but not only is it concentrated, it also displays some of those things, like very high profit margins that we expect to see from concentrated industries. So relative to other countries, Canada's banking sector holds a lot more power more closely
Alex 3:30
That makes a lot of sense. I'm from the UK, and I was pretty shocked when I came here, how different the banking sector is and how expensive it is to have a bank account, given that they're looking after your money. That really resonates. It was definitely a bit of a culture shock. So historically speaking, what are some key examples of how government intervention in the banking sector has worked to protect consumers or promote fairness? What examples has the government had to implement?
Keldon 3:57
One of the long standing examples is this widely held requirement, and this is one of the things why Donald Trump has been upset with Canadians, although he may not understand this is why. Canada has a system where an individual bank cannot be held by one organization or one entity. At the core, we have this idea that banks should be held widely among Canadians. But that hasn't really transpired into wide and diverse markets themselves, even though the ownership of them may not be concentrated.
When I think of moments where the Canadian government actually stepped in to protect competition, there's no better example than Paul Martin as Finance Minister, intervening to stop the merger of basically four out of the five big banks in the 90s. I think that the importance of that moment can't be understated. But the flip side is that it would have been a pretty apocalyptic event from a competition perspective, leaving Canadians with really three big options for banking. If you thought five couldn't really get worse.
I think about these things in terms of the defensive side. We have the Financial Consumer Authority of Canada (FCAC), a consumer protection authority. But in our study and work we have some belief that our agency really isn't doing as much as it could be to protect Canadians. We think about in terms of defensive moves and maintaining even a little bit of competition. We have that big bang moment in the 90s, as well as the role of these new consumer protection agencies are steps in the right direction, but it largely has been a bit of a steady decline in terms of competitive intensity. With RBC-HSBC, we've seen firms exit the market and be acquired by existing players, either RBC in the case of HSBC, or Tangerine going to Scotia Bank, what used to be ING Bank. It's getting a little stale now, but it really is hard to beat the monumental nature of that decision not to allow the big banks to buy up one another.
Alex 6:18
That's a great example, and we touched on it in the newsletter as well. I had no idea that was a proposal back in the day. I'm sure a lot of our readers and watchers aren't aware of that either, if they were born after that period. It's absolutely interesting. One thing that many people don't know is that Scotiabank owns Tangerine and CIBC owns the other consumer one (Simplii). So even when you think there is more competition, it's actually the big banks having these subsidiaries.
So my next question is: have past regulations effectively curtailed this monopoly, or have the banks found ways to get around them or maintain dominance? Do the banks respect the regulations, or do they weasel around a bit?
Keldon 7:02
Banks love regulations and rules. I think there are different sources of regulation in the banking sector. Obviously, we've got prudential regulation, consumer financial protection, transparency requirements, and various other elements. And then we've got competition law, which looks at the entire economy. These things fit together in different ways. The story on competition policy, which is what I focus on, has been a bit of a mixed bag. For the past 40 or so years, we really took the foot off the gas in terms of stopping mergers and acquisitions. Again, in the 90s, that was Paul Martin. It wasn't the Competition Bureau, our competition cop, who ultimately stopped the merger. The general tenor was, well, stop a merger maybe. But in general, we're going to allow this to continue towards consolidation, and we're really not going to go after conduct.
The exception to this is there's a long history—and I believe you included this in your newsletter as well—of the Competition Bureau and Interac, the payments company that is jointly owned by the big banks. The Competition Bureau correctly, and I think this starts in the 90s if my memory serves me, has been very skeptical of the structure of a payment system that should be available to all players but is the purview of the major banks. Starting in the 90s, there was actually a very strong pushback against the idea that this should be a for-profit entity owned by the banks, and they forced pretty material changes.
But like any good Canadian regulatory story over the years, that was walked back. If you talk to folks who are trying to break into the payment system today—this was an issue at the finance committee just a couple of months ago when we had a parliament—Interac still poses an issue to players that are trying to get into the space and has tilted the playing field towards the big banks. I think the story there is one where we have the right instinct, or at least we had the right instinct on occasion, but our default position needs to be much more skeptical of the control of this kind of financial infrastructure.
Alex 9:29
Absolutely. That leads me smoothly onto the next question: what challenges does the government face in trying to bring in these regulations? Are there systemic barriers within the Competition Bureau or within some of the legislation? Why is it so hard for the government to address this for Canadians?
Keldon 9:45
The biggest barrier to regulating the banks in a pro-competition way is the fact that banks represent a very powerful force in our economy and have had a very tight relationship with regulators for decades.
Well I think we've got a very interesting relationship with our banking sector. After 2008, rightly or wrongly, there was a sense that we had the regulatory mix correct and that we were insulated from a lot of the fallout with the financial crisis. A side effect of that has been a bit of this deal that says, if we're going to maintain stability, what are we trading off? I don't think Canadians were really asked or not whether they signed up for this. As you know, coming from the UK, you understand a different way is possible while still achieving the same regulatory outcomes.
The biggest barrier to regulating the banks in a pro-competition way is the fact that banks represent a very powerful force in our economy and have had a very tight relationship with regulators for decades. There is that worry in the back of regulators' minds: are we trading something off in exchange for this competition? We would argue no, there actually isn't a tension between competition and stability.
Frankly, some of that stability has led to conduct like we've seen in the US with TD Bank's money laundering issues. Scale and size do not necessarily translate into appropriate conduct, whether it's the treatment of customers or in terms of anti-money laundering. How many high pressure sales stories have there been over the years regarding the banks?
The biggest barrier is this understanding that big strong banks make for a strong country. I think we're going to have that thesis tested, and the tendency will be to retreat to that, especially with Trump and tariffs and all this uncertainty. But this is something we really need to push on. We need to push on this narrative if we want to get a better deal for Canadians.
