What it means
In Canada the Big Five are Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce. Adding National Bank of Canada gives the Big Six, a closely related label used in the same conversations when the full domestic set is needed.
The phrase matters because it describes concentration. When five institutions hold the bulk of a national banking market, they effectively set deposit rates, mortgage pricing and credit availability, and a borrower's apparent choice is narrower than the number of branded products on offer suggests.
In day to day corporate finance the label is practical shorthand. A treasurer asks the Big Five for quotes on a facility, syndicates a large loan among them, benchmarks deposit pricing against their posted rates and compares their published results because the five report broadly similar lines.
There is a nuance worth holding lightly. Canada's large banks came through the 2008 financial crisis in better shape than many peers, and this is often attributed to conservative mortgage underwriting, mortgage insurance rules and close supervision, but the explanation is debated rather than settled.
The label is also market-specific and not a credit rating. Australia has its own Big Four, the United Kingdom has a commonly cited group of large high street lenders, and in all cases the membership shifts with mergers, so check the current list before using it in a document.
One further practical point is that these banks supply far more than loans. They are usually the main providers of cash management, payroll, card acquiring and trade finance in their market, so a company that moves its borrowing often finds the day to day plumbing much harder to move.
The real switching cost is operational rather than financial.
In practice
Real-world examples.
Example
A Toronto-based manufacturer needs a $75,000,000 revolving facility. Its treasurer runs a competitive process across the Big Five, then splits the facility between two of them to keep a second relationship warm for future needs.
Example
A mortgage broker explains to first-time buyers that posted rates at the Big Five are a starting point rather than a final answer. She shows them a credit union quote 0.25% lower and lets them weigh the pricing against branch coverage.
Example
An equity analyst builds a comparison sheet of the five banks' net interest margin, cost to income ratio and provisions for credit losses. Because the five report on a similar basis, the sheet highlights which bank is pricing risk differently from the rest.
Formula
Calculation
Concentration ratio for the five largest banks, often written CR5 = combined assets of the five largest banks / total banking system assets.
Suppose a banking system holds $6,000,000,000,000 of total assets, and the five largest banks hold $1,600,000,000,000, $1,400,000,000,000, $1,000,000,000,000, $800,000,000,000 and $600,000,000,000 respectively. Their combined assets are $5,400,000,000,000, since 1,600 + 1,400 + 1,000 + 800 + 600 = 5,400 in billions.
CR5 is therefore $5,400,000,000,000 / $6,000,000,000,000 = 0.90, or 90%. A reading that high tells you the remaining lenders, however numerous, compete for only one tenth of the market, which is exactly the point the phrase is making.Case study
Seen in the real world.
Maple Ridge Logistics is a fictional company created for this illustrative example. In the story it banks with one of the five largest lenders in its market and has never tested the price of its $20,000,000 debt facility in eight years.
A new finance director runs a formal process, inviting all five large banks plus two mid-sized lenders. Three of the five decline because the sector does not fit their appetite, one matches the incumbent, and one offers a margin 0.40% lower in exchange for the cash management mandate, worth about $80,000 a year in savings on the facility.
The illustrative lesson is that concentration cuts both ways. A small number of large lenders means fewer doors to knock on, but it also means those doors compete hard for a credit they want, so the price of loyalty should be tested every few years.
Watch out
Common mistakes.
- Using the phrase without saying which country, since the Big Five means different institutions in Canada than anywhere else.
- Treating membership of the group as a credit rating, when size tells you about market position rather than about financial strength.
- Assuming all five will quote on any deal, when each has its own sector appetite and may decline outright.
Questions
People also ask.
Who are the Big Five in Canada?
Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce.
What is the difference between the Big Five and the Big Six?
The Big Six adds National Bank of Canada to the same list, so the choice of label depends on whether the analysis needs the full domestic set.
Does banking concentration help or hurt customers?
It can support stability and scale, but it also reduces price competition, which is why regulators monitor these markets closely.
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