Toronto as Global Financial Centre

[TrickyRicky]

I agree with the notion that it is not inevitable or progressive for manufacturing to decline in Canada. It is likely that there will be a continuing decline in the number of people working in the sector as a percentage of the workforce, but frankly that should be viewed as positive so long as output is not in decline. Labour costs may be high here but keep in mind Canada does or could have some natural advantages with respect to raw material, water and energy inputs.

 

[MisterF]

What difference does the relative distribution of population make on economic integration? I'll admit that superficially it is easier for smaller countries to surrender some of their jurisdiction to an IGO if there is a more even distribution of authority, but it is just superficial. Look at NAFTA. From an economic perspective, it has worked pretty damn well for USA-Canada-Mexico. It is also arguably true that smaller countries disproportionately benefit from economic integration, Ireland being a good recent example. In the case of a possible economic union with the USA/Mexico, Canada's 'domestic' market would increase 13x while the USA's market would only increase 50%.

As to 'nationalism,' I think independence at the expense of well being is insignificant. It's not to say there aren't good reasons to be independent, social issues vis a vis the USA come to mind, but if we could agree that a given policy would be beneficial to Canadians then simply waving a Canadian flag is petty. The point of a country is to ensure the best for it's citizens, not itself. As it relates to the USA, this pettynes can become an almost crippling obsession. How much hand wringing did this country have over NAFTA? A decade later, when a possible trade pact rumored to be even more encompassing is proposed with the EU, hardly anyone says anything. Probably because deep down most people realize trade liberalization is beneficial to Canada in economic terms.

The EU is irrelevant because it has many governments with competing ideas, but none dominate. A North American union would have only 3 governments, one of which could easily pressure the other two into decisions that are good for them and bad for us. It's a tactic they've readily used in the past. If deepening ties has the intended effect of increasing business with the United States, it increases our exposure to crazy things that happen down there like the financial meltdown. You're separating Canada from its citizens, but does a major recession not affect citizens?

Having a "domestic" market that's 13x larger than Canada is insignificant. Exporting isn't all that difficult, and I don't see any evidence that Ontario is any better off now than it was before NAFTA, or that not surrenduring major decisions to Washington has somehow crippled us, as you infer. Ontario was the main manufacturing and exporting centre before NAFTA just as it is now, and growth rates have stayed pretty much the same.

Independence is not at the expense of well being. If anything it's the opposite, again using the financial sector as an example. Retaining independence isn't "flag waving", nor is it a "crippling obsession". Those suggestions are utterly ridiculous. Maintaining independence has allowed us to keep a stable financial system - if we'd harmonized with the Americans as some forumers suggest, Bay St would be going through the same chaos that American banks are. Toronto has a unique opportunity to strengthen its position as a major North American financial centre separate from the United States, which is an opportunity that would be squandered by getting too close.

 

[kEiThZ]

Do we need economic integration for Toronto to become a financial powerhouse? Why not simply add financial services to NAFTA? Beyond this though, our banks seem to be doing quite well despite the lack of any formal agreement on Canadian participation in the US financial services market. And they are going to come out even bigger and stronger after the credit crunch as they make acquisitions on the cheap. So perhaps, they won't need our help after all.

 

[Whoaccio]

Dominance by the USA: Canada is already in several bilateral or trilateral North American organizations such as NAFTA or NORAD. The simple reality is that it hasn't turned Canada into the Scotland of North America. It is important to remember that in the softwood lumber dispute, not only did Canada have a greater weighting on the NAFTA Tribunal, the Tribunal sided with us. There is simply no evidence that us entering into IGOs with the USA diminishes our sovereignty in any meaningful way. If we did theoretically enter into some kind of continental securities regulation pact with the USA and soon found ourselves being unilaterally dictated (who knows how), we could always opt out of the pact anyways.

