Banking on Competition

October 2003

Doug Bruce, Director of Research


In recent years, there have been several failed merger attempts by the major chartered banks. There is also the disturbing trend of bank branch consolidation throughout the country. In terms of public policy, the federal government has focused on developing merger review guidelines and is starting to examine issue of allowing cross-pillar mergers (e.g., a merger between major banks and insurance companies). CFIB has, and continues, to follow closely such major
developments in the evolution of the financial sector—particularly as they relate to the small and medium-size enterprise (SME) segment of the economy. CFIB is not against change. In fact, a key trait among CFIB members is their ability to be flexible and innovative in reacting to change. However, CFIB is against any change that reduces access to business banking services and credit financing for small business.

A strong small and medium-sized enterprise (SME) sector is the key to a successful, prosperous economy. Estimates based on Statistics Canada data indicate that Canada’s SME sector accounts for close to half (45 per cent) of the gross domestic product (GDP)—a clear indication that all segments of the economy and society are affected in one way or another by small business. Despite the constantly changing business environment, the focus of Canada’s entrepreneurs has never wavered: to take the initiative of starting and growing their own businesses and make a solid contribution to their communities in the form of jobs and economic growth.

The achievement of small businesses goals, whether they are short or long term, is highly dependent on the services provided by their bank. In addition to requiring a source of financing for growth and expansion, small businesses also need a conveniently-located bank branch for various daily services. Cash and coin, account and deposit services, payroll processing, credit/debit cards, pension and savings, and various personal banking services are some examples from a long list of essential banking services. At a time when the client base is asking for full-service relationships, the banking sector appears to be turning their backs on this essential banking need.

An important element of CFIB’s work is to provide information how good or bad a job the banks are doing in serving the banking needs of small businesses. The survey findings also inform individual banks and other institutions as to how they are serving the small business market. The overall intent is to establish an information and knowledge base that can be used by business owners, bankers and government policymakers to improve the banking industry’s ability to better serve the needs of business clients. This may mean more vigorous competition for the small business market; business owners shopping around for improved banking services or demanding improved service from their current bank; and the development of public policy that supports a competitive banking industry.

Canada’s SME sector is strong. Canada’s entrepreneurs are confident. Canada’s future is bright—but only if efforts are made to improve continuously the domestic market for small business banking services. CFIB believes the banks and other key players in the banking sector need to be continuously challenged on their performance for any improvements to be accomplished. Enhancing competition in the domestic banking market is more challenging today
than it was in the recent past. Recent acquisitions and consolidations within the banking sector, as well as the trend towards fewer full-service bank branches, make additional competition in the banking industry more of a distant goal.

The CFIB Banking Survey was conducted between April 1 and May 26, 2003. A total of 9,565 owners of independently-owned and operated businesses participated in the survey. The survey data is representative of all regions and industry sectors throughout Canada. Overall results are accurate to within ±1.0 percentage points, 19 times out of 20. The margin of error is larger within provinces, industry sectors and other sub- groupings of the survey data.