Paul Martin, A Regulator Who Said No to Banks

Paul Martin, who was Canada’s finance minister before he became prime minister, is widely seen as implementing the policies that led Canada to get through the crisis virtually unscathed. This is the summary of Martin’s key actions as finance minister from INET:

In general, Martin has received justifiable plaudits but often for the wrong thing. Canada’s “fiscal austerity expansion,” which was praised by deficit hawks around the world, only succeeded because the country had, and still has, a free-floating exchange rate. As a result, the Canadian dollar dropped sharply in the mid-1990s, facilitating a huge turnaround in the country’s trade account and thereby offsetting the fiscal austerity embraced by the government at that time.

Where Paul Martin does deserve huge credit is the manner in which he handled Canada’s banking system, in particular his cautious approach to financial deregulation. Martin saw little social merit in following the then-prevailing trends toward greater financial liberalization. And he eschewed the notion that bigger was necessarily better.

In January 1998, the chief executive of the Bank of Montreal shocked Canada’s financiers by announcing his intention to merge with Royal Bank, Canada’s largest bank. Martin, then the finance minister, was not pleased, particularly as the announcement was seen as pre-empting the country’s financial services task-force, which had been set up in December 1996 and was scheduled to report in the autumn of 1998. In response to the proposed deal, Canada’s second-and fifth-largest banks, Canadian Imperial Bank of Commerce and Toronto-Dominion, then announced their own plans to merge.

Suddenly, the task force’s position on consolidation in Canada’s already highly concentrated banking sector was more than just a matter of theoretical interest. Bankers and markets assumed that the mergers were a done deal and that the government would roll over, as its counterparts in the U.S, when faced with similar pressures.

Not so. In contrast to the supine reaction of America’s politicians and regulators, who green-lighted mergers such as Traveller’s takeover of Citibank in spite of this being against the existing law, Martin rejected the two huge Canadian bank mergers of the late 1990s. And nothing has changed since, despite the political ascension of the Conservatives.

This interview gives more detail on Martin’s decision-making process. When 1998 merger plans were proposed, Martin and his colleagues gave considerable thought to “too big to fail” risk and saw it as one of the major reasons to reject the proposed merger. Similarly, Canada has kept banks as traditional banks; it’s not been tolerant of forays into what not long ago considered to be investment banking. The banks are allowed to have a nice profitable oligopoly and the quid pro quo is that they have to stay relatively boring. Canada has also required much higher capital levels that US and European banks.

Canada is admittedly in the midst of blowing a bigger and bigger real estate bubble, so the past may not be a predictor of future performance as far as Canadian banks are concerned. But given how much central bank induced liquidity is chasing returns, Canadian banks are hardly alone in being exposed to an asset price reset.

Print Friendly, PDF & Email


  1. Moneta

    And all this time I thought it was Chrétien’s ego that stopped it…. in those years, bank CEOs were having a hard time accepting that bankers in their investment divisions were making more money than they were and the prime minister was having trouble accepting that the bankers could become more powerful than him…

    1. McKillop

      You weren’t the only one who mistakenly judged Chretien and Martin.
      The two men, rivals within the same Liberal party, were not overly friendly or supportive of one another – nor were those in each man’s camp too fond of the factions opposed – but they did work together as governors. Chretien appeared to be the politician while Martin was more the considerate man who didn’t hesitate to be conservative, frugal, and somewhat ruthlessly deliberative. He was nicknamed (maligned, in my opinion) “Mr. Dithers” by the journalists and political pundantry that advocated for the end of Liberal party rule because of various scandals and corruptions and social policies. Martin frequently hesitated in his speech in an effort to present all sides fairly (you can see it in this interview.) Those clever pundants never appeared to suffer from Mr Martin’s equanimity.
      He was a man (perhaps, still is) of integrity whose actions as Finance Minister helped to save Canadian banks’ bacon -at some cost to provincial funding and social programmes) but he walked into the traps set by Mr. Harper and Harper’s machinations.
      Mr. Harper, a politician quite machiavellian, benefited from our mistaken conclusions regarding Martin.
      And Harper.

