Trust Companies in Canada
A Trust Company plays a special role in the Canadian financial system. They are the only institutions allowed to administer trusts, such as those set up to manage estates. Unlike banks, trust companies can be incorporated and regulated at either the federal or the provincial level.
A bank has full commercial lending powers, whereas a trust company must have more than $25 million of regulatory capital to receive full lending powers with the approval of the Office of the Superintendent of Financial Institutions.
Many of us may use the services of a trust company without realizing it, since trust companies also act as transfer agents and registrars for bonds and corporate stocks, as well as for pension and investment funds. In addition, trust companies have the right to accept deposits and have traditionally been active in areas such as mortgages.
The trust industry changed radically in the early 1990s. Banks were allowed to purchase trust companies. The recession and subsequent drop in the real estate market in the early 1990s dealt a heavy blow to trusts, which were companies dependent on properties and mortgages.
Many consolidated their operations and chartered banks purchased the largest ones. This caused the independent trust industry, as measured by assets owned, to decline by more than one half from 1990 to 1999. By decade’s end, independent trusts represented only 2.5% of the financial sector.
The few remaining independent trust companies deal primarily in mortgage lending, which accounted for 61% of their assets at the end of 2002. The most important source of funds was term deposits, amounting to 84% of liabilities.