The US economy is Cuh-Ray-Zee: It's worth pointing out that on average the US economy is richer and more productive than the Canadian one (though, this varies wildly region by region) and hence can't be that bad. As it relates to a continental securities regulator, the devil is in the details. If the proposed solution was simply a continental SEC (or OSC...) and involved us adopting wildly inflationary monetary and fiscal policies (tax deductible mortgages...), than obviously a continental regulator would be a bad idea. If a reasonable framework was proposed though, there should be no problems. Despite common Canadian belief, there are plenty of rational Americans. Though their political system is so screwed up these voices usually get drowned out. Moving to a continental regulatory environment could actually limit this by making financial regulation less a function of political concern in the USA.

It is also worth noting that all those Euro leaders we love to pine after are proposing basically this. When Sarkozy & Brown make suggestions like a 'new international financial regulatory order,' this is basically it. The simple reality is that Canada, as a small country of some 30m, will always be more a victim of international events than the cause of them. If we accept that much of the financial hullaballo was created by a lack of proper regulation, than an international regulator somewhat akin to the WTO or NAFTA would be a logical response at either a continental or trans Atlantic level. The chief beneficiaries of a more stable financial system would be small countries like Canada. If you were a real pessimist, you would remark that no matter how much the US economy screws things up, we always suffer far worse (we are export and commodity driven, our recessions have been longer and deeper every time from the Great Depression to the early '90s and probably this time too) so we might as well have some input on how the US regulates itself.

Canada would not benefit from deeper integration: This is clinically not true. The remark that 'exporting isn't that difficult' is a joke to anybody that is actually involved in exporting as I am. The findings of every report by Canadian manufacturers and export oriented industries is that the US-Canada border is a major source of delays and a seriously limiting factor. Look at what happened to the Canadian beef industry after they were banned from exporting to the USA. One major advantage of European industry is that it basically enjoys free movement of goods and services across a market of 400m people. This allows it to invest hugely in new equipment (because of it's grossly larger customer base) and enjoy economies of scale that Canadian institutions simply can't. If you don't see how increasing you're available market by 13x times would benefit Canadian producers there isn't much I can say that you probably haven't already heard.

 

[Whoaccio]

Do we need economic integration for Toronto to become a financial powerhouse? Why not simply add financial services to NAFTA? Beyond this though, our banks seem to be doing quite well despite the lack of any formal agreement on Canadian participation in the US financial services market. And they are going to come out even bigger and stronger after the credit crunch as they make acquisitions on the cheap. So perhaps, they won't need our help after all.

Our banks are not actually doing that well unless you compare them to Lehman Brothers (which was never really a 'bank' in the way that CIBC is, anyways). No Canadian bank makes it into the world's 50 largest companies (RBC= 55). HSBC alone has a greater market value than all the Big 4 combined and the internal financing arms of companies like GE are bigger than even RBC. By global standards, the Canadian financial industry is small and underdeveloped, which is probably why most Canadian business' are chronicly short of capital to invest in new equipment. We have 4 banks compared to thousands (literally) in the USA. If our strategy is simply to screw up less during the bad times and do nothing during the good, we are screwed.

 

[afransen]

Whoaccio: your optimism for the US economy isn't very reassuring. What do you think about the debt bomb that's ticking away? There is no way they can afford their wars, social security, and highly consumptive lifestyle. Yes, they are wealthier on average than Canada, but a lot of that wealth is borrowed money. It will dry up eventually, and there will be a hell of a hangover.

 

[urbanfan89]

Dominance by the USA: Canada is already in several bilateral or trilateral North American organizations such as NAFTA or NORAD. The simple reality is that it hasn't turned Canada into the Scotland of North America. It is important to remember that in the softwood lumber dispute, not only did Canada have a greater weighting on the NAFTA Tribunal, the Tribunal sided with us. There is simply no evidence that us entering into IGOs with the USA diminishes our sovereignty in any meaningful way. If we did theoretically enter into some kind of continental securities regulation pact with the USA and soon found ourselves being unilaterally dictated (who knows how), we could always opt out of the pact anyways.