        1. McKillop

          Believe nothing of what you hear and half of what you see.
          Perhaps, in my effort to be courteous I misled you into believing one more thing mistakenly. As I said, ‘. . . Martin was more the considerate man who didn’t hesitate to be conservative, frugal, and somewhat ruthlessly deliberative’. I also referred to his policies coming at cost to provincial policies and the people served by those policies.
          Chretien often appeared as a poorly spoken buffoon who hid policy decisions behind his buffoonery, just as Martin dressed his decisions in consideration and frugality. Martin, son of Martin, owner of a Canadian steamship line registered abroad could be thought of as ‘old school’ money but Chretien had his relationship with Power corporation – and still does.
          Both looked after their own interests which might be considered as ‘right-wing liberal’.
          Harper (do I appear less enamored of these leaders by removing the honorific “Mr.” from their names) managed to appeal to many people as an alternative to the venality of the Liberals and their beneficiaries, and was elected in Martin’s stead. His hard-core supporters, as well as the journos and pundants who make money from the political game, apparently still approve of Harper’s governance. Electing Harper instead of Martin (or the N.D.P. or Greens) gave you what you’ve got.
          If not, I hope my further effort -despite the topic’s limited interest to this site, despite the initial irrelevance of your initial comment- clears up your misapprehension about me and any fascist leanings toward our leaders. If so, nothing anyone can show you will convince you that electing Mr. Harper was a monstrous error regardless of what you thought about Chretien or Martin.

  2. PaulArt

    My million dollar takeaway from PM Martin – ‘we have put so much emphasis on providing social programs for the elderly and have forgotten the younger generation’ (I am paraphrasing).

    Most of the time this is what I keep yammering on about in my comments in these pages. Give a man a secure financial future and he will sit in the ramparts of that secure castle and pee on the rest. When we see the old people in this country we see Maslow’s hierarchy in all its glorious work. They have income security via Social Security, they have medical security via Medicare so they immediately move up Maslow’s pyramid and start voting on things like religion and race and ‘family values’. They don’t give a rats ass about anything else because not caring about those things does not hurt them.

    1. Carla

      [Older Americans] “have income security via Social Security, they have medical security via Medicare so they immediately move up Maslow’s pyramid and start voting on things like religion and race and ‘family values’. They don’t give a rats ass about anything else because not caring about those things does not hurt them.

      This is not what I see. In my several years of work (all volunteer) on single payer healthcare, the Move to Amend, and various social and economic justice causes, almost all of my (all volunteer) colleagues have been over 55, with most over 65, both local and statewide. A group of seniors has been petitioning for peace outside our local public market every Saturday morning (including in rain, sleet and snow) since the U.S. invasion of Afghanistan.

      Of course, being retired or under-employed, we “oldsters” have the time to devote to these vital issues. But younger people who somehow made time to volunteer for Obama, animal rights, and to some degree, environmental issues, do not turn out for social and economic justice, let alone peace, civil rights or freedom from corporate rule. Our ranks are overwhelmingly filled with people born in the ’40s and ’50s, and even a few stalwarts from the ’30s.

      1. Kunst

        Generally speaking, the population is more liberal when times are good. They feel they can afford to care about social issues in a positive way. When things get tight, people hunker down and focus on their own problems. This often leads to negative thinking about other groups, e.g., minorities and others who are perceived as threatening one’s economic well-being. You can see it clearly in the US. Economic insecurity caused by job outsourcing and automation have created a dog-eat-dog mentality among the less well off that certainly pleases the better off.
        A classic joke: A billionaire, a union guy, and an average Joe have a dozen donuts in front of them. The billionaire takes 11, then tells Joe, “Watch that union guy. He’s going to try to take your donut.” Divide and conquer. It seems to be working.

  3. beene

    Until the American public understand our political parties are leaches and are as un-useful as wall street we will continue to see the USA decline as a republic, and rights disappear. The truth most growth comes mostly from the mom and pop enterprises anymore. Till we start making Wall Street corporations pay for all the protections the USA grants them we will continue to have deficits in trade, and an infrastructure of the nation decline.

  4. Anna Beaulieu

    “Mr. Harper… benefited from our mistaken conclusions regarding Martin.”
    May I ask how Mr Harper benefited from our mistaken conclusions?

    1. McKillop

      The Liberals under Martin investigated ‘adscam’ a political scandal in Quebec involving advertising and cash-back. Had Martin stonewalled as much as the usual politicians, he _may_ (might) have maintained power in the election following his selection as party leader/prime minister. Even had he chosen to form a coalition to maintain power, to develop policies of his own rather than riding on Chretien’s coattails, had he been less a man of integrity, Mr. Harper would not have gained power in a minority government and would have been, as they say, history.
      Mr. Harper and his government appears corrupt but will never investigate its perceived corruption at Harper’s insistence.

  5. JEHR

    “. . . Martin rejected the two huge Canadian bank mergers of the late 1990s. And nothing has changed since, despite the political ascension of the Conservatives.”

    I wish that those words were still true. All the six big banks in Canada went on to merge with trust companies in Canada, e.g., TD merged with Central Guarantee Trust ( ).

