Part 1'The commercial banking industry in Canada is less competitive than the commercial banking industry in the United States because in Canada only a few large banks dominate the industry, while in the United States there are around 6,500 commercial banks.' Is this statement true or false? Explain your answer.Part 2
A. True. The reason for the large number of US banks is regulations that promote competition such as branching restrictions B. False. The reason for the large number of US banks is anticompetitive regulations such as branching restrictions C. True. The banking industry is less competitive in Canada than in the United States because Canada has a national banking system, i.e., owned and operated by the government D. False. It is not true that the industry is dominated by a few large firms; thus, based on the Herfindahl-Hirschman Index, the banking industry in Canada is just as competitive as in the United States

Question

Part 1​'The commercial banking industry in Canada is less competitive than the commercial banking industry in the United States because in Canada only a few large banks dominate the​ industry, while in the United States there are around​ 6,500 commercial​ banks.' Is this statement true or​ false? Explain your answer.Part 2
A. True. The reason for the large number of US banks is regulations that promote competition such as branching restrictions B. False. The reason for the large number of US banks is anticompetitive regulations such as branching restrictions C. True. The banking industry is less competitive in Canada than in the United States because Canada has a national banking​ system, i.e., owned and operated by the government D. False. It is not true that the industry is dominated by a few large​ firms; thus, based on the​ Herfindahl-Hirschman Index, the banking industry in Canada is just as competitive as in the United States

BlackTom AI · Accepted Answer

First, restate the question and options to set the stage for analysis.
- Part 1 asks whether the claim that Canada’s commercial banking industry is less competitive than the U.S. because a few large Canadian banks dominate while the U.S. has about 6,500 banks is true or false, and Part 2 provides four choice explanations labeled A–D.

Option A: "True. The reason for the large number of US banks is regulations that promote competition such as branching restrictions."
This option argues that branching restrictions promote competition and thereby explain a large number of U.S. banks. The logic is flawed: branching restrictions typically constrain where banks can operate and how they can expand, which tends to fragment the banking landscape and can lead to many small, locally focused banks. However, the overall claim that Canada is less competitive because the U.S. has many banks hinges on a regulatory effect that is mischaracterized here. In short, while branching restrictions can contribute to a larger number of banks, the statement’s causal link (that this makes the U.S. more competitive) is inconsistent with standard interpretations that see fewer, larger banks as less competitive in some senses or with the premise provided. This makes Option A dubious.

Option B: "False. The reason for the large number of US banks is anticompetitive regulations such as branching restrictions."
This choice negates the initial claim by asserting the statement is false and attributes the abundance of U.S. banks to anticompetitive regulations like branching restrictions. The key here is that branching restrictions historically limited bank branching across state lines, preserving many smaller, local banks and preventing broad consolidation. This explanation aligns with historical debates about competition in the U.S. banking sector, where regulations can both foster a larger number of banks (through fragmentation) and impede nationwide competition. Therefore, this option correctly challenges the stated claim and provides a regulatory mechanism that plausibly explains why there are many banks in the U.S.

Option C: "True. The banking industry is less competitive in Canada than in the United States because Canada has a national banking system, i.e., owned and operated by the government."
This option states that Canada is less competitive due to a national, government-owned system. In reality, Canada’s banking system is characterized by a small number of large, privately-owned banks operating under a broadly federal framework, not a government-owned national system. The premise of government ownership and a clearly national system is inaccurate, making this option incorrect.

Option D: "False. It is not true that the industry is dominated by a few large firms; thus, based on the Herfindahl-Hirschman Index, the banking industry in Canada is just as competitive as in the United States."
Here, the claim denies domination by a few large firms and invokes the Herfindahl-Hirschman Index (HHI) to claim parity in competitiveness. However, the empirical characterization in common analyses shows Canada is dominated by a small number of large banks, which tends to yield a higher concentration (and typically a higher HHI) than in a highly dispersed banking market. Labeling Canada as just as competitive as the United States contradicts established industry structure, making this option incorrect.

In summary, Option A misreads the regulatory effect on competition, Option C relies on an inaccurate description of Canada's banking system, and Option D contradicts known market concentration patterns. Option B correctly identifies the statement as false and offers a regulatory explanation (branching restrictions contributing to a larger number of U.S. banks) that fits the typical interpretation of how competition is shaped in the banking sector.

Homework:Chapter 11 Homework

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Similar Questions

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