CMB MAGAZINE cmba-achc.ca summer 2018 | 45
c
anada's financial institutions
are key to solving the country's
productivity problem, according to
a new report from the C.D. Howe Institute.
In "Productivity and the Financial Sector
– What's Missing?" author Jeremy Kronick
argues that rules and regulations governing
the financial sector need to be modernized
to promote innovation and productivity
among banks, credit unions and insurance
companies.
e new report finds that Canada's
financial sector – a critical component of
the country's economy – is lagging behind
OECD peers in its contribution to productivity
growth. "Improving the sector's productivity
would boost not only its own performance, but
the economy as a whole," says Kronick. "Given
the financial sector's importance, it is crucial
to maximize its contribution to aggregate
productivity growth."
While economic growth in the short run
can be achieved through changes to labour and
capital, long-run growth can be achieved only
through technological progress. erefore,
productivity improvement is considered
the primary driver of economic growth in
developed countries.
e author finds the financial services
sector's productivity is held back by a policy
approach that does not properly evaluate the
link between competition and productivity, a
regulatory structure that does not always reflect
international best practices and less efficient
allocation of capital due to disproportionate
mortgage lending incentives that favor
residential over commercial mortgages.
Among Kronick's key recommendations:
n
Remove barriers to the development of
fintechs through a functional approach to
regulation. Current regulations are not well
tailored to smaller players and regulating by
functions would help close the gap, while
preserving consumer protections;
n
Implement regulatory oversight that is
proportionate to functional risk. If a
particular function's failure is unlikely to pose
a risk to the system, oversight need not be
as strict as in the case where failure puts the
system in jeopardy;
n
Revise the Bank Act and Insurance
Companies Act to allow more flexibility for
banks and insurance companies to make
substantial investments in fintechs and
insuretechs.
"Removing the regulatory and policy
obstacles would result in enhanced
productivity, which in return will generate
sustainable economic growth," the author
concludes.
is article was originally published by the
C.D. Howe Institute, an independent, not-for-
profit research institute whose mission is to
raise living standards by fostering economically
sound public policies.
finanCial seCTor
key To solving Canada's
ProduCTiviTy ProBleM
WhaT governMenT Could do To BoosT
noT only The seCTor's oWn PerforManCe,
BuT ThaT of The eConoMy as a Whole
cdhowe
