Schedule II Bank

What Is a Schedule II Bank?

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

A Schedule I bank is a domestic institution such as the Royal Bank of Canada or Toronto-Dominion Bank. There also are 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 discontinued in 2001. Oddly enough, however, the terms remain widely in use.

Understanding the Schedule II Bank

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

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

Institutions with equities of $1 billion to $5 billion do not have this restriction but are required to have public ownership of at least 35% of voting shares. Institutions with under $1 billion in equity have no ownership restrictions.

Although the Schedule I and II bank designations 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 the National Bank of Canada, the Royal Bank of Canada, the Bank of Montreal, the Canadian Imperial Bank of Commerce, the Bank of Nova Scotia, and the Toronto-Dominion Bank.

About Canada’s Banking System

Canada's federal government has sole jurisdiction over banks, while credit unions, securities dealers, and mutual funds are primarily regulated by provincial governments. Canada’s Bank Act outlines Schedules I, II, and III, which list all banks permitted to operate in Canada.

Because Schedule I banks are true domestic banks and not subsidiaries of a foreign bank, they are the only businesses that are allowed to receive, hold, and enforce security interest as described in the Bank Act. Schedule II banks are subsidiaries of a foreign bank that are allowed to accept deposits, and Schedule III banks are foreign banks permitted to conduct business in Canada.

The Big Six Banks

The Schedule I banks are dominated by the Big Six Banks, the term commonly used to describe the 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 governed by other regulatory bodies including securities regulators and insurance regulators.