    Then each bank opened an insurance branch and each became an investment bank. The biggest banks in Canada also merged with many small American banks after the Great Recession and have, in my opinion, become every bit “too big to fail” as the US big banks have. The Canadian banks are supposed to have a “wall” between their deposit functions and their investment functions but it is plain to see that they have become huge and make huge profits each quarter ($2 billion in some cases) with huge CEO salaries and bonuses: ( ) .

    So I’m not worried about the housing crisis as we are not doing the sub-prime fraud thing (yet) but I really worry about that Chinese wall between investment and deposits. I do not know whether or not the regulator checks that deposits are not being used to make profits from investment banking.
    See: for a discussion of how Canadian banks are doing (as of 2011).
    It does not bode well for Canada.

    Then there is the claim that Harper made saying that Canadian banks were not bailed out in 2008 which turns out to be not true:

    “Canadian fixed income markets, the Repo markets, the core funding mar-
    kets seized up during the crisis, and that’s not acceptable. It’s not an accept-
    able state of business.” —Mark Carney, Bank of Canada governor

    “The overall picture painted by this examination of Canadian banks’
    use of government support programs during and after the global financial
    crisis of 2008–10 stands in stark contrast to both government and bank
    claims that Canada’s banks were somehow immune from the need for such
    extraordinary measures. It also raises more questions than answers, due to
    government secrecy.

    “As this examination makes clear, some Canadian banks drew much more
    government aid than others during the financial crisis. It’s important for
    Canadians to know why some banks were more vulnerable than others. By
    keeping the details of this support secret, it is much harder for Canadians
    to evaluate what happened, why it happened and what can be done to pre-
    vent the need for such massive support in the future. It also casts a shad-
    ow upon the official line that Canada’s banking system is among the most
    robust in the world.

    “Unfortunately, the veil of secrecy is also obscuring an obvious reality:
    Canada’s big banks are too big to fail. The Government of Canada, the Bank
    of Canada and the big banks themselves understand that Canada’s banks
    will be bailed out irrespective of the cost. “


    Therefore, I do not view the Canadian banks in a favourable light.

  6. Roland

    When Canada decided to go the way of globalist neoliberalism (under Mulroney), with a relatively small, open economy, it was only a matter of time before the median real standard of living began to decline.

    At least the federal Liberals of the 1990’s decided to try to cushion the transition a bit. Their tactics were to use currency devaluation, combined with fiscal prudence. This was essential because Canada’s demographics and political geography do not correspond with the primary exports which constitute Canada’s relative competitive advantage in an open world economy.

    The remnants of the industrial base which had been abortively established in Canada’s central regions during the period of our national-focused economic aspirations–aspirations our upper class abandoned in favour of the neoliberal globalization project–had to be protected long enough to cushion the transition to a liberal open economy, or else the political reaction may have broken the country’s federal structure. Remember that Canada had a considerable constitutional crisis on hand during the early phases of our neoliberal transition. Absent tariffs, a weak currency provided some virtual protection, for a few years.

    As for the tight fiscal policy, there is nothing at all the matter with prudence, or even austerity, in itself. Like growth, stimulus, or spending, what matters most is the distribution. The Chretien govenment’s austerity was not all that badly distributed. There was pain for everybody: east, west, urban, rural, French, English, rich, poor, everybody got some cuts. Such a fiscal programme took a lot of political courage, and it is rare that any government, whether democratic or not, can play the “bad guy” to so many sections of the public at once. Any who concern themselves with the matter of sound administration should praise the Chretien/Martin regime of the 1990’s.

    One way they helped avoid overheating in the late 90’s was by keeping tax rates fairly progressive and non-indexed to inflation. That absorbed a lot of the stupid money which otherwise would have been out there blowing bubbles, while at the same time helping balance the government books.

    Fiscal policy can be an effective tool in moderating hot markets, but in a government dominated by the bourgeois class, needless to say fiscal tools seldom get employed for such a purpose!

    How could you tell that the austerity was being fairly distributed? Easy: all through the mid-late ’90’s the rich people in Canada did absolutely nothing but bitch, bitch, bitch. Conrad Black blew most of his fortune creating a national newspaper with the express purpose of getting Canada’s rich people their rightful share of the irrational exuberance enjoyed by their US counterparts.

    Eventually political pressure from the rich to give them big tax cuts grew too great. The Martin minority government, and then the Harper government, started squandering the fruits of prudence after Chretien resigned. Now we have staggering debts, both public and private, bubbles, bailouts, endless stimulus, endless loose money, embarrassing me-too auxiliary roles in endless imperial wars, and next to no taxes for the rich. In short: Imperial Finance Capitalists in Paradise (or at least the retard provincial version).

Comments are closed.