Good morning. I’m Stefanie Marotta, the banking and financial regulation Reporter at The Globe. Earlier this month, a wild event happened on my beat. The President of the United States called out Canada’s banking sector for being a clique. Mean Girls “you can’t sit with us” level cliquey.
I dug into what Donald Trump’s comments could mean for looming trade negotiations with Canada, and how that could trigger a shakeup in the country’s banking system. More on that, but first:
In the news
The Business Development Bank of Canada is recapitalizing its in-house growth equity investment program, citing the need to help entrepreneurs access capital.
Canadian institutional investors increased their support for climate-related shareholder proposals in 2024, with a dozen supporting every measure put to them in shareholder proxy voting.
Good for creditors, bad for debtors: Not enough Canadians are filing for bankruptcy, new research argues.
On our radar
- We’re tracking the fallout of a plane crash yesterday in Toronto. Delta Air Lines flight 4819 was on its way from Minneapolis when it crashed at Pearson International airport, injuring some passengers on board.
- Statistics Canada reports January’s Consumer Price Index. The federal government’s tax holiday might distort the data until March, RBC says.
Bank towers are shown in the financial district in Toronto.Andrew Lahodynskyj/The Canadian Press
In focus
Back to The Street
The President said that U.S. banks are not allowed to operate in Canada. “Can you believe that?” he told reporters, referring to his phone call with Prime Minister Justin Trudeau.
You definitely should not believe it. His comment was incorrect.
U.S. banks can and do have businesses in this country, albeit on a much smaller scale than their Canadian counterparts. But Trump was inadvertently poking at a broader issue about the difficulties for foreign banks to enter and compete in Canada’s insulated banking market. That results in fewer choices for Canadians.
Catching up
I started my career as a bank teller in the final months of the great financial crisis. That launched an eight-year era working at one of Canada’s biggest banks before I pivoted into financial journalism.
In more than 15 years, I have never seen Canada’s typically “sleepy” banking industry produce the avalanche of news that it has in the past few years. But the U.S. President waging a war against Canada’s banking market was not on my 2025 bingo card.
He’s been dropping hints for weeks. Then on Feb. 3, he brought it up during a critical conversation with Mr. Trudeau about potential tariffs that could launch a trade war and cripple the economies of both countries. That’s a big deal.
Trudeau also mentioned this during an economic summit with 200 business leaders, trade experts and union executives in Toronto earlier this month. In a scoop from myself and senior parliamentary reporter Steven Chase, sources told us that Trump’s banking comments were part of a four-page memo, which included several grievances.
Whoever crafted this memo for the President has drawn a target around Canada’s financial system.
As Ottawa heads into negotiations for a new trade deal, Trump’s call to reduce barriers to entry in banking could be the first salvo in a more sustained attack.
The big six
Canada’s financial service’s industry is dominated by six big banks: Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, and National Bank of Canada.
The bar for entry into the banking game is incredibly high, and there’s good reason for that.
You could argue that the country’s highly concentrated banking market and extensive regulatory requirements insulated Canada’s lenders from the devastation of the great financial crisis in 2008. The same could be said for the failures of California-based Silicon Valley Bank and some regional banks in 2023.
In a nutshell, our handful of banks are so big and so diversified that the shrapnel of global financial crises just kind of bounces off them. In the U.S., where more than 4,000 banks operate, there are more opportunities for cracks to form.
Critics say that the banking system’s strength is also its weakness, and that allowing a select few to play the game hurts competition and innovation. There are decades of examples of foreign banks trying to enter the country’s retail banking industry, but ultimately bailing after spending a lot of money and failing to take market share from the Big Six.
Financial technology companies have also had to find creative ways to offer services outside of the traditional system, but it’s difficult to grow the business while restricted by high regulatory requirements.
A call for change
Trump is signalling that these barriers to entry could be a sticking point for him in coming trade negotiations. Could this be the force that finally pushes the federal government to consider easing up on Canada’s financial regulatory environment?
That’s not all the big banks have to worry about when it comes to the trade war. While tariffs won’t hit the banks directly, they will harm the commercial and corporate clients that borrow money from the lenders. That will suppress business activity, and could mean that clients won’t be able to pay off their loans.
A few Canadian bank CEOs have spoken out about the approach Ottawa should take. In January, I spoke with CIBC chief executive officer Victor Dodig, who suggested that the federal government appoint a “border czar,” as well as offer financial support for businesses caught in the crosshairs of a trade war.
In an interview with National Bank CEO Laurent Ferreira, he told me that Canada should relax regulatory and tax burdens, and implement its own reforms aimed at protecting the Canadian economy.
The big bank CEOs are some of the most influential voices on Bay Street. When they speak, people listen. But Trump’s trade negotiation tactics may be a force big enough that they and the Finance Minister can’t ignore.
Up next
- Canada’s six biggest banks report first-quarter earnings in the last week of February. Analysts will likely have questions for C-suite executives on trade issues. I’ll be covering those conversations, so check back in with us then.
- RBC is holding a conference in the first week of March where the most senior executives from the banks will discuss the biggest challenges and opportunities facing their institutions. With so many external forces at play, these discussions could give us a window into how the banks are navigating global issues.
Charted
Canadians cut back on trips to the U.S.
Canadians might still be upset by Trump’s continuing tariff threats and attacks on Canadian sovereignty.
According to Statistics Canada, the number of Canadian residents returning from trips to the U.S. by vehicle declined on an annual basis for the first time since the pandemic. A poll released this week by Leger Marketing found 48 per cent of Canadian travellers said they are less likely to visit the U.S. in 2025.
But it’s probably more than just patriotic sentiments, the Canadian dollar was below 70 US cents for all of January as well.
Bookmarked
On our reading list
Chill out: Despite a burnout crisis, Canadians are reluctant to rest. A new movement wants us to hit pause.
Missed out: How the GST tax break missed the mark for businesses.
Called out: Are commercial landlords paying their fair share? Kerry Gold writes.
Morning update
Global markets struggled for direction as European stocks pulled back from record highs while Hong Kong shares were on the verge of three-year highs as investors cheered the business leaders’ meeting with President Xi Jinping. Wall Street futures and TSX futures pointed higher after North American markets were closed yesterday for holidays.
Overseas, the pan-European STOXX 600 was up 0.16 per cent in morning trading. Britain’s FTSE 100 rose 0.06 per cent, Germany’s DAX was flat and France’s CAC 40 was little changed.
In Asia, Japan’s Nikkei closed 0.25 per cent higher, while Hong Kong’s Hang Seng advanced 1.59 per cent.
The Canadian dollar traded at 70.42 U.S. cents.