The Difference Between Commercial Banks & Schedule Banks

  Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
  Written by: Steffani Cameron      Updated November 21, 2018

When you hear of “schedule banks,” it’s likely referring to either the Indian or Canadian banking system. You might think that Indian banks hold more relevance to the American economy, but despite the 1.34 billion people in India, it’s Canada and its population of 37 million that is America’s biggest trading partner, and its banks play into American business on a daily basis.

Schedule banks are commercial banks; there is no difference.

What Are Canadian Schedule Banks?

The Canadian Federal Bank Act regulates the banking and financial services industries in Canada. Under Bill C-8, which took effect on October 24, 2001, the Canadian system is broken into Schedule I, II and III banks.

In Canada, Schedule I and II banks are commercial banks, meaning they take deposits, have checking services and savings accounts, and offer a variety of individual and business loans as well as other financial products.

What Is a Schedule I Bank?

To be considered a Schedule I bank, the institution must have Canadian ownership and take deposits.

Looking at the history of commercial banks in Canada, some of the largest players from the 19th century have gone on to be global banks today – these are considered “the Big Five Banks” in Canada. They include names that may be familiar to U.S. citizens in their friendly acronyms and global trade-friendly names, like:

  •        RBC (Royal Bank of Canada)
  •        BMO (Bank of Montreal)
  •        CIBC (Canadian Imperial Bank of Commerce)
  •        Scotiabank (Bank of Nova Scotia)
  •        TD (Toronto Dominion Bank)

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Those “Big Five” make up the top-tier Schedule I banks, with two more tiers of smaller banks. In the middle are the National Bank of Canada (also known as NBC and Banque Nationale du Canada), Laurentian Bank and Western Canada Bank. A third group includes over a dozen smaller, more recent banks that are both national and regional institutions.

The history of the commercial bank in Canada goes back to 1820, when Britain gave royal assent, and the first bank sprang up shortly thereafter. Second was the Bank of Montreal, which formed in 1822.

The Big Five tried to change history when RBC and TD attempted to merge in 1998, but the national government decided it was against the financial industry’s best interest and vetoed it. These banks then turned their focus to expanding internationally.

What Is a Schedule II Bank?

Much like Schedule I banks, Schedule II banks offer full service and are regulated federally. Where they differ is that they can be internationally owned and act as subsidiaries of their international brands, like HSBC Bank of Canada, Citibank Canada, the Bank of China (Canada) and many others that are also incorporated under the Canadian Federal Bank Act.

Explaining Schedule III Banks

These banks do not accept deposits, yet are permitted to do business in Canada, such as with Capital One and their credit card operations, Deutsche Bank and the Bank of America. They are not incorporated under the Bank Act but are still tightly regulated.

Provincial Versus Federal Banks in Canada

In Canada, Schedule banks are controlled federally, but provincial institutions largely form a cooperative banking system, such as credit unions and, in French-speaking Canada, "caisses populaires" or "people's banks."

Both are member-owned institutions that are extremely popular, with 20 percent of the country having accounts in at least one credit union. There are around 700 credit unions in Canada, where they are run as nonprofit institutions. The nonprofit aspect is the fundamental difference between commercial and cooperative banks in Canada, the former being Schedule I and II banks and the latter being credit unions.

Trusting Canada’s Banking System

The tight regulations over Schedule I, II and III banks federally, as well as strong provincial regulations over credit unions, are globally credited with keeping Canada’s banks strong during the 2008 Recession.

In fact, the World Economic Forum’s Global Competitiveness Report usually ranks the Canadian banking system among the world’s safest. In November 2018, Canada was ranked second only to Finland, and the United States was listed in 18th place.

About the Author

Steffani Cameron is a professional writer who has written for the Washington Post, Culture, Yahoo!, Canadian Traveller, and many other platforms. Some writing projects have included ghost-writing for CEOs and doing strategy white papers. She frequently writes for corporate clients representing Fortune 500 brands on subjects that include marketing, business, and social media trends.

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