This time Paul Martin had the night to sleep on it. The last time two big Canadian banks announced they had merged -- sorry, declared their intention to seek regulatory approval for a merger -- the Finance minister was given barely half an hour's notice. He reacted by spluttering out a long list of conditions. Mergers were okay, just so long as they did not actually change anything: no jobs lost, no branches closed, and so on.

This time the minister was a little closer to the mark. The issue, he said, was competition, and how to preserve it in a country in which, were the two mergers to go ahead, two banks would control about two-thirds of the market. "We understand the pressures for internationalization," he told reporters, referring to the banks' professed ambition of making themselves more competitive abroad. "But at the same time, the consumer interest, the employee interest and the necessity of an adequate level of domestic competition is very much part of the equation." Well said. Whether the mergers will reduce costs, whether they should do so, are decisions best left to the banks' management. But their judgment in either case should be tested, and the test is competition. If the mergers in fact result in higher costs, as some analysts warn, or if they achieve lower costs only at the price of poorer service, the banks -- and most particularly, the banks' managers -- should face the usual penalties of the marketplace: of lost market share, lost asset value and, ultimately, their own lost jobs.

So long as the banks' consumers, shareholders and workers have choices, the power of the banks is muted, however large they become. The question is whether, given the extraordinary concentration in the financial services sector these mergers would produce, they would still have much choice. The public interest is ill served by competitive success in foreign markets if it is built on the suppression of competition at home.

The purpose of banking, from the banks' shareholders' point of view, is to earn profit; for the banks management and employees, it is to keep them in steady, well-paying jobs; but the purpose of banking, in terms of the broader public interest, is to serve consumers. Competition is the means of reconciling these divergent aims, ensuring that profit accrues only to those who hire enough employees to provide good service to consumers, without hiring so many