On Thursday, the Bank of Canada cautioned against enforcing further financial sector restrictions, instead advocating for policies that promote innovation and competition, which it claimed could help counteract U.S. tariffs.
Senior Deputy Governor Carolyn Rogers stated in Toronto that “we need to resist the urge to add protections as the world heads into a period of greater economic nationalism and more industrial policy.”
She added, “We should lean into it.”
She noted that increased contestability, more new entrants, and more innovation in the financial industry would result in competition that was beneficial for consumers, productivity, and our economy.
To protect the economy from the threat of inflation, Rogers has often emphasized the need to boost Canada’s weak productivity.
With only six banks holding 93% of all banking assets, Canada’s banking industry is very concentrated.
According to Rogers, many contend that this degree of concentration has glaringly detrimental effects on cost, innovation, capital allocation, productivity, and consumer choice.
Rogers further stated that productivity gains in the financial industry have the potential to spread throughout the economy, underscoring the necessity of fostering innovation and competition.
“It’s a sector where policy-makers should regularly ask themselves if we’ve got the level of competition right,” she said, citing “reasonable calls for reflection” regarding the overly stringent regulations.
According to Rogers, the need for productivity has increased since U.S. President Donald Trump shocked the Canadian economy with a series of tariffs.
Six of the previous eight quarters have seen a decline in Canada’s labor productivity, with manufacturing, utilities, and wholesale trade all reporting sharp decreases in the second quarter, primarily due to Trump’s tariffs.
“Higher productivity won’t make Canada immune to U.S. trade policy, but it would help buffer the effects,” Rogers stated.
Following her address last year, business executives, economists, analysts, and others began talking about how Canada’s low productivity was affecting its ability to compete with other G7 allies.
According to Rogers, recent measures such as open banking and real-time payments were positive developments.
“They are both close to implementation, but each needs a final push to get across the finish line,” she stated.
