(March 10) The federal government’s legislative package of reforms to the financial services sector, to be introduced this spring, will render Canada’s banking industry helpless, says David Bond in today’s Globe and Mail Report on Business.

Bond, an adjunct professor of commerce at the University of British Columbia and a retired chief economist at HSBC Bank Canada, says the proposed legislation will treat banks as quasi-public utilities, not as a crucial industry and a major source of jobs and income for Canada.

“Motivated more by passion than reason, it will ignore more than a decade of study, including an exhaustive task force survey. Just what it will contain was outlined in a white paper issued in June.

“The proposed legislation will accurately reflect the limited strategic thinking of the government and the Minister of Finance. Unlike the Dutch, who regard banking as an industry of strategic economic importance, Canadians see their banks as a tax cash cow to be hobbled and constrained …

“Rapid change has become the norm throughout the financial services sector. Reliable worldwide communications, combined with computers capable of handling vast calculations, have opened up a multitude of channels for delivering banking services.

“In turn, these factors have forced a sustained and massive investment by the banks in both hardware and software to keep up with the increasing levels of competition both at home and abroad. Failure to make these investments would have put at risk the continued existence of the banks themselves.

“All of this was accompanied by an enormous increase in the complexity and interdependence of the global financial system, making it vulnerable to events and forces that have no direct relationship to Canada. To face these risks while funding investments in infrastructure, Canadian banks will need to raise ever larger amounts of capital …

“The new legislation seems to be detached from the reality of these economic forces,” Bond says.

“The end result is clear,” he concludes. “An ever-increasing portion of the financial services sector will be controlled by offshore firms, but our emasculated banks will be safe in Canadian hands. Toronto, in turn, will no longer be even a minor financial centre in North America. It’s time to think in strategic terms. Mr. Martin should start over, rather than perpetrate this stupidity.