Introduction to Banking
Canadian Banking



Banks are businesses that sell
services and make a profit
Money is made by charging and
collecting interest on loans, e.g.
mortgages
Banks also invest some of the
money that customers deposit with
them
The Bank Act



Passed in 1871
Outlines the rules and regulations
that banks must follows
All Canadian banks receive a charter
from the federal government


Government gives the banks authority
to operate
Known as “charter” banks
Classes of Banks

Canadian banks fall into one of
three classes:




Schedule I
Schedule II
Schedule III
The class that the bank belongs to
is determined by its ownership
Schedule I Banks




Are owned by Canadian shareholders
Shares are traded on major stock
exchanges
There are 19 Schedule I banks
Accept deposits from customers and
offer investment and financial
services

e.g. Scotiabank, CIBC
Schedule II Banks



Most foreign-owned controlled by a small
number of shareholders
Shares are not usually available to the
general public
Have the same powers as a Schedule I
banks, but the government may set
limits on the number of branches and
total amount of assets

e.g. ING, HSBC
Schedule III Banks



Foreign bank branches with
permission to operate in Canada
Bank Act sets restrictions
Most concentrate on investment
banking and corporate customers

e.g. Citibank, Deutsche Bank AG
Trust Companies


First established in the late 1800s
Provide many banking services
including:



Savings and chequing accounts, loans
Also called near banks
Also assist with the sale of real
estate, administering estates of
deceased persons, maintaining trust
accounts for charitable
organizations and minors
Trust Companies continued…


Not regulated by the Bank Act
Each province and federal
government specify the types of
investments that these institutions
can make with customers’ money
Caisses Populaires and Credit Unions



Organized and owned by groups of
people who pool and share their
resources
Form of co-operative business
ownership
Members share a common bond of
association


e.g. teachers
Belong to the World Council of
Credit Unions
Caisses Populaires and Credit Unions
continued…


Offer a variety of services such as
taking deposits, chequing services,
investment products, loans
In order to borrow money, you must
have savings deposited there
Caisses Populaires and Credit Unions
continued…

Unique features:



Provide services only to members and
their families
To become a member, must purchase
at least one share
Members are equal owners regardless
of number of shares owned
Insurance Companies



Financial institutions that insure risk
Focus on either life and health insurance,
or property and car insurance
Individuals and businesses rely on
insurance


e.g. fire insurance, car insurance in case
of an accident
Companies include:

Manulife, Sunlife, Economical
How Insurance Works





It’s complicated!
Works by using the payments
received from policyholders to pay
the claims of those who make them
Risk is shared
Many policyholders = millions in
premiums
If not needed right away, money
can also be put into reserves