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October 17, 2019

Restrictive rules holding back innovation in the financial sector should be updated to bolster Canada’s productivity, says a new report from the C.D. Howe Institute.

In “Productivity and the Financial Services Sector – How to Achieve New Heights,” authors Farah Omran and Jeremy Kronick note that over the past 15 years Canada has lagged behind many OECD countries in terms of productivity – including countries it is often compared to such as Australia, Norway and Sweden.

The authors examine the contribution of the financial services sector to Canada’s productivity growth and find it has been underwhelming, considering its potential. The financial services sector employs relatively more Canadians with postsecondary and postgraduate education than do other sectors, and promotes growth and productivity within the other complementary sectors that serve it. As a result, any increase of productivity in the financial sector has an outsized effect on Canada’s productivity at large. The report lays out how regulatory changes could improve the contribution of the financial sector to productivity by increasing competition through the development of fintechs (financial technology), and by bolstering lending to small and medium sized businesses (SMEs), through measures including a switch from a focus on mortgage lending to business lending. 

Farah Omran

Farah Omran is a former Policy Analyst at the C.D. Howe Institute. Farah joined the C.D. Howe Institute in 2017, while completing her Master of Arts in Economics from the University of Toronto. As a Policy Analyst at the institute, she worked on a wide range of topics, including monetary policy, financial services, and fiscal accountability.

Jeremy Kronick

Jeremy M. Kronick is Associate Vice President and Director of the Centre on Financial and Monetary Policy at the C.D. Howe Institute.