By Romel Dhalla
Canada is proud of its banks, with reason. They are large, profitable, well capitalized and internationally respected, and not one failed in 2008 while the American system buckled. But stability has become the all-purpose answer to every hard question about the industry behind it.
So ask directly: after decades of protecting one of the most concentrated banking markets in the developed world, is the protection still serving Canadians, or just the banks?
Canada has dozens of smaller banks and hundreds of credit unions. It also has six institutions holding 96 per cent of banking-sector assets (IMF, 2025). The United States, as of the first quarter of 2026, had 4,278 FDIC-insured banks and savings institutions (FDIC, 2026).
The barriers are specific. Under the Bank Act, a full-service foreign branch cannot accept a deposit under $150,000; retail entry means building a Canadian subsidiary from scratch. Foreign banks are not banned; they are priced out of bothering. When HSBC left in 2024, no foreign competitor replaced it. A domestic giant absorbed it.
For consumers, the result functions like a private tax. Measured against Britain and Australia on monthly account fees, non-sufficient-funds and overdraft charges, and ATM fees abandoned abroad, the excess runs to $7.7-billion a year (North Economics, 2024). Switching barely helps; even the “alternatives” are often incumbents. Tangerine belongs to Scotiabank, Simplii to CIBC.
For businesses, the cost is access to capital. SMEs everywhere pay more to borrow than large firms, but the gap is wider in Canada than in other OECD countries (Competition Bureau, 2025). In January, the Bureau opened a market study into SME lending.
The study is welcome. That it is necessary is the indictment.
Concentration has real benefits: scale, diversification, easier supervision, nation-scale balance sheets. Every one of them argues for strong banks, not entry barriers. And 2008 is misremembered: resilience came from conservative mortgage rules, rigorous supervision, emergency liquidity and federal purchases of tens of billions in insured mortgages.
Regulation and the state saved the system, not the absence of competitors. Capital rules protect depositors. Entry barriers protect market share. One is public policy. The other is a favour.
Canadian banks, meanwhile, spent decades competing in someone else’s market: TD built one of the largest U.S. retail operations; BMO, RBC and CIBC expanded aggressively, not always cleanly.
BMO paid US$ 40.7 million to settle SEC charges over mortgage-securities disclosures (Reuters, 2025). Open doors demanded abroad; the home door barely ajar.
Then there is what happened inside TD.
From January 2018 through April 2024, TD’s American operations failed to automatically monitor approximately 92 percent of transaction volume, roughly US$ 18.3 trillion in activity (Department of Justice, 2024).
Not billion. Trillion.
For nearly a decade, the bank added no new monitoring scenarios; internally, the approach was called the “flat cost paradigm.” Three laundering networks moved more than US$ 670 million through TD accounts: drug proceeds in bags of cash through branch lobbies, employees taking bribes, staff communications showing they understood.
In October 2024, TD became the largest bank in U.S. history to plead guilty to Bank Secrecy Act failures, and the first ever to plead guilty to money-laundering conspiracy: roughly US$3.1 billion in penalties and a cap on its American growth (Department of Justice, 2024).
Be precise about what this proves. It does not prove that competition at home would have prevented failures abroad; the collapse happened in the world’s most competitive market. It demolishes the premise beneath the protection: that Canada’s sheltered giants are so well governed that shielding them serves the public. If comparable deficiencies existed in their Canadian operations, would we ever know?
Consider the machinery. Until this spring, the maximum FINTRAC penalty for a “very serious” violation was $500,000. Its record penalty, $ 9.2 million against TD for failures in its Canadian operations, was administrative, not criminal; RBC and CIBC drew $ 7.5 million and $ 1.3 million (FINTRAC, 2023-24). B.C.’s Cullen Commission concluded police could not rely on federal financial intelligence for timely, actionable leads (Cullen Commission, 2022). Those are not tools built for watching banks.
Ottawa has conceded the point: in March, Parliament raised the caps forty-fold, to $20-million per very serious violation with cumulative penalties up to three per cent of global revenue (FINTRAC, 2026), and revived the long-promised Financial Crimes Agency. Welcome, and an admission that for decades financial crime here was priced as a rounding error.
Weak competition does not cause weak enforcement. The thread is deference: a culture that treats the largest banks with a solicitude no other industry enjoys. Deference at the border. Deference in merger review. Deference, until this year, in the price of misconduct.
Now look at Canadian streets. Ottawa’s own risk assessment estimates that $45 billion to $113 billion is laundered here every year, names drug trafficking the largest threat, and rates the big banks among the most vulnerable sectors (Department of Finance, 2025). A fentanyl trade measured in bodies cannot run on cash under a mattress; it needs banking. No one should claim the Big Six knowingly run drug money. The documented problem is quieter and worse: the system billed as the envy of the world was, by Ottawa’s own accounting, not built to stop it.
Merger review does not correct it. When RBC absorbed HSBC Canada, the Competition Bureau documented HSBC’s sharper rates and lower fees, and instances where its pricing forced RBC to respond, yet reasoned that HSBC was too small for its loss to “substantially lessen” competition; Ottawa approved (Competition Bureau, 2023). In a concentrated market, that logic runs backwards: a maverick’s value is its behaviour, not its share. If that is what the test permits, the test is the problem.
So, change the incentives. Keep every prudential safeguard; dismantle the moat. Rework the $150,000 foreign-branch rule.
License credible entrants on an aggressive clock. Give open banking a statutory deadline: it was legislated this spring, eight years after Britain’s went live, and the regulations remain out for comment with no launch date (Department of Finance, 2026).
Use the new penalties at a scale that changes behaviour, not budgets. Treat further consolidation among the majors as presumptively against the public interest.
Stop confusing the market share of Canadian-owned banks with the national interest. A well-capitalized foreign bank under Canadian law and supervision deserves the same treatment here. Our banks are sophisticated enough to win abroad. They should be required to win at home.
Real competition would squeeze the incumbents: fees would fall, deposit rates would rise, margins would compress. That is not the system failing. That is the system finally working.
Canada built its banking system around stability, and stability is worth keeping. But protecting stability became protecting incumbency, and incumbency became an end in itself. The purpose of banking policy is not to produce comfortable banks. It is to produce a system that is stable, serves Canadians at honest prices, finances the people who build this country, and keeps criminal money out of it.
On the evidence, we are one for four.
Romel Dhalla, is President of Dhalla Advisory Corp., provides strategic corporate finance advice to companies and high net worth individuals. He was a portfolio manager and investment advisor with two major Canadian banks for 17 years. Contact him at romel@dacorp.ca. Any views or opinions represented in this article are personal and belong solely to the author and do not represent those of people, institutions or organizations that the author may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.