The Review of 1998 Canadian Banks’ Merger In early 1998, 4 major commercial banks, CIBC with TD and RBC with BMO, proposed 2 mergers to Competition Bureau. These 2 mergers would create 2 mega-banks with approximately $623 billions banking assets, which is over 70% of the market share (Crary, 1998). As these banks commenting in the proposal, because the large foreign financial institutions pushed pressures into the market competition in Canada, it is necessary to merge together to compete efficiently and effectively in both national and international market (Finckenstein, The Competition Bureau's Letter to the Royal Bank and Bank of Montreal, 1998). However, finance minister finally rejected both cases after Competition Bureau reviewed the …show more content…
According to the assessment of Competition Bureau, the proposed mergers of RBC and BMO will substantially decrease competition in 71 local markets and potentially decrease competition in 49 local markets for individual customers. In the meantime, for the mid-market businesses, the mergers also have the influences on lessening competition cross several provinces over Canada. To define these affected local markets, the Bureau primarily measures the market share of the merged banks. If the merged bank has over 45% market share, then it is defined as substantially lessening of competition. If the merged bank has the market share between 35% and 45%, then it is defined as potentially lessening of competition. Otherwise, the markets can remain competitive. The evaluations of competitive criteria are based on Competition Act section 90.1 (2). Barriers to Entry is used to evaluate whether new entrants can easily enter the market or not. In other words, if new entrants can enter the market, then the new entrants may help the market maintaining competitive. However, Competition Bureau points out that because of 5 major banks have already invested extensive branch networks, it is hard for new entrants to match with those sunk investment. Besides, the extended period to achieve break even also block new entrants entering the