First, NORAD has nothing to do with economic affairs. Second, tell me how many times the US has ignored the NAFTA tribunal rulings on the lumber issues. IGOs are only useful if all parties abide by the rules, and the most important party of NAFTA is choosing when to abide by them.

The US economy is Cuh-Ray-Zee: It's worth pointing out that on average the US economy is richer and more productive than the Canadian one (though, this varies wildly region by region) and hence can't be that bad. As it relates to a continental securities regulator, the devil is in the details. If the proposed solution was simply a continental SEC (or OSC...) and involved us adopting wildly inflationary monetary and fiscal policies (tax deductible mortgages...), than obviously a continental regulator would be a bad idea. If a reasonable framework was proposed though, there should be no problems. Despite common Canadian belief, there are plenty of rational Americans. Though their political system is so screwed up these voices usually get drowned out. Moving to a continental regulatory environment could actually limit this by making financial regulation less a function of political concern in the USA.

This regulatory system will be spending 80% of its time and resources looking at US issues, and perhaps 10% on Canadian issues. The result is that many of their decisions will be inappropriate for Canada (if 80% of opinions your hear call for deregulating the mortgage sector and a few dopey Canadians ask for a second thought, where would you go?). Besides, an ugly secret is that US GDP has been contracting since 2000 if you remove the increased leveraging, so much of their wealth and productivity might be fictitious.

It is also worth noting that all those Euro leaders we love to pine after are proposing basically this. When Sarkozy & Brown make suggestions like a 'new international financial regulatory order,' this is basically it. The simple reality is that Canada, as a small country of some 30m, will always be more a victim of international events than the cause of them. If we accept that much of the financial hullaballo was created by a lack of proper regulation, than an international regulator somewhat akin to the WTO or NAFTA would be a logical response at either a continental or trans Atlantic level. The chief beneficiaries of a more stable financial system would be small countries like Canada. If you were a real pessimist, you would remark that no matter how much the US economy screws things up, we always suffer far worse (we are export and commodity driven, our recessions have been longer and deeper every time from the Great Depression to the early '90s and probably this time too) so we might as well have some input on how the US regulates itself.

A sort of global financial regulator is inevitable. A continental SEC will be devoting 10% of its attention to Canadian problems, which is as good as zero.

Canada would not benefit from deeper integration: This is clinically not true. The remark that 'exporting isn't that difficult' is a joke to anybody that is actually involved in exporting as I am. The findings of every report by Canadian manufacturers and export oriented industries is that the US-Canada border is a major source of delays and a seriously limiting factor. Look at what happened to the Canadian beef industry after they were banned from exporting to the USA. One major advantage of European industry is that it basically enjoys free movement of goods and services across a market of 400m people. This allows it to invest hugely in new equipment (because of it's grossly larger customer base) and enjoy economies of scale that Canadian institutions simply can't. If you don't see how increasing you're available market by 13x times would benefit Canadian producers there isn't much I can say that you probably haven't already heard.

Earlier you trashed the notion that an oversized financial sector serves to crowd out exporters by making the Canadian $ overvalued. Now you're professing concern for exporters. Which is it? While I do agree that border inspections should become as hassle free as possible, there should be no continental governance structure until the US breaks into 10 separate nations.

Our banks are not actually doing that well unless you compare them to Lehman Brothers (which was never really a 'bank' in the way that CIBC is, anyways). No Canadian bank makes it into the world's 50 largest companies (RBC= 55).

Considering that all the big British and US banks are zombies, I'd say Canadian banks are doing very well and at least one will emerge in the top 50 largest companies.

HSBC alone has a greater market value than all the Big 4 combined and the internal financing arms of companies like GE are bigger than even RBC.

HSBC is lucky it isn't another RBS, because the Hong Kong regulators prevented them from going too far during the good times. Internal financing arms are only as good as the product they sell (ask GMAC).

By global standards, the Canadian financial industry is small and underdeveloped, which is probably why most Canadian business' are chronicly short of capital to invest in new equipment.