Alex 11:44
I'm going to go a little bit off-piste on the questions here, just to get some more thoughts on that. What do you see that looking like? Do you think there's some hope, given our unstable economic moment right now? Do you think we could move towards a place where we're able to question that big stable banks equals stability. Do you think we can question that?
Keldon 12:03
To be honest, I think today it is not the top priority of Canadians. Any effort to change how our banking system works will likely come after the giant red flashing light in our face is dealt with. When you survey Canadians about different sectors, they generally want more competition. But banking is one where they say more competition would be nice, but the enthusiasm is not the same, despite the cost often being a very hidden cost that doesn't show up every month on a bill. Your telecom bill sort of hits you in the face on the 30th. I remain optimistic, but I think we need to solve for things that are in our face right now, and folks like CAMP need to continue to make the case. Why should we want this? What's the benefit? Because I think the benefits are quite large.
We can think about fees and the rates I pay on products which are important, but also the variety of services and access to finance for people who work trades, people who are self-employed. Just a week or two ago, there was an article about BMO tightening their lending standards for industries affected by tariffs. On one hand, BMO is trying to create an appropriately risked portfolio, but on the other hand, Canadians whose jobs are at risk are now going to have fewer doors to knock on when they need access to credit. If we had a diverse banking sector, we could have institutions that meet the needs of people who don't necessarily earn a salary or who have uneven incomes, but because we have a one size fits all banking sector, that's a real problem.
Alex 13:58
That's a really interesting point. I'll find the article and link it below this video when we share it. Just to add some context to your point about Canadians not necessarily imagining how banking could be better: my UK bank account has no fees. I get about 4% interest on all the money I have in it. I have in-app access to different stocks and shares options. I can use it anywhere in the world, and my bank doesn't charge fees to convert between currencies. That's a normal model in the UK. It's very different from here.
Keldon 14:28
And that becomes table stakes, and this is a great point about monopoly, especially the local nature of it. If you don't know any better, if I've never left Canada, I would think that $13 for a checking account, unless I have $5,000 in it, is just natural. That's just how it is. But these market relations are not organic. They are set by the terms of who's in the market, who's aggressive, who's not aggressive. Do companies have an understanding that we just don't do that? It's just not the way we do because who wants to give up checking fee revenue?
So it's important for people to come into Canada and for Canadians to go outside and see that actually, other countries do it much better. There's really no reason that we shouldn't have the exact same thing.
Alex 15:27
Let’s bring it to climate change because we work a lot in climate finance. Some think that more competition in the banking sector would encourage greener financial practices. If one bank were to step forward, would it encourage the other banks to do so? Do you think that some more competition would encourage a greener financial system in Canada, or do you think they're pretty set in their ways?
Keldon 15:48
It's always a safe bet that banks are set in their ways. That's just their deal.
It's always a safe bet that banks are set in their ways. That's just their deal. But I think this is a great example of the core nature of competition. The idea is that a consumer, user, or client has desires or preferences, and a competitive market is there to meet them. There is a group of Canadians who, in a number of areas of their commercial life, want their values reflected in the products and investments they make and where their money goes. A more competitive market would mean that you could have a bank differentiate itself loudly and legitimately. We can talk about greenwashing as well, but a bank could say, "We've aligned our business practices with good environmental stewardship." And Canadians can choose whether or not to buy into it.
The real question is, and this comes up often in the context of privacy and non-price factors, you ultimately have to let consumers price how much they value something like an environmentally sound bank or privacy-respecting software. You can't sit outside and say, "Why isn't anybody coming to my bank?" It has to be part of a bigger package that convinces people to move in a different way, related to the same process as advertising a 5% savings account.
So do I believe that a more competitive banking sector could better align with environmental goals? At some level, yes, but the caveat I would put on that is that how customers think about their banking relationships is probably more multifaceted, and that might just be one piece of the puzzle.
Alex 17:52
It was an interesting point when you mentioned greenwashing there. I think that's a significant problem in the banking sector. I know there have been a number of complaints to various provincial competition bureaus [meaning Securities Commissions], about how the banks use greenwashing as a means to attract customers. Do you have any kind of experience on looking into those kinds of green washing issues in your work?
Keldon 18:12
As much as possible, we want an economy where you can trust your own eyes and not have to engage in a PhD development economics course to understand whether something is truly green or truly beneficial.
First off, just a correction, we only have one Competition Bureau, although I would love for there to be provincial ones as well. I think that's a great idea. Greenwashing is not a big area of focus for us, but it is a dimension of fair competition. As much as possible, we want an economy where you can trust your own eyes and not have to engage in a PhD development economics course to understand whether something is truly green or truly beneficial. We really need to reward the kind of competition that is on the merits. Whatever those merits would be, if a firm is making environmental claims, I think we benefit from taking a rather strict approach to that, so that companies can make a decision whether to actually commit to this kind of activity, or to say that's not part of our business, and choose accordingly.
Right now, I think we find ourselves in a bit of a middle ground where there's a lot of great marketing that responds to consumer preferences for environmentally friendly goods, but we aren't really willing to do the work to actually meet those claims. The outcome of those greenwashing cases remains to be seen. The law has been strengthened, which I think is a positive, but the big cases have yet to hit the courts.
Alex 19:37
I think that's a great point to end on: the gap between the marketing and the reality of how our banks act. So thank you so much for your thoughts today. I'm sure everyone is going to really appreciate having some more insight on the competition in Canada and how that relates to consumers and climate.
Thank you for reading/ watching!
Have thoughts about today’s issue? Questions you’d like answered in future editions? We’d love to hear from you - drop us a comment below and let’s continue the conversation!
See you next week for Climate Cents #4!
