Regulatory changes could help financial sector contribute to productivity growth, report says

By Maddie Johnson | October 16, 2019 | Last updated on October 16, 2019
2 min read

For years, Canada’s productivity growth has lagged many of its international peers, according to an upcoming report from the C.D. Howe Institute. And the financial services sector could play a vital role in reversing the trend.

The report, to be released Thursday, examines the financial services sector and its overall contribution to productivity in Canada.

Authors Farah Omran and Jeremy Kronick link long-term sustainable economic growth with an improvement in productivity, saying advanced economies need to do more than just increase their traditional inputs, such as labour and capital.

The financial services sector has the ability to improve its productivity, which would in turn enhance Canada’s overall productivity growth, the report says. Despite its potential, the sector falls short, and its overall contribution to Canada’s productivity growth is “underwhelming.”

The report discusses how three main channels — competition, attracting capital and the allocation of capital — are hindered by restrictive regulation, hurting Canada’s overall productivity growth.

“Canada’s current regulatory framework has improved over the past decade; however, more could be done to remove regulatory barriers that hamper competition, the progress of innovative firms, and better reflect international best practices,” the report says.

The report recommends regulatory mandates that explicitly reference competition as a way to spur innovation; monitoring new rules for banks to invest in fintechs and other innovative technology-led institutions; lending more to small- and medium-sized companies (SMEs); improving the system to share data among federal and provincial regulators; and switching from a focus on mortgage lending to business lending.

Making the financial services sector  a priority for policymakers and regulators would improve Canada’s overall productivity growth, the report says.

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Maddie Johnson

Maddie is a freelance writer and editor who has been reporting for since 2019.