There's no widespread evidence that Canadian businesses face a chronic shortage of credit (aside from now, which can't be blamed on our banks), and tighter credit (thanks to Bank of Canada's higher interest rates) is better than a surplus which must go somewhere (like giving no down mortgages in SoCal).

We have 4 banks compared to thousands (literally) in the USA.

This isn't true at all. We have 6 big banks and hundreds of small banks we've never heard of. Same thing with the US, except everything is 10X larger. The last bank failure in Canada was in 1996, while banks in the US are falling at far higher than 10X than that.

If our strategy is simply to screw up less during the bad times and do nothing during the good, we are screwed.

So we must allow Canadian banks to become global big dogs and then give them billions of tax dollars during the next global financial crisis?

Seriously, get a grip on reality! We have posts here saying that Toronto should be the next Dublin (capital of a country whose GDP will contract by 15% when we hit the bottom) or Charlotte (looking at 4 or 5 digit job losses, whose biggest employers have just been seized by Uncle Sam)! 40 years ago we'd be extolling the robust economies of Cleveland and Pittsburgh!

 

[MisterF]

A sort of global financial regulator is inevitable. A continental SEC will be devoting 10% of its attention to Canadian problems, which is as good as zero.

That's what I was thinking. While Canada's voice in a global financial regulator would obviously be smaller, there would be several other major powers to offset the influence of the U.S. That doesn't exist in North America.

And it's worth repeating that it really doesn't matter if we don't have banks in the top 50 if so many huge banks are hemorrhaging money. Besides, all 5 big Canadian banks are in the Fortune Global 500, plus a couple insurance companies. Toronto has a concentration of Fortune 500 companies downtown that literally only a handful of cities have. And most of them are moving up the list.

 

[Conrad Black]

Actually a lot has changed in recent years. Royal Bank is currently number 7 and the rest of the Canadian big 5 are not far behind.

Our banks are not actually doing that well unless you compare them to Lehman Brothers (which was never really a 'bank' in the way that CIBC is, anyways). No Canadian bank makes it into the world's 50 largest companies (RBC= 55). HSBC alone has a greater market value than all the Big 4 combined and the internal financing arms of companies like GE are bigger than even RBC. By global standards, the Canadian financial industry is small and underdeveloped, which is probably why most Canadian business' are chronicly short of capital to invest in new equipment. We have 4 banks compared to thousands (literally) in the USA. If our strategy is simply to screw up less during the bad times and do nothing during the good, we are screwed.

TOP U.S. BANKS BY MARKET CAPITALIZATION
RANK BANK AT JAN 15, 2009 AT JAN 1, 2007 % CHG
($bln) (approx)
1 JP Morgan Chase (JPM.N: Quote, Profile, Research) $90.8 $166.2 -45%
2 Wells Fargo (WFC.N: Quote, Profile, Research) $83.8 $120.1 -30%
3 Bank of America (BAC.N: Quote, Profile, Research) $53.2 $238.3 -77%
4 US Bancorp (USB.N: Quote, Profile, Research) $33.4 $63.3 -47%
5 Citigroup (C.N: Quote, Profile, Research) $20.9 $274.5 -92%
6 PNC Financial (PNC.N: Quote, Profile, Research) $14.5 $23.6 -39%
7 BB&T (BBT.N: Quote, Profile, Research) $11.6 $24.0 -51%
8 Northern Trust (NTRS.O: Quote, Profile, Research) $10.8 $13.3 -19%
9 SunTrust Banks (STI.N: Quote, Profile, Research) $7.4 $29.9 -75%
10 Hudson City Bancorp (HCBK.O: Quote, Profile, Research)$6.9 $7.8 -12%
(Source: Dow Jones US Banks Index, Reuters)
(The numbers of shares outstanding used in the 2007
calculations came from U.S. Securities and Exchange Commission
filings)
TOP TEN WORLDWIDE BANKS BY MARKET CAPITALIZATION AS OF
JAN 15, 2009
(in billions)
1 HSBC (HSBA.L: Quote, Profile, Research) $100.9
2 JP Morgan Chase (JPM.N: Quote, Profile, Research) $90.8
3 Wells Fargo (WFC.N: Quote, Profile, Research) $83.8
4 Mitsubishi UFJ (8306.T: Quote, Profile, Research) $67.4
5 Banco Santander (SAN.MC: Quote, Profile, Research) $63.9
6 Bank of America (BAC.N: Quote, Profile, Research) $53.2
7 Royal Bank of Canada(RY.TO: Quote, Profile, Research)$38.2
8 Intesa SanPaolo (ISP.MI: Quote, Profile, Research) $38.0
9 BBVA (BBVA.MC: Quote, Profile, Research) $37.2
10 BNP Paribas (BNPP.PA: Quote, Profile, Research) $36.9

