Chapter 13 The Need for Financial Institutions The main deposit-taking institutions in Canada are charted banks, trust companies, caisses popularies, and credit unions. Canadian Banking Banks are businesses that sell services and earn a profit off of selling these services. They earn most of their revenue by charging interest on money they loan to consumers, businesses, and the government. They also invest part of the money that individuals and businesses deposit with them. The banks earn interest on these investments, which contribute to their profits. The Bank Act The Bank Act outlines the rules and regulations that banks have to follow. All banks in Canada receive a charter, which means that they have authority to operate. For this reason, Canadian banks known as charted banks (a financial institutions that has received a charter or license from the federal government to operate in Canada; operates under the federal Bank Act; entitled to use the words “bank”). The Bank Act outlines the procedures for opening new banks and forming mergers and gives other details about what banks can and can’t do. The act also states that banks must regular reports to the federal minister of finance. The Bank Act established 3 classes of bank- Schedule I, Schedule II, and Schedule III. The class at which a bank belongs to depends on the ownership. Schedule I Schedule I banks are owned by the Canadian shareholders, the shares are traded on the major Canadian stock exchange and investors buy shares in these banks in order to receive a share of profits. Canada has 19 Schedule I banks and these banks accept deposits and offer investment and financial services. Ex. BMO and CIBC. Schedule II Schedule II banks are mostly foreign-owned banks that are controlled by a small number of shareholders. Have the same powers as Schedule II banks; however the government sets limits on the total number of branches they can have and the total amount of assets they can hold. Most Schedule II banks concentrate on investments banking and corporate customers. Ex. Annex Bank of Canada and HBSC
Schedule III Schedule III banks are foreign bank branches with permission to operate in Canada. The Bank Act sets restrictions on these banks. Most Schedule III banks concentrate on investment banking and corporate customers. Ex. Capital One Bank, Deutscne Bank A.G, and Citibank. Branch Banking Branch banking is a banking system in which there is a head office and interconnected branches or outlets providing financial services in different parts of the country. The Bank of Canada The Bank of Canada is not a charted bank- customers cannot open accounts in or borrow money from this bank. (The chartered banks can borrow money from the Bank of Canada, but they seldom do.) Although it offers no direct service to the general public, the Bank of Canada helps keep the Canadian economy as stable as possible.
- Fall '17