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Bank merger issue joins the federal election fray

By SIMON TUCK
The Globe and Mail
Tuesday, January 3, 2006

OTTAWA -- Prime Minister Paul Martin says the next federal government will have to deal with the thorny question of bank mergers, although he wouldn't clarify his own position on the issue.

"I would think that the issue is one that's going to have to be resolved, will have to be dealt with," Mr. Martin told Reuters News Agency.

Mr. Martin made his comments yesterday during a series of media interviews, prior to kicking off the second half of his party's effort to win a fifth consecutive federal election.

When asked if he supports bank mergers, which have long been demanded by Canada's financial institutions, Mr. Martin wasn't definitive. "I think it depends on the circumstances."

During his tenure as finance minister, Mr. Martin rejected two proposed bank mergers in 1998 and the Liberal government has been largely studying the issue ever since.

Mr. Martin later played down his comments, saying there was nothing new in what he had said.

But Senator Jerry Grafstein, chairman of the Senate banking, trade and commerce committee, said Mr. Martin's comments show that the question of bank mergers is "an action agenda item."

Mr. Grafstein said he hopes the government will deal with the issue as soon as possible after his committee finishes its report on banking and other consumer issues. "We can't keep delaying this -- we just cannot."

Mr. Martin's comments could provide a sliver of encouragement to banks and others who would like Canada's financial institutions to have the flexibility to join forces. In recent months, it was widely believed that the issue was on hold for at least a few months -- perhaps until the fall.

In October, Mr. Martin said he was against any so-called "cross-pillar" mergers between banks and insurance companies. Finance Minister Ralph Goodale also shelved a paper at that time that was designed to flesh out the process by which banks might justify a merger with a major competitor. The Liberals blamed opposition parties for the delay, although it is clear that the minority government had no appetite to deal with the politically challenging issue until at the least the start of the new Parliament. Canadians will go to the polls Jan. 23.

Monte Solberg, the Conservative finance critic, said he doesn't see Mr. Martin's comments as particularly significant and that it's about time the Liberals clarify their position on the issue.

"He's put conditions on his conditions," Mr. Solberg said. "After eight years, it's a bit much."

Harry Ort, who runs KPMG LLP's financial services practice, said he doesn't read very much in Mr. Martin's comments and that he doesn't expect any major developments until one party is in clear control of the House of Commons. "It's really become a political issue -- it's on hold until you get a majority government."

Bank of Canada Governor David Dodge told the Senate banking committee three months ago that Ottawa's failure to allow bank mergers may also be hurting the financial sector's already weak productivity.