Why Complacency and Competition Threaten Canada’s Productivity

A senior official at the Bank of Canada is urging stronger competition in Canada’s banking industry to better serve consumers, businesses and the broader economy. Senior Deputy Governor Carolyn Rogers outlined her argument for a more competitive landscape during a speech at the Canadian Club in Toronto on Thursday morning. Rogers first raised concerns about Canada’s productivity slowdown last year, warning that weak business investment threatens the country’s economic resilience and Canadians’ living standards. She said those concerns gained fresh urgency this year amid rising U.S. trade tensions.

Bigger thinking needed to fix Canada’s productivity crisis

Rogers emphasized that a more productive economy is better positioned to absorb external shocks like tariffs and trade disputes, and that competition is a clear pathway to higher productivity. “Higher productivity won’t make Canada immune to U.S. trade policy, but it would help buffer the effect of tariffs,” she said in prepared remarks.

Recent data show labour productivity—measured as output per hour worked—fell in the second quarter, reflecting a drop in manufacturing output as trade uncertainty increased. Over the last two years productivity has been weak, a trend Rogers suggested may be linked to Canada’s long-standing reliance on close economic ties with the United States. For many years, U.S. demand for Canadian goods and the benefits of free trade helped sustain growth, allowing underlying productivity weaknesses to persist.

“We may have grown comfortable relying on that relationship,” Rogers said, “but recent events have brought a sharp reminder of the need to strengthen our domestic foundations.” She argued that removing interprovincial trade barriers is a useful first step, but called for broader, bolder reforms to invite competition and spur productivity gains across the economy.

Her remarks zeroed in on the banking sector, which Rogers described as an oligopoly dominated by a small group of large institutions. While that concentration has provided stability and curtailed risky behaviour—protecting consumers and depositors—it also limits the competitive pressures that typically drive innovation, choice and lower prices.

Competition drives innovation—but balance is key

Rogers acknowledged the benefits the Big Six banks have delivered, including steady operations and strong profitability that reduce the likelihood of reckless risk-taking. Yet she cautioned against letting the sector remain insulated from competitive forces. More contestability—greater ease for new entrants to compete—would likely encourage banks and fintech firms to innovate, lower costs for consumers, and raise productivity across the financial system.

“Greater contestability, more new entrants, and more innovation in our financial sector would lead to competition that’s good for consumers, for productivity, and for our economy,” Rogers said. She urged policymakers and industry stakeholders to “lean into” policies that welcome fair competition while maintaining sound safeguards for financial stability and consumer protection.

Rogers calls for smart regulation to unlock innovation and productivity

As examples of constructive reform, Rogers pointed to an open banking framework—an approach supported by Ottawa that would give consumers more control over their financial data and make switching providers easier. By enabling customers to share data securely with new providers, open banking can lower barriers for fintech companies and encourage tailored services and pricing.

She also highlighted plans to implement a real-time payments system in Canada. Such infrastructure would allow faster settlement and potentially enable smaller firms and fintechs to offer payment services without always relying on the largest banks as intermediaries, increasing competitive options for businesses and consumers.

Rogers stressed the importance of striking the right policy balance: strong competition law and incentives for new entrants, paired with effective regulation to protect consumers and system stability. During the question-and-answer session, she identified the digitization of assets as “the next frontier in banking.” That includes new forms of digital money and tokenized assets that could reshape payments and financial services.

In that context, Rogers said Canada should follow peers in Europe and the United States by establishing a regulatory framework for stablecoins—cryptocurrency-like instruments generally pegged to traditional assets such as fiat currencies to reduce volatility. “We need to have our own framework here,” she said, arguing that clear rules would support innovation while safeguarding payment systems and consumers.

Industry Minister Mélanie Joly reiterated a related message last week at Canada’s annual Competition Summit, saying the federal government intends to take a firm stance on competition policy as it seeks to build a more resilient economy in the face of external pressures.

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