Braking the Bank

Canada owes its prosperity in great part to American investment, but "creeping continentalism" -- as some Canadians sneeringly call their country's close economic ties with the U.S. -- is for many a matter of national pride and politics. An overdose of both ele ments has escalated a dispute which in volves U.S. banking beyond any neigh borly squabble.

Canada's target is the Mercantile Bank of Canada (assets: $225 million), which, as smallest by far of the country's eight nationally chartered banks, would hardly be noticed were it not wholly owned by New York's First Na tional City Bank. In Ottawa last week, parliamentary hearings began on a bill designed to limit the size of banks in which non-Canadians have more than a 25% interest. Mercantile, as it happens, would be the only one affected; under the new rules, it would be forced to pare its assets to $200 million or find new Canadian owners.

In pushing the bill, Finance Minister Mitchell Sharp seemed more interested in politics than economic policy. Its passage would build Sharp's Liberal Party strength, polish his chances of one day succeeding Prime Minister Les ter Pearson as party chief. As a result, Mercantile, which had existed for ten years under Dutch ownership before Citibank bought it in 1963, is now a bank to be bullied.

The U.S. is angered at the bill's punitive tone and retroactive nature; it is also fearful of the precedent the measure could set in other countries where U.S. banks operate. Snapped one U.S.

official last week: "You don't change the rules of the game during the game."

Hoping to cool the nationalistic temper surrounding the bill, the State Department issued a strong formal protest; it reminded Canada that its own huge banking interests in the U.S. -- including about half the lucrative Wall Street call-loan market -- amount to some $1.6 bil lion and hinted at possible reprisal. The note did not find a welcome. When one high-ranking U.S. diplomat explained the U.S. position in Ottawa, he was told, "Don't be a bloody fool."

The Liberal government seems in a mood to push on with the bill, to the astonishment of many Canadians. Montreal Gazette Business Columnist John Meyer called the bill "quite inexcusable" and warned that "the implications of this for other foreign investors are absolutely frightening." At the hearings, Bank of Montreal Chairman G. Arnold Hart protested that "such an arbitrary and discriminatory" act could only "lay us open to retaliation." Possibly so. If the bill passes, the next U.S. Congress will probably act on a measure, sponsored by New York's Republican Sena tor Jacob Javits, that provides tit-for-tat treatment for countries where U.S. banks are unfairly hampered.

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