Bank of Canada governor David Dodge said Monday more efficiencies are needed in the area of financial regulations — possibly signalling support for bank mergers.

Speaking to the Economic Club of Toronto, Dodge said the central bank has found that, compared with U.S. banks, there are unexploited economies of scale for Canadian banks.

Bank of Canada governor David Dodge gestures as he speaks to members of the business community in Toronto on Monday.
(Adrian Wyld/Canadian Press)

"This suggests that Canadian banks are less efficient with regard to the scale of their operations and, if banks could reap economies of scale, there would be efficiency benefits to flow through to the Canadian economy," Dodge said in his speech, according to the text posted on the bank's website.

"Overall, our research concluded that legislative and regulatory changes have benefited efficiency in Canadian financial services. This shows the importance of removing any remaining restrictions that inhibit competition and efficiency, but provide little or no benefit in terms of financial soundness," he said.

Earlier attempts by some of the country's big banks to merger were shelved by then-finance minister Paul Martin in 1998. However, the current Conservative government is seen as possibly more accepting of bank consolidation.

Dodge also said the country needs a national policy regulating securities, saying other countries are making strides in the field.

"Against this backdrop, we in Canada increasingly look as if we are stuck in the middle of the 20th century, and are not positioning ourselves well to compete in the 21st century," he said.

"For the sake of efficiency, we need a single, uniform framework for securities regulation."

Monday's speech isn't the first time that Dodge has mused about bank mergers. In April 2005, he said research showed that mergers in the sector had produced benefits for financial markets and consumers alike.