Canada’s population, exceeding 30 million, may seem modest at just one-tenth of the United States’, yet this pales in comparison to the marked differences in their respective financial sectors. The Canadian financial services industry is known for its insularity and conservative approach. The entry of both foreign and American financial institutions into its market is considerably restrained, a departure from the competitive fervor that defines American banking.

A distinguishing feature of the Canadian banking industry is its concentration. A quintet of major banks — each with a storied history of over a century — exerts dominance over the sector, renowned amongst industry peers for their steadfast reliability and safety.

The advent of this situation is deeply rooted in historical context. The Great Depression dealt a harsh blow to both the American and Canadian economies, manifesting in bank failures, a crashing stock market, and rampant unemployment. American introspection led to the conclusion that the root cause of the economic downturn was the avarice of financial oligarchs, whose recklessness hollowed out the national economy. In response, the U.S. introduced full-scale competition to avoid market monopolization. Legislative and administrative actions over the subsequent century gave rise to a vibrant ecosystem of more than 10,000 entities, including banks of varying sizes, financial institutions, and credit unions, all partaking in the financial industry’s offerings. The 1990s saw the rollback of some Depression-era restrictions, driven by successful financial lobbying. A wave of mergers and acquisitions ensued, yet the number of banking entities remains in the thousands.

The Canadian response to the same ordeal was notably different. They posited that the failure of the system was due to the ineptitude of small banks. Consequently, steps were taken to erect significant entry barriers in the financial sector, thereby stifying the formation of new, smaller banks. Today, five traditional banks divide the Canadian financial market, effectively enjoying oligarchic stands safeguarded by legislation, benefiting from low acquisition costs, and fairly liberated pricing of most financial products, which has ensured a long-standing healthy return on capital.

For the average consumer, this low-competition market is far from ideal. It limits product variety, and certain risks — like interest rate or exchange rate fluctuations — largely fall on the customers. However, this landscape has been distinctly favorable for bank shareholders and executives. Holding Canadian bank shares over the past decades could have reaped an approximate 12% annual return, inclusive of dividends. Amongst them, the ‘big three’—RY, TD, and BNS—have enjoyed annual returns around 13-14%, while the slightly smaller entities, BMO and CIBC, have recorded returns around 11%.

In recent years, both RY and TD have maintained their expansion efforts in the United States, while BNS has pursued an aggressive strategy in Latin America. This expansion may have implications for their long-term return on capital. Notably, these five banks collectively hold the world record for the longest uninterrupted annual dividend payout among all listed companies worldwide, including non-financial entities：

• BMO began paying dividends in 1829;
• BNS began paying dividends in 1832;
• TD began paying dividends in 1857;
• CIBC began paying dividends in 1868
• RY began paying dividends in 1870