New analysis says Canada’s safe banks still overcharge consumers and stifle financial innovation
Canada’s banking network enjoys a reputation for resilience, but falls short when it comes to competitiveness, efficiency and modern service delivery.
That’s according to a new discussion paper from the Fraser Institute in which authors Lawrence L. Schembri and Andrew Spence argue that the system “while very stable, is uncompetitive and inefficient, providing costly and outdated financial services to Canadian households and firms.”
Their analysis notes that six major banks command close to 90% of national banking assets, creating a market structure that makes meaningful rivalry difficult. This concentration, the authors say, is reinforced by a regulatory framework built almost entirely around safety rather than contestability or innovation.
The report finds that technological advances, which have spurred new entrants and improved service quality in other countries, have had a more muted effect in Canada. Economies of scale have allowed dominant institutions to strengthen their grip, making it harder for smaller firms to gain traction.
Among the consequences highlighted in the paper:
- Fees on basic banking activities—such as deposits, payments and transfers—sit well above their underlying cost, adding financial strain for households.
- Profitability in retail banking remains unusually high, with returns on equity of 30-40% for major players, compared with under 10% in more competitive markets.
- Payments infrastructure remains entrenched in legacy systems, while newer entrants and fintech firms struggle with access limitations and heavier compliance loads.
The authors also point out that federal regulators like OSFI and the FCAC operate with mandates focused almost solely on stability, leaving no explicit responsibility to foster competition or encourage efficient service provision.
To remedy these issues, the paper proposes several reforms: broadening regulatory mandates to include competition, streamlining the compliance burden that weighs on smaller institutions, modernizing and centralizing payments-system oversight under an independent body, and allowing deeper participation by foreign banks and fintech challengers.
The study warns that without substantive reforms, Canada’s banking marketplace will continue to deliver high prices, limited options and slower innovation; conditions that ultimately hold back productivity and living-standard growth.
