A Comparison of Canadian and United States Banking Systems and Cross-Border Banking Activity

The past decade has seen tremendous upheavals in international financial markets and institutions.While the Canadian and United States banking systems are structured very differently, banks in the two countries have not been immune to these changes.In the United States, the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) set the stage for a series of important changes in the U.S. banking system, including the deregulation of interest rates paid on savings, broadening of the lending and investment powers of savings and loan associations, authorizing interest bearing checking at depository institutions and increasing the Federal Reserve's control over the money supply through uniform reserve requirements at all depository institutions.These changes, along with more competitive economic conditions, created many problems for U.S. financial institution managers, as evidenced by the increase in bank failures as well as the ongoing crisis in the savings and loan industry.Across the border, the Canadian banking system experienced similar upheavals, though perhaps with less dire consequences.While U.S. banks struggled to cope with deregulation, Canadian banks had successfully adjusted to changes such as interest on checking and unlimited branch banking without the raft of failures and mergers which occurred in the U.S. On June 30, 1987, Canada's " Big Bang" took place, when the Canadian government allowed federal financial institutions to establish wholly owned Canadian securities dealer subsidiaries [see ( 7), ( 8) and ( 9)].While the timing of the entrance of Canadian banks (as well as foreign banks and dealers) into the securities business in Canada was poor, given the crash of international stock markets in October, 1987, banks in Canada moved towards becoming "full-line" institutions, providing customers a wide variety of financial services.In 1988, a new challenge faced both Canadian and U.S. financial institutions in the form of the Free Trade Agreement.