Schedule II Bank Definition

What is a Schedule II bank?

A Schedule II bank is a subsidiary of a foreign bank that is authorized to do business in Canada. Typically, the names of these banks reflect their foreign subsidiary nature, such as Citibank Canada and Amex Bank of Canada.

A Schedule I bank is a national institution such as the Royal Bank of Canada or Toronto-Dominion Bank. There are also Schedule III banks, which are branches of foreign institutions that do business in Canada under the same name.

This system of government categorization of banks was officially abandoned in 2001. Curiously, however, the terms remain widely used.

Key points to remember

  • A Schedule II bank is a subsidiary of a foreign bank that does business in Canada, such as Citibank Canada.
  • A Schedule II bank is a domestic enterprise. This category includes the Big Six that dominate the Canadian banking industry.
  • The government no longer uses these categories, but the terminology is still in common use.

Understanding Schedule II Banking

Schedule II banks are the most common type of bank in Canada, as many of the smaller credit unions, trusts and banks fall into this category. Like all financial institutions operating in Canada, they are governed by the federal Bank Act.

Under Canada’s Bill C-8, implemented on October 24, 2001, the Schedule I and II bank categories were replaced with a new system based on the size of the institution. Under this legislation, institutions with more than $5 billion in equity are prohibited from allowing any person to own more than 20% of voting stock or 30% of non-voting stock.

Institutions with shares between $1 billion and $5 billion do not have this restriction, but are required to have public ownership of at least 35% of the voting shares. Institutions with less than $1 billion in equity have no ownership restrictions.

Although the designations of Schedule I and Schedule II banks have thus been replaced, these terms are still widely used to describe the two main types of banks in Canada.

Canada’s Big Six are National Bank of Canada, Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and Toronto-Dominion Bank.

About the Canadian banking system

The federal government of Canada has exclusive jurisdiction over banks, while credit unions, stockbrokers, and mutual funds are primarily regulated by provincial governments. The Canadian Bank Act contains Schedules I, II, and III, which list all banks licensed to operate in Canada.

Since Schedule I banks are true domestic banks and not subsidiaries of a foreign bank, they are the only companies authorized to receive, hold and enforce collateral as described in the Banking Act. Schedule II banks are subsidiaries of a foreign bank licensed to take deposits, and Schedule III banks are foreign banks licensed to do business in Canada.

The Big Six Banks

Schedule I banks are dominated by Six major banksthe term commonly used to describe National Bank of Canada, Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia (Scotiabank) and Toronto-Dominion Bank (TD).

The Office of the Superintendent of Financial Institutions (OSFI) is the regulator of Canadian banks. Financial groups are also regulated by other regulatory bodies, including securities regulators and insurance regulators.

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