The economic case for regulatory reform in Canada’s commercial banking sector and securities markets is overwhelming and action is urgently needed, according to a study from the C.D. Howe Institute.

Published by the Institute to launch a series of papers on financial services reform in Canada, the commentary, Grasping the Nettles: Clearing the Path to Financial Services Reform in Canada, is written by leading economist David Laidler, Fellow-in-Residence at the C.D. Howe Institute and Professor Emeritus at the University of Western Ontario.

In terms of banking sector reform, the report says that the current politicized approval process “effectively prohibits mergers between big banks, limits their ability to exploit available efficiency gains, and narrows their ability to respond to new competitive challenges emanating from the world marketplace.

“At the same time, ownership rules and restrictions on the activities of foreign banks in Canada buffer domestic banks against competition at home. Some of the latter regulations perhaps help ensure that the large institutions, through which stabilizing monetary policy is conducted, especially in time of crisis, remain under Canadian control,” it adds. “Nevertheless, the case for allowing more freedom of manoeuvre to actual incumbents and more freedom of entry to potential competitors in commercial banking is overwhelming.”

As for reform in Canada’s securities markets, the report calls for a single national regulator as well as a separate and effective enforcement agency.