A few of Canada's big banks should be allowed to merge as long as consumers aren't hurt by a drop in competition, according to a Senate committee.

Unions between banks should be approved only if specific business proposals are accepted by regulators like the Competition Bureau, the group said Thursday.

"Bank mergers are a valid business strategy," the Senate banking committee wrote in its report. "They would contribute to Canadian growth and prosperity."

But given the small number of big banks, the number of mergers would probably have to be limited, the senators warned. For instance, going from five to three banks "may be satisfactory," they said.

"It could be the case that mergers resulting in a duopoly in Canada among the large banks would be insupportable," according to the report.

Two months ago, federal Finance Minister John Manley asked two parliamentary committees to help clear up the criteria that should be considered to determine if bank mergers would be in the public interest. The Senate began its work in November. The Commons finance committee plans to hold hearings in January.

In 1998, Ottawa rejected two proposed mergers between large Canadian banks – the Royal Bank with the Bank of Montreal, and CIBC with the Toronto Dominion.

Thursday's Senate report recommended the federal finance minister no longer have the power to reject mergers. Decisions should be based on assessments by industry regulators, not by politicians.

It also suggested a faster review of merger proposals by eliminating the need for public hearings.

There were reports this fall that Prime Minister Jean Chrétien recently reaffirmed his opposition to mergers, ending secret talks between the Bank of Nova Scotia and the Bank of Montreal that had been going on since August.