Bank Mergers, again

So now the Bank of Canada is weighing in on the side of promoting bank mergers.

I can’t help but wonder what virtue these people see in bigness. Economies of scale did not help General Motors compete with Japanese and other upstarts. Size did not help Enron succeed (it just made the damage greater when everything fell apart). Digital Equipment sat by and watched the microcomputer revolution happen.

And closer to home, the Canadian banks’ market dominance did nothing to fend off a creative, resolutely customer-focussed campaign by ING Bank. (Imagine, helping clients save money!)

My take: only innovation and customer responsiveness will save the banks as they venture into the unregulated outside world. And where are those characteristics more likely to be found?

In a group of archly competitive, fast-moving, entrepreneurial firms, weaned on competition and the need to satisfy fast-changing clients needs? Or in a few giant, monopolistic firms with less reason than ever to listen to customers, innovate or do things differently?

Years ago, I wrote an editorial saying the banks should be allowed to merge – because forcing companies to stay in business when they no longer have the will to live simply makes no sense.

But that doesn't mean that bank mergers will be good for Canadians – or, long-term, for our banks.

Your comments are welcome.