Banking trends in Canada and USA

The above link elaborates the differences in the US and Canadian banking industry. Further to that discussion, I want to discuss the current trends and banking industry performance in the US and Canada. After two painful years of low earnings and a bad balance sheet performance, the banking industry in US and Canada is beginning to see a growth with the banks’ earnings coming back to its pre-crisis levels.

Banking industry in Canada comprises of 78 banks (22 domestic banks, 26 foreign banks subsidiary, 23 full service foreign bank branches). In the USA, the number of banks is 7657 according to FDIC statistics (6529 commercial banks and 1128 savings banks). While the U.S. banks are divided into state and federally monitored banks, the financial institutions in Canada are primarily federally regulated. Total assets controlled by Canadian banks was approximately CAD$43 trillion and that by US banks was US$13.2 trillion in December 2010.

US banks have majorly focused on strengthening their workflow process such as default management and collections, and buying and selling of mortgage portfolios. There is also an increase in the trend of outsourcing these business processes so that banks can improve their efficiencies, reduce cost and free up capital. Banks try to cut their expenses by 20% through outsourcing. US has also passed $42 billion bill, the small business lending funding act (H.R 5297) to provide small banks an opportunity to lend funds to encourage small businesses. In Canada, most of the banks are trying to improve their infrastructure by investing in mobile commerce and cloud computing. Cloud computing would reduce their initial capital expenditure in IT infrastructure.

As the US economy starts to rise with the expectation that it will grow at 3 to 4%, it will be interesting to see how the banks will devise its growth policy, its dividend policies to its shareholders and also ensure that they minimize the risk and have healthy balance sheets. In Canada, there will be concerns about mortgage debt held by Canadians as most of the big banks have huge exposure to household sector. Canadians banks would still continue to strengthen its balance sheet and it might implement Basel III rules on capital requirements and reserve ratios very soon.