 

[taal]

Thanks I was about to point the above out ...

You'd be extremely surprised how far up in the rankings RBC has climbed in only the last 6 month!

Although I will not credit them for that success
Many US banks have dropped more then 50% in terms of market capitalization. Not a surprise considering how market cap is calculated (the main competent being the stock price).

Also ... given the size of Canada, RBC is very large and I'm not sure how we can expect it to compete in Countries 10 times larger then us. Many Canadian banks have done a good job diversifying. You wouldn't believe how large RBC's presence is in the US is; just by the number of smaller American banks that they own. Other Canadian banks specialize in developing regions (Central America).

Regarding Toronto as a Financial Center ...
It will be very hard to compete with countries who's populations are order of magnitudes larger then Canada ...
Sure Toronto can grow in that area but in the end how will it compete with America (well maybe we can write America off in a while ), China, UK, France, Germany (Yes these countries are not as large but they dominate Western Europe and hence have a large market base).

I don't think this is the key to Toronto's future ... the key is diversification and playing on our current strengths - these being one in the same:
1) Toronto is already a very large institutional player when it comes to Universities ... we have some of the largest in North America - York, UofT, Ryerson (not so big but it's growing very fast). These need to keep growing, while specialization in specific areas
2) Health sciences ...
3) Media - by this I'm referring to a broad area, animation, music production, anything movie related ...
4) If possible anything in the tech industry but I'm afraid we will not be able to compete with our suburban neighbors so we'll just need to concede on this one (at least downtown).

 

[cabbagetowner]

i was suprised to learn that toronto is the 3rd largest financial services center in n.a.

it's a feel good article for torontonians...it's a fluff piece. more wishful thinking than anything.

 

[Uncle Teddy]

Although I will not credit them for that success

They should be credited for not making the same mistakes their foreign counterparts made.

It will be very hard to compete with countries who's populations are order of magnitudes larger then Canada ...

Switzerland, Singapore and Hong Kong (pre-unification) show that you can be significant without a large population. Toronto has one other thing going for it that hasn't been mentioned. The US has significantly tightened up Visa requirements in recent years in response to 9/11. No reason to think non US firms wouldn't want to bypass that by setting up in Toronto. Same time zone as New York with less issues at the border. Microsoft opened a facility in Vancouver rather than Seattle for just this reason.

 

[Whoaccio]

A sort of global financial regulator is inevitable. A continental SEC will be devoting 10% of its attention to Canadian problems, which is as good as zero.

You are aware that the prorated share of 'attention' given to Canada will be identical in the continental scheme as the current set up right? In any case, if 10% is as 'good as zero' how exactly do you resign yourself to a scheme where we would get, at best, 3% of attention?

Earlier you trashed the notion that an oversized financial sector serves to crowd out exporters by making the Canadian $ overvalued. Now you're professing concern for exporters. Which is it? While I do agree that border inspections should become as hassle free as possible, there should be no continental governance structure until the US breaks into 10 separate nations.

