All of the recent changes in foreign access to Canada's banking market have been essentially cosmetic-appearing to make foreign access more liberal while in reality changing the status quo very little. On one point, the so-called widely held rule, Canada does not even bother to pretend that its banking law is friendly to foreign entrants. Under this rule, no person or group may control ten percent or more of a Schedule I bank unless one first obtains the approval of the Minster of Finance. This rule makes foreign acquisition of a Schedule I bank virtually impossible. The widely held rule was enacted in 1967 in response to the acquisition of Mercantile Bank by First National City Bank (predecessor to today's Citicorp) and the fear that Toronto-Dominion Bank was an intended target of a hostile takeover from Chase Manhattan. The rule was clearly intended to thwart foreign takeovers of Canadian banks, especially by American banks. In case the purpose of the law was not transparent to all, the widely held rule was originally coupled with an additional restriction that foreigners could not own twenty-five percent or more of the total equity in a bank. The widely held rule acts like a statutory poison pill, making acquisition of a Schedule I bank impossible. For the past thirty-three years, therefore, the big Canadian banks have operated free from the fear of hostile takeover and especially free from foreign takeover. Yet times do change, and the protectionist sentiment that prevailed in the late 1960s in Canada may be succumbing to international norms of free trade that are contemptible of laws like the widely held rule. The Author believes there will be pressure on Canada to abandon the widely held rule.
32 Law & Pol'y Int'l Bus. 391 (2001)