U.S. banks have been operating in Canada for over a century, contributing significantly to the financial landscape. Contrary to recent claims, these banks have long maintained a substantial presence in Canada. As of now, they account for approximately half of all foreign bank assets in the country. U.S. banks have two main options for establishing their presence in Canada: launching a subsidiary, known as a “Schedule II” entity, or setting up a branch, referred to as a “Schedule III” entity. While subsidiaries are separate legal entities requiring local capital and liquidity structures, branches face certain deposit restrictions.
The Canadian banking industry is tightly regulated, requiring various government approvals before a foreign bank can commence operations. Despite these regulations, numerous U.S. banks, such as Bank of America, Wells Fargo, Citigroup, US Bank, JPMorgan, and Northern Trust, have established successful operations in Canada. The Canadian Bankers Association states that there are currently 16 U.S.-based bank subsidiaries and branches operating with around C$113 billion in assets.
“U.S. banks now make up approximately half of all foreign bank assets in Canada.” – Canadian Bankers Association
Trade-offs and Market Access for U.S. Banks in Canada
These banks typically opt for the “branch” model, which exempts them from the requirements imposed on subsidiaries. While branches cannot accept deposits lower than $150,000 CAD, subsidiaries enjoy the same powers and market access as Canadian banks. However, both models offer trade-offs.
“Bottom line: there are trade-offs to each option, but foreign banks certainly can operate in Canada. A case could probably be made that the restrictions on both options prevent full competition with Canadian banks, but not that ‘Canada doesn’t even allow U.S. Banks to open or do business there’ as Trump stated.” – Kronick
Despite these operational nuances, U.S. banks continue to thrive in the Canadian market, leveraging their robust infrastructures and adapting to the regulatory environment.
In addition to banking operations, Canada stands as a significant market for U.S. agricultural products. In the 2023 fiscal year alone, Canada purchased $27.9 billion worth of U.S. agricultural exports, ranking as the third-largest buyer globally. The country’s demand for U.S. agricultural products has consistently grown, demonstrating its importance as a trading partner.
“Canada consistently ranks among our top markets for agricultural product exports, representing one of our most significant and reliable trading partners,” – US Department of Agriculture (USDA)
U.S. Dairy Products and Trade Relations with Canada
Specifically, Canada is an essential market for U.S. dairy products. Between 2010 and 2021, total dairy exports from the United States to Canada increased by 48 percent when adjusted for inflation.
“Canada is an important market for U.S. dairy products, second only to Mexico. From 2010 to 2021, total dairy exports from the United States to Canada, adjusted for inflation, rose 48 percent from $466.4 million in 2010 to $691.5 million in 2021.” – US Department of Agriculture (USDA)
Despite this growth and mutual trade benefit, former President Donald Trump recently claimed that Canada restricts U.S. agricultural imports.
“They don’t take our agricultural product for the most part, our milk and dairy, etc. A little bit they do, but not much.” – Trump
This perspective contrasts with the data indicating significant agricultural trade between the two countries.
“We can’t let them take advantage of the US. They don’t take our agricultural product for the most part.” – Trump
In reality, Canada remains one of the world’s biggest buyers of U.S. agricultural products and continues to be a key market for American farmers.
The Canadian government’s approach to foreign banks involves a meticulous examination of potential entrants into its banking sector due to its importance to the national economy.
“we take a very careful look at people who want to come into our banking sector, because we consider financial services to be a core asset to Canada and to the Canadian economy” – Meredith
This regulatory stringency aims to maintain financial stability and protect domestic interests.
“that subsidiary will be subject to the same regulatory regime and capital requirements as a domestically owned and operated bank,” – Bryce Tingle
Despite these regulations, American banks have successfully navigated the Canadian market landscape.
“There’s nothing prohibiting American banks from operating here, including having retail branches.” – Cristie Ford
The presence of American institutions alongside those from China, Japan, and Europe underscores Canada’s openness to foreign banks while maintaining rigorous standards.
“but there are existing American institutions, Chinese institutions, Japanese institutions, and European institutions” – Meredith
What The Author Thinks
The article highlights the complexity and importance of U.S.-Canada trade relations, particularly in banking and agriculture. Despite some misconceptions about the accessibility of the Canadian market for U.S. banks, the article demonstrates that U.S. banks have successfully operated within the Canadian regulatory framework for years. In the same vein, Canada’s significant agricultural trade with the U.S. undercuts misleading claims about trade restrictions, underscoring the robust and mutually beneficial trade ties between the two nations. The strategic regulatory approach Canada takes to maintain financial stability while encouraging foreign investments is a model for balancing openness with security.
