A Tale of Two Banking Sectors: Comparing Canada and the U.S. (2024)

FAQs

A Tale of Two Banking Sectors: Comparing Canada and the U.S.? ›

Canada's banking system tends to promote safety and soundness, while the American system keys in on privacy, anti-money laundering, banking access, and consumer protection measures. The Canadian market is worth C$142 billion (US$111 billion) per year, while the U.S. market is over 10x bigger at US$1.4 trillion.

In the U.S., banking is regulated at both the federal and state level. In Canada, banking is regulated at the federal and provincial level. Both scenarios have resulted in a patchwork of standards. And in Canada, provinces like Quebec guard their jurisdictions carefully.

Canada regulates its banks very strictly and doesn't let many players enter the market. As a result, Canadian banks tend to be safer than U.S. banks. In this article, I will explore two Canadian bank stocks that are relatively safe compared to their U.S. cousins.

Canada has one of the most accessible banking systems in the world – more than 99 per cent of Canadian adults have an account with a financial institution. Number of banks offering financial products and services to Canadian consumers, including bank accounts, credit cards, loans and investments: 40.

The two principal types of banks are central banks and commercial banks, or chartered banks as the latter are called in Canada.

A formal difference between the Federal Reserve and the Bank of Canada is the Fed's “dual mandate” to promote the goals of maximum employment and stable prices. This is in contrast to the Bank of Canada's monetary policy framework: a target of 2 per cent inflation.

Canadian banks have a healthy, stable and increasing deposit base and they have access to a strong and dynamic labour market, which gives them good access to these resources. The banks are also well capitalized and generally have no difficulties in increasing their capital through the markets.

“They all benefit from having a nice base of fee-paying depositors, which allows them to be extremely profitable businesses.” Collectively, the Big Six banks hold 90 percent of Canada's deposits, providing them with a steady stream of relatively low-cost money to lend out or invest.

Switzerland is a notorious worldwide standard for financial safe-havens. Switzerland and banking are almost synonymous with anyone around the world. This highly developed, multilingual European country has become the global standard for financial stability throughout several generations.

How safe is the Canadian banking system? ›

Canadian banks are well insured

When you deposit your money in a Canadian bank, you can rest assured that it'll be there when you go to take it out. That's because the Canada Deposit Insurance Corporation (CDIC) will insure up to $100,000 per account, per institution.

The Bank of Canada is the country's sole authority for issuing bank notes and is responsible for the design, production and distribution of Canada's bank notes.

Big Five is the name colloquially given to the five largest banks that dominate the banking industry of Canada: Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC), and Toronto-Dominion Bank (TD).

The United States has a dual banking system, with national banks regulated on the federal level and state banks regulated by each state. There is some overlap between the two systems, with certain state banks subject to regulation on both levels.

The Canadian Deposit Insurance Corporation (CDIC) is an independent crown corporation established by the Canadian federal government. The CDIC was created by Parliament in 1967 to insure bank deposits of up to $100,000 per insured category as long as they are held in member Canadian banks.

The Canadian Banking Structure

Canada has 88 banks in total, and 5,907 bank branches across the country. These are divided into two main categories. There are five national banks, which are commonly referred to as Canada's “Big Five”.

Historically, one feature that characterized the U.S. banking industry was that banking institutions were chartered, supervised, and regulated at both the state and federal level. A key characteristic of the U.S. banking industry also was the very large number of very small banks.

Does Canada follow U.S. interest rates? ›

Bank of Canada won't follow U.S. Fed on rates despite inflation risks: official.

The Fed 's level of independence is similar to that of the Bank of Canada. However, the two banks have very different mandates and structures. The biggest differences are the Fed's “dual mandate,” its power to set monetary policy and its appointment process. Most central banks have a single mandate: price stability.

Canada is at a comparative advantage if it can produce a good more efficiently than other markets. The theory of comparative advantage suggests that a country would benefit most from international trade by exporting goods where it has an advantage and importing the rest.

Canada is shown to have comparative advantage in a range of food and live animal for food, crude materials and mineral fuels. Canada has comparative disadvantage in manufactured goods. The patterns of Canada's revealed comparative advantage has remained fairly stable with a few exceptions.

In March 2013, the Office of the Superintendent of Financial Institutions announced that Canada's six largest banks, the Bank of Montreal, the Bank of Nova Scotia, the Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank, were too big to fail.

Retail and commercial deposits and wholesale funding represent the two major sources of funds for Canadian banks. Retail and commercial deposits from individuals and businesses are typically sourced through the bank's branch network.

The recent collapse of three banks, two American and one Swiss, has countries coming together, in an effort to balance teetering markets, and perceived global instability. Experts say with Canada's strict regulations and protection measures for bank customers, it is unlikely to happen here.

A tiny European country, Luxembourg is among the most reliable and highly developed financial centers in Europe. Its banking industry is secure and stable. Besides, it guarantees top asset protection. The banks of Luxembourg mostly offer profitable rates and tariffs to non-resident customers.

What is the safest bank in Canada? ›

Toronto-Dominion Bank (TSX:TD) is the “safest” Canadian bank going by capitalization. Today, it has a 16.2% common equity tier-one (CET1) ratio. The CET1 ratio is cash plus equity divided by all risk-weighted assets. It means that TD's high-quality, low-risk assets are high as a percentage of total assets.

Key Takeaways. The Bank of Canada creates new money through asset purchases of corporate and government bonds or securities. The Bank of Canada can influence monetary conditions by changing the capital requirements banks need to hold as reserves.

