Central bank's senior deputy governor hits out at banking 'oligopoly'
Canada’s productivity problem is back in the spotlight, with Bank of Canada senior deputy governor Carolyn Rogers urging policymakers to embrace competition as a remedy for the country’s sluggish growth.
In a Thursday speech to the Canadian Club Toronto, Rogers argued that “greater contestability, more new entrants and more innovation in our financial sector would lead to competition that’s good for consumers, for productivity and for our economy. We should lean into it.”
Rogers had already sounded the alarm on Canada’s economy earlier in 2024, calling the productivity slump an “emergency.” She said new US trade policies have only made things worse for Canada’s competitiveness.
“Higher productivity won’t make Canada immune to US trade policy, but it would help buffer the effects of tariffs. And it’s the clearest path to boosting real wages, making life more affordable,” she said.
Competition: Balancing act for policymakers
Rogers acknowledged that competition is a double-edged sword.
“An economy with too little competition will lag in innovation and efficiency and struggle to attract investment. An economy with too much competition can also have underinvestment and is more likely to experience instability and market failures. Either way, it will damage productivity,” she said.
The challenge, she noted, is for policymakers to strike the right balance using laws, regulations and incentives that adapt as technology and market conditions evolve.
The banking sector, Rogers argued, is a prime example of the trade-offs at play. “It would also be hard to argue, on any objective measure, that Canada’s banking system is anything other than an oligopoly,” she said.
She pointed out that the six largest banks hold about 93% of all banking assets—a concentration that has delivered stability but, in her words, “clear negative impacts on productivity, innovation, capital allocation, cost and consumer choice.”
Reforms on the horizon: Real-time rail and open banking
Two major reforms are set to shake up the sector: Real-Time Rail, which will modernize Canada’s payments system and allow instant money transfers, and open banking, which will give Canadians control over their financial data and make it easier to switch providers.
“The experiences of countries that have already introduced instant payment systems show that these systems have real benefits,” Rogers said, citing a C.D. Howe Institute study estimating more than $3 billion in efficiency gains over five years if Real-Time Rail is successfully implemented.
Rogers also highlighted the need for safeguards as competition increases, warning that “rapid innovation can outpace regulatory safeguards, leaving consumers exposed to fraud or predatory practices.” She stressed that policies must evolve to prevent negative outcomes for consumers and productivity alike.
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