Home > About BNE > Press Room > 2009 Archive > August > Canadian and U.S. Banking Systems – Critical Differences

Canadian and U.S. Banking Systems – Critical Differences

Canadian companies that are planning an expansion into the U.S. can often overlook the importance of understanding the many differences in the U.S. and Canadian banking systems.  Outlined below are a few of the differences between banking in the U.S. and Canada.  An understanding of these differences will help you successfully navigate your entry into the U.S. market. 

Bank Regulation – Bank regulation in the United States is highly fragmented compared to Canada, which has only the OSFI (Office of the Superintendent of Financial Institutions) as the bank regulator. In the U.S., a bank's primary regulator could be the Federal Reserve Board, Office of the Comptroller of Currency, Office of Thrift Supervision or any one of the 50 states’ regulatory bodies, depending on the charter of the bank.  This results in the U.S. being one of the most highly regulated banking environments in the world; however, many of the regulations are not safety and soundness oriented, but are instead focused on privacy, disclosure, fraud prevention, anti-money laundering and anti-terrorism.  Because of these regulations, the account opening process in the U.S. is more involved than opening an account in Canada. 
 
Bank Size and Concentration – In Canada, the six largest banks control approximately 85% of domestic banking assets, while the five largest U.S. banks control roughly 40% of their domestic assets.   The top 50 U.S. Bank Holding Companies represent approximately $14 trillion in assets and per the FDIC, there are over 8,000 insured financial institutions.  As a result, the banking environment in the U.S. is very competitive with customers having many banking options to choose from. 

Check Float – The time it takes a check to clear is known as float and float will delay the availability of deposits.  Check float is a primary example of an inefficiency of the U.S. banking system.  Typically, checks in the Canadian banking system are cleared instantaneously via a national electronic clearing system – making funds available immediately.  In contrast, checks deposited in U.S. banks may take up to three days or longer to clear through a manual check clearing system. 

Check Clearing Act for the 21st Century – Check 21 is designed to foster innovation in the U.S. payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation.  The law made substitute checks the legal equivalent of the original check.  Electronic Images transmitted between banks can replace the hard copy.

Regulation Q - Prohibits U.S. banks from paying interest on Demand Deposits or checking accounts (What Canadians would call a “current account”).

Bank Services to Consider:
How Will You Get Paid - Payment by check or cash, credit card, wire or ACH
U.S. Operating Accounts – understand documentation requirements
Deposited Check Availability – Lockbox, remote deposit capture, controlled disbursement

For more detailed information please contact Peter Leonard of HSBC’s cross-border commercial banking team at (716)841-7444 - peter.f.leonard@us.hsbc.com .   HSBC’s cross-border commercial banking team specializes in providing banking services to U.S. subsidiaries of Canadian based customers.