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Overview of Financial Institutions in Canada: Types and Functions

This chapter explores the various types of financial institutions in Canada, focusing on deposit-taking entities such as Chartered Banks, Trust Companies, Caisses Populaires, and Credit Unions. It discusses the essential services these institutions provide, including banking products, loans, and investment services, as well as the regulations outlined in the Bank Act. Additionally, it highlights the roles of the Bank of Canada in regulating the economy and the emergence of alternative banking solutions like credit unions and retail banking services in rural communities.

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Overview of Financial Institutions in Canada: Types and Functions

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  1. Chapter 13 Banking

  2. Types of Financial Institutions There are many different types of financial institutions in Canada. The main “deposit-taking” types are: • Chartered Banks • Trust Companies • Caisses Populaires • Credit Unions

  3. The Need for Financial Institutions • Financial Institutions provide many different services and earn profits by: • Selling products and services (accounts, financial advice, cheques) • Charging interest on money loaned (mortgages, lines of credit, personal and business loans) • Earning interest on their investments (RRSPs, Mutual Funds) • Bank Act: • Outlines rules and regulations that banks have to follow • Gives banks authority to operate • Outlines procedures for opening new banks, forming mergers • Government will revise the act from time to time

  4. Schedule I, II and III3 classes of banks: class determined by who owns it • Schedule I • Owned by Canadian shareholders • “Big 5” (BMO, RBC, BNS, TD, CIBC) Table 13.2 • Schedule II • Foreign owned • Owned by a small number of private shareholders • Same powers as Schedule 1 banks • Government limits # of branches • AMEX, ING, HSBC, State Bank of India • Focus on investment banking, business accounts

  5. Schedule III • Foreign bank branches • Same as schedule II but more restrictions • Capital One, Citibank

  6. Benefits to Branch Banking • Same service everywhere • Small communities linked to financial center • Every branch is fully supported with expertise • We can go to any branch with our PIN and card • Branches help to balance poor economy with good economy

  7. How is Branch Banking Changing? • ABM, online, telephone encouraged • In some areas, retailers are doing banking jobs (ex. PC Financial, cash back feature) • Credit unions are replacing banks in rural areas

  8. The Bank of Canada • Function : • Control money supply to regulate the economy • They do this by changing the BANK RATE also called the PRIME RATE • This causes banks to change their interest rates (this is the minimum they will charge for loans) • Consequence of rising and falling interest rates? • Low interest rate = higher spending, high borrowing • Higher interest rate = higher savings, less spending

  9. Bank of Canada Video • http://www.bankofcanada.ca/en/video_corp/videos.html

  10. Now fill in the rest of your handout using the textbook.

  11. Other Financial Institutions Trust Companies • Like banks, but more like a financial services company • Assist customers with purchasing real estate • Look after the estates of the deceased • Maintain accounts for charitable organizations • Not under the Bank Act

  12. Credit Unions • Organized and owned by a group of people who agree to pool their resources • Offer services like a bank • Only provide services to members and their families • Each member has an equal vote when making decisions

  13. Other Financial Institutions Insurance Companies • Companies that insure risk • Life, health, property and car are often the focus • Age will influence insurance needs • Businesses need insurance too: • Fire, liability, auto, misconduct, malpractice, product liability • Payments from many to pay out claims for a few

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