Curbing the finance minister's powers

Canada's finance minister holds too much discretionary over the financial market, says economist David Laidler in Grasping the Nettles: Clearing the Path to Financial Services Reform in Canada, a paper recently published by The C. D. Howe Institute.

Laidler talks about the balance between healthy competition in the banking industry and monetary stability. In particular, I find it interesting to read what he has to say about the role of the finance minister on the subject of bank mergers.

Ladler's paper comes shortly after The European Commission's announcement (link to FT):
“Mergers and acquisitions in the European banking and insurance sector will no longer be subject to arbitrary interventions from central banks and national financial supervisors.”

Laidler on the role of Canada's finance minister:

The foregoing considerations are relevant to the merger issue because the fewer tools that are available to increase the banking system’s competitiveness, the stronger become the economic objections to any merger. However, they do not undermine the general presumption, forcefully developed by David Bond (2003), that mergers should always be open for approval, or not, on their economic merits. Unfortunately, in Canada they are not, mainly because of the role currently assigned to the minister of finance in the regulatory process.
Under current rules, any proposed bank merger would not only have to be examined by the Competition Bureau and OSFI to ensure that it threatened neither to reduce competition, nor to create prudential risks for the system. It would also have to face the scrutiny of House of Commons and Senate committees, and then be adjudicated by the minister of finance. This complex approval process is supported by the claim that bank mergers raise unique matters of public interest that require special political attention.
But consider the specific issues that have been identified as falling into this category, and on which the minister would have to pronounce: (a) access to services in rural and low-income communities; (b) choice among providers for small businesses and individuals; (c) growth prospects for the newly merged institution at home and abroad, for its potential customers, not to mention for the Canadian economy more generally; (d) deepening and broadening of the Canadian capital market; and (e) fair treatment of employees. These issues seem either to be ones that the usual regulators would concern themselves with (a, b, and d), or that the institutions themselves would take into account when deciding for or against a particular merger (c, as well as e).
The minister’s ability to act independently of the recommendations of the Competition Bureau and OSFI thus gives him what amounts to a veto power over any proposed bank merger without serving any recognizable over-riding public interest. Its main effect is to provide the minister with space in which to move with whatever political winds might happen to be blowing at the time he comes to exercise his powers. Given the long-standing political unpopularity of the large banks mentioned earlier, his powers introduce a degree of uncertainty into the approval process that effectively prevents any merger proposal being formulated, let alone submitted for approval. This characteristic of the regulatory environment thus seriously limits the options open to large chartered banks as they try to adapt to an economic environment that is changing rapidly, both at home and abroad. Given their central place in coordinating the saving and investment choices of Canadians, and given the critical role that these choices will play in determining the economy’s future performance, this impediment to the financial system’s overall efficiency is far too high a price to pay in order to punish particular institutions for past arrogance, and ought to be removed.