World crisis puts Canadian bank mergers out of mind

By Pav Jordan

TORONTO (Reuters) - The global financial crisis may have taken mergers among Canadian banks off the table once and for all as the breakdown of major financial institutions around the world has shown that bigger is not necessarily better.

Canadian banks tried to merge in the late 1990s, arguing they needed to become global players, or risk becoming irrelevant.

Now chief executives at Canada's biggest banks say the crisis has showcased the resilience of the national banking system to the financial turbulence that has brought some of the mightiest global institutions to their knees.

"This concept of having to be bigger to be successful has been proven to be a flawed strategy," Royal Bank of Canada Chief Executive Gord Nixon told Reuters in a recent interview.

Before the crisis struck, Canada's No. 1 bank was often compared with Royal Bank of Scotland (RBS.L: Quote, Profile, Research), which in the space of a few years went from being a domestic bank to a global presence. It was held up as an example of everything Royal Bank of Canada (RY.TO: Quote, Profile, Research) should be doing, but wasn't.

Last year the once-mighty Scottish bank had to be bailed out by the British government and is now 70 percent state-owned.

WHAT IF?

Two would-be mergers in 1998 -- one between Royal Bank and Bank of Montreal (BMO.TO: Quote, Profile, Research), and the other between Canadian Imperial Bank of Commerce (CM.TO: Quote, Profile, Research) and Toronto-Dominion Bank (TD.TO: Quote, Profile, Research), were scuttled by then Finance Minister Paul Martin as public criticism of the plans ran high.