OSFI is an independent federal government agency that regulates and supervises banks, insurance companies and private pension plans in Canada to determine whether they are in good financial condition and meeting their regulatory and supervisory requirements.

A MODEL OF STABILITY

In Canada, the largest market share is held by six banks, along with the Desjardins Group. The five largest have sufficient assets to rank among the top 10 U.S. banks—which means there is little real risk that they will fail as a result of being dragged down by regional or smaller banks.

JPMorgan Chase

At the top of the list, JPMorgan Chase holds $3.2 trillion in assets. This makes it the largest bank in the country, and one of the largest in the world.

The Lifestory Research 2022 America's Most Trusted® Bank Study found Chase the most trusted bank. The America's Most Trusted® Study is a large-scale survey of consumers in the United States that seeks to identify the brands that people trust the most within their respective industries.

Most requested

Canada's currency is the Canadian dollar (CAD). It's available in 5, 10, 20, 50 and 100 dollar paper notes. Canadian coins circulate as: 5 cents (nickel)

At the heart of Canada's monetary policy framework is the inflation-control target, which is two per cent, the midpoint of a 1 to 3 per cent target range. First introduced in 1991, the target is set jointly by the Bank of Canada and the federal government and reviewed every five years.

The largest Canadian banks are known as the "Big Five," with the Royal Bank of Canada (RBC) being the largest. The top three is rounded out by Toronto Dominion (TD) and the Bank of Nova Scotia (Scotiabank) in second and third, respectively.

Is TD Bank in US and Canada the same? ›

U.S. Banking

TD Bank is TD Bank, N.A., a wholly-owned U.S. subsidiary of The Toronto-Dominion Bank. Member FDIC. Accounts issued by TD Bank, N.A. are not insured by Canada Deposit Insurance Corporation.

Americans can open a bank account in Canada, but if you don't open an account in person at a Canadian bank branch, things do get more complicated. You have a few different options: Several US banks have Canadian branches or a partnership with banks in Canada.

Bank of America NA of Toronto provides banking services. The Bank offers accounts, savings, credit cards, home loans, investments, financial, and other related services.

The banking industry in Canada is dominated by the five largest banks in the country: Toronto-Dominion Bank, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank of Commerce. These five banks make up Canada's “Big Five” in the banking industry.

Wells Fargo & Company provides financial services in Asia, Canada, and Latin America through its duly authorized and regulated subsidiaries.

Toronto-Dominion Bank has dethroned Royal Bank of Canada as the country's top brand, according to Brand Finance PLC's annual report on the most valuable and strongest Canadian brands.

RBC Royal Bank, known as RBC Bank in the US, is headquartered in Montreal, Quebec, and has the largest market capitalization of any bank in Canada at $172.2 billion.

How does banking work in Canada? ›

You'll need to open a Canadian bank account for your daily transactions. All accounts allow you to deposit and withdraw money, while some allow you to make purchases, transactions and bill payments, as well as write cheques. You can also have your pay deposited directly into your account.

Key Cross-Border Banking Benefits for Canadians

Pay bills, transfer and receive money with your U.s. bank account and routing number through Online Banking. If you have a U.S. cell number, you can use 3rd party apps to send and receive money from friends, family or businesses.

All of Canada uses the Canadian dollar, however certain retailers throughout the country will accept the US dollar as a form of payment for goods.

Canada is a multicultural nation. Multiculturalism is a definition of many different religious, customs, and cultural forces in their integration and coexistence, resulting in a unique Canadian cultural mosaic. With approximately 40% of the population of neither British nor French descent by the 1980s.

Border cooperation

Canada and the U.S. share a land border close to 9,000 km long, which is the longest border in the world. The two countries cooperate closely to manage the secure and efficient flow of goods and people across the border that is vital to both countries' economic competitiveness and prosperity.

Both are affluent industrialized economies, with similar standards of living and industrial structure. However, the two economies diverge in size, per capita income, productivity and net savings. Canada is the largest single-country trading partner of the United States.

That's because the Canada Deposit Insurance Corporation (CDIC) will insure up to $100,000 per account, per institution. The CDIC is a Crown corporation that provides insurance for bank deposits, and protects account holders in the event of a bank failure.

The list of best banks of 2022. DBS was named the World's Best Bank of 2022. It is a Singapore multinational bank founded in 1968. In 2021, it expanded its presence in China and Taiwan, and now it operates in 19 countries.

CIBC and its affiliates including CIBC Bank USA, US Commercial Real Estate and Real Estate Finance, and CIBC Private Wealth Management have offices strategically located across the United States to serve clients coast to coast.

All you have to do to keep it intact is to have the address on the account changed to a relative or friend's address in America and have your statements sent to you online.

Can an American use a Canadian bank? ›

Can an American citizen open a bank account in Canada? Yes. If you're not a Canadian citizen or not residing in Canada, it is possible to open a bank account provided that you can present the required documents for identification which will be discussed shortly.

Although the USD/CAD currency pair has reached parity at different points in history (i.e. 1:1), the U.S. dollar has traditionally been the stronger of the two currencies. 2 The USD/CAD currency pair is quite actively traded as there are significant business ties between the two nations.

As of May 2022, one Canadian dollar (CAD) would get you about . 77 U.S. dollars. Looking at it from the other way around, if you'll be traveling to Canada and need some local currency, you'd be able to get 1.28 Canadian dollars for just 1 U.S. dollar.