Umm... I never said we should have the financial sector 'crowd out' exporters which is probably why you opted against actually using the quote tool. What I said was that it makes no sense to constrain the financial sector out of the ludicrous belief that it would crowd out the manufacturing sector in any meaningful way. My concern is that Canadian business' in every sector (service and goods producing) should have better access to the US and Mexican markets. A continental securities regulator would help both by making it easier for Canadian corporations to secure financing from the USA.

HSBC is lucky it isn't another RBS, because the Hong Kong regulators prevented them from going too far during the good times. Internal financing arms are only as good as the product they sell (ask GMAC).

Foot strait into mouth. HSBC isn't a Hong Kong company... It is incorporated in the UK and HQed in London. It has operations in HK which operate under local regulations, but so does every foreign company that operates there (like, say, AIG). Even that aside, HK financial regulations are practically nonexistent. They certainly didn't prevent anyone from 'going too far,' they didn't do anything.

There's no widespread evidence that Canadian businesses face a chronic shortage of credit (aside from now, which can't be blamed on our banks), and tighter credit (thanks to Bank of Canada's higher interest rates) is better than a surplus which must go somewhere (like giving no down mortgages in SoCal).

Yes, there is. Every Canadian business inevitably has to secure it's financing from the USA. Every single one. Stelco was financed by Americans when it was first created. Algoma was created by American financiers, Hollanger int'll was created by American financiers, the entire Canadian car sector was funded by American money. We are a capital short nation.

This isn't true at all. We have 6 big banks and hundreds of small banks we've never heard of. Same thing with the US, except everything is 10X larger. The last bank failure in Canada was in 1996, while banks in the US are falling at far higher than 10X than that.

Scotia, CIBC, RBC, TD, National, BMO. Care to name one of these 'hundreds of small banks we've never heard of'?

 

[CityPlaceN1]

There isn't 'hundreds" but there are a few.

Scotia, CIBC, RBC, TD, National, BMO. Care to name one of these 'hundreds of small banks we've never heard of'?

http://en.wikipedia.org/wiki/List_of_banks_in_Canada

Alberta Treasury Branches
Bridgewater Bank, a wholly owned subsidiary of the Alberta Motor Association
Canadian Western Bank
Canadian Tire Financial Services
Citizens Bank of Canada
First Nations Bank of Canada, affiliated with the Toronto-Dominion bank
General Bank of Canada
Home Trust Company
Laurentian Bank of Canada
Manulife Bank of Canada
National Bank of Canada
Pacific & Western Bank of Canada
President's Choice Financial
Western Bank of Canada

Then there's a bunch of credit unions.

 

[Whoaccio]

I don't think this is the key to Toronto's future ... the key is diversification and playing on our current strengths - these being one in the same:
1) Toronto is already a very large institutional player when it comes to Universities ... we have some of the largest in North America - York, UofT, Ryerson (not so big but it's growing very fast). These need to keep growing, while specialization in specific areas
2) Health sciences ...
3) Media - by this I'm referring to a broad area, animation, music production, anything movie related ...
4) If possible anything in the tech industry but I'm afraid we will not be able to compete with our suburban neighbors so we'll just need to concede on this one (at least downtown).

I agree that all of these are important sectors to encourage, but it isn't an 'either or' situation with the banking industry.

1.) Universities are reliant on charity. Boosting the local market of rich financiers with lingering self respect issues to finance departments would help universities. Things like the Schulich School of Business' or the Peter Munk Center. Harvard's entire MO is to ensure that a good chunk of it's alumni get plushy jobs on Wall St and then hit them up for donation requests.
2.) Rich white people are hospital's main source of donations. Peter Munk Atrium comes to mind.
3.) Bohemians are quasi parasitic organisms that feed off of richer people. I don't mean that as an insult, but simply pointing out that most artists do need a patron. No surprise than that cities like New York, London and Tokyo serve as both financial and cultural centers. I guess the arch-typical example would be the Medici's financing a good part of the Renaissance.
4.) Well, the high tech industry is exceedingly dependent on venture capital. Generally increasing the availability of financing would help the tech industry, but you are probably right that this would be more of a suburban thing.