• By PYMNTS

Canada’s Financial History- and Why Our Banking System Is the Envy of the World

Updated: Jul 6

A Canada celebrates its 153rd birthday, we are dedicating today’s blog to Canadian history with respect to its banks and financial system.

Canada’s current financial institutions- namely its Big 5 Banks (TD Bank, Scotiabank, Royal Bank, CIBC, and Bank of Montreal) are rooted strongly in its colonial beginnings- with strong influences from both its French and British migrants.

The Bank of Montreal was the first of the Big 5 to be founded in 1817 in what was then the British-controlled colony of Lower Canada (or what is today Quebec). Other banks soon followed suit and set up shop, and as banking in those days was largely unregulated, many issued their own banknotes to be used as currency- until a series of economic depressions in the 1850s and 60s triggered bank and currency failures.

With Confederation in 1867, Canada became its own country and quickly passed laws giving both federal and provincial governments complete control over the issuing of currency. The 1871 Bank Act gave birth to what would eventually become today’s modern banking system; as it set out the regulatory framework that would control all financial institutions in the new country. Canada then moved to establish its central bank, The Bank of Canada, in 1935 (where you can read about its role in functions in our blog here: https://www.apaylo.com/post/the-function-of-canada-s-central-bank-and-how-it-relates-to-fintechs).


The next several decades served as a testament to the inherent strength and stability that Canada’s banking system is internationally recognized for to this day- as major world disasters affected Canada, no Canadian banks failed- even during catastrophes like The 1929 stock market crash and subsequent Great Depression; World War II; or the 1979 oil and hyperinflation crisis. By comparison, thousands of smaller regional banks down south in the United States went under in these crises.

More recently, the economic booms of the 1980s and 90s saw Canada’s banks turn into full financial-service “supermarkets”- becoming powerful international conglomerates by expanding into insurance, investment, and mutual funds businesses.

Alternative banking models also took shape during this time- with Dutch bank ING Direct launching a Canadian subsidiary that operated virtually without a single bank branch location- talk about being ahead of the times! Financial institutions also started to recognize the diversity of Canada’s citizens by targeting cultural niche markets and providing specialized banking services to these population segments. Examples of this include banking services for our growing Chinese-Canadian population- supported by Mandarin and Cantonese-speaking customer service professionals. More recently, banks have targeted Canada’s growing Muslim population by offering suites of products and services compatible with Islamic law- including interest-free mortgages and lending products.

The rise of the internet in the past two decades paved the way for alternative financial service providers and Fintech companies to become major players- and you can read a full history of Canadian Fintechs here: https://www.apaylo.com/post/the-history-of-fintech-and-why-they-are-gaining-such-traction-now

As Canadians, we have a lot to be thankful for- and a strong, robust banking system is definitely one of those things. Internationally recognized for its strength and ability to withstand financial crises, our financial system continues to serve as a global role model as we navigate our way past the economic destruction caused by Covid-19.

For more information on Canada’s financial history, check out https://www.thecanadianencyclopedia.ca/en/article/banking

-And lastly, the team at Apaylo wishes you a very Happy Canada Day!!




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