Conservative think tank, the Fraser Institute, says that the federal government’s financial services sector reform bill ignores technological innovation and the potential savings to consumers through consolidation and competition. It also fails to recognize the rapidly changing nature of the financial industry.

The total annual savings obtained from gains in efficiency and rationalization of the branch banking system — just within the Big 5 banks — could be between $3.3 billion and $9.9 billion, it says in says a new article, “Financial Services Reform is Politicized and Dated,” published in the July issue of Fraser Forum.

This translates into annual savings of between $108 and $323 per Canadian, realized in the form of lower interest rates, service charges and fees. This represents potential savings over a 10 year period of between $1,512 to $4,537 per Canadian. Savings would be even greater if smaller banks, credit unions, and other financial institutions were included in the legislation. For example, annual savings could increase by an additional $617 million to $1.85 billion when demutualized life insurance companies are included.

“There are significant savings available within the financial services industry that the federal legislation prevents through onerous regulation and excessive political oversight,” says Jason Clemens, the Institute’s director of fiscal studies.

The article concludes that the new legislation failed to account for dramatic changes in the way financial services are provided due to technological innovations. The number of Big 5 branches had shrunk by 18.3% since 1990 to 5,155, while the number of ATMs increased 100.3% to 16,192. The Big 5 banks have also added phone and Internet banking. “The use of electronic-based delivery methods such as ATMs, telephone banking, and Internet-banking has exploded in the past few years,” says Clemens, “unfortunately much of this technological revolution has been ignored or misunderstood in the drafting of the new legislation.”

It says that the legislation is problematic because it consistently relies on political mechanisms to ensure oversight of the industry, and it continues to treat banks differently from other financial institutions.

“This legislation makes some progress in re-shaping Canada’s regulatory regime and should be seen as a starting point for further reform. New initiatives should begin immediately with a view towards promoting the sector rather than limiting its potential,” concludes Clemens.