Councillors endorse plan to strengthen Toronto's financial services sector |
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Toronto City Council's Economic Development and Parks Committee today endorsed
an ambitious initiative to bolster the competitiveness of the city's financial
services. The plan calls on Ottawa and Queen's Park to proclaim Toronto as
Canada's financial services capital.
"All levels of government, the private sector and educational institutions must
forge an alliance to ensure the long-term health of Toronto's financial
services sector. The other levels of government cannot continue to take Toronto
for granted. We are an engine that drives the economy of the country," said the
committee's chair, Councillor Mike Feldman.
City staff told the committee that the city's financial services sector is the
third largest in North America after New York and Chicago in employment. It
generates 25 per cent of the city's gross domestic product and employs one out
of every 10 workers in Toronto.
Toronto's financial services sector also makes a significant impact on Canada's
economic growth. It includes half of all financial services companies in
Canada, such as the headquarters of the top five Canadian banks and 75 per cent
of foreign banks in Canada.
"We need to work collaboratively to position Toronto's financial services
sector as an international financial centre because it makes a significant
contribution to the economic health of Toronto and Canada," said Brenda
Librecz, Managing Director of the City's Economic Development Division.
Representatives of the Bank of Nova Scotia and the Toronto Stock Exchange
appeared before the committee to endorse the staff report. They said that
Toronto's financial services companies are being challenged by world-wide
trends, including international mergers, global deregulation, and aggressive
promotional activity by rival cities.
Other recommendations include:
- Forming an alliance of key industry, academic and political leaders to
foster the development of an action plan for the sector.
- Collaborative efforts to market and promote Toronto as a major financial
services centre in North America.
- Educate key decision-makers at the local, provincial and federal level
about the sector and its challenges.
- Gather data and analyze information about international trends in financial
- Help educators and trainers plan for and meet the sector's growing need for
highly skilled labour.
The report will go to City Council for approval before the summer.
City of Toronto financial services cluster study
The City of Toronto is recognized around the world as Canada's national centre
for financial services. Toronto is home to 1,700 financial services firms.
Employment in the financial services sector has grown steadily from
approximately 97,000 in 1983 to approximately 130,000 in 1999. The financial
services sector has consistently employed between nine per cent and 11 per cent
of the city's total employment during the last decade.
The financial services sector is vitally important to the entire country. It
provides the private sector with access to financial markets and thus has a
significant impact on economic growth. It also contributes significantly to the
nation's total exports, GDP and employment. As well, the Financial Services
Cluster is a major consumer of information technology; telecommunications
services; and business services such as legal, accounting and management
Since most financial service sector activity in Canada takes place in Toronto,
the city's role in the national and provincial economies is critical.
This sector consists of three main industry groups: banking, insurance, and
securities. These industry groups are often referred to as the 'pillars'
because traditionally, they were prohibited from entering into each other's
core business. Each of the large banks in Canada is now engaged in activities
far beyond traditional deposit-taking functions.
All of the large Canadian banks are actively pursuing the U.S. and
international markets through establishing subsidiaries, or through
acquisitions, joint ventures and strategic alliances. This trend will continue
as Canadian banks attempt to build economies of scale to compete against large
international institutions. To put Canadian banks in a global perspective, the
top eight banks in the world are each worth as much or more than all of the
Canadian banks combined, and Canada's largest Canadian bank, the Royal Bank,
ranks 55th in the world.
The realignment of Canadian stock exchanges and the demutualization of the
Toronto Stock Exchange (TSE) were two of the most recent changes to the
securities market. The TSE was the best performing exchange in the world in
1999 measured by market capitalization. The TSE faces challenges with respect
to adopting new information technology and consolidation of global exchanges.
In addition, the merging of international exchanges could consolidate the
strength of the world's dominant players, threatening the existence of the TSE
and smaller exchanges around the world.
The insurance industry has been consolidating due mainly to demutualization of
the industry. Many of the insurance companies have broadened their scope,
increased economies of scale anddecreased costs by consolidating. Between 1996
and 1999, Toronto's employment in the insurance industry decreased by
approximately 11 per cent. The city's ability to retain the insurance industry
will depend on improving the skilled labour pool, advanced telecommunications
infrastructure, and transportation infrastructure.
Toronto is at a critical stage in its development as a financial service
centre. The financial services sector world-wide is experiencing a period of
instability because of globalization, regulatory changes, consolidations, and
advances in technology. Financial Services Clusters throughout the world are
being reorganized. As consolidations continue, particularly among the
exchanges, a new order of Financial Services Clusters will emerge, dominated by
a handful of cities.
Currently, Toronto's financial services sector ranks third in North America
behind New York and Chicago by employment. Toronto's FIRE sector (financial
services, insurance and real estate) grew at a rate of 38 per cent between 1981
and 1996, exceeding that of Boston, Chicago, and San Francisco, but it was
outpaced by growth in Atlanta, Dallas, Seattle, Minneapolis, Philadelphia and
Seattle. These cities will eventually overtake Toronto at their current rate of
Other cities have successfully encouraged the growth of their financial
services through strategic alliances and promotion. These cities focussed their
efforts by recognizing that competitors are increasingly international. Toronto
must follow suit in order to remain competitive in the international market
The strengths of Toronto's sector include:
- the existing concentration of the financial services cluster
- linkages within and between industry groups
- the growth of the higher order head office and administrative functions in
- a large available, skilled labour pool
- the availability of public transportation
- the existing critical mass of financial services and educational
- the growth of alliances
- building upon Toronto's image as the nation's financial services centre
- regulatory changes allowing for easier entry of U.S. firms into Canada
- prospect for strengthening linkages within the financial services cluster
and developing programs to facilitate long-term growth and competitiveness
a cumbersome federal regulatory system
- Canada is also the only major economy in the world to levy capital taxes
annually on its financial sector
- the perception that the quality of life in the city is declining, as
witnessed in homelessness, traffic congestion and transit accessibility
- lack of political interest in, and support for, the sector
- regulatory uncertainty
- expansions and investments by financial services companies south of the
border resulting in the flow of capital outside of the city and country
- labour and skills shortages may constrain future growth
- changes to foreign ownership rules could result in a movement of corporate
- functions to foreign companies, resulting in a loss of high-end employment
- further growth and movement of financial services companies to the 905
area may weaken the critical mass of businesses concentrated in the core of the
The success of the financial services cluster in Toronto will depend largely on
the ability of its financial services firms to adapt to the external forces
shaping the sector. The City of Toronto can play an important role in assisting
to create an environment that enhances the sector's ability to compete locally
One of the first steps to strengthen the cluster will be to recognize the
contribution of financial services to Toronto's international profile, as a
major employer, as a major contributor to the local GDP, and as a source of new
It is recommended that the federal and provincial ministers of Finance and
Economic Development formally recognize Toronto as Canada's financial services
centre, given the concentration of the nation's financial services businesses
that are located in the city.
The City should also harness the local talent, resources, and commitment of the
financial services cluster to form a Toronto Financial Services Cluster
Alliance that would include key industry, association, and academic
representatives as well as city council. The Financial Services Cluster
Alliance would focus efforts to develop an action plan in co-operation with the
City to target the following areas: marketing and promotion, advocacy,
competitive intelligence, human resource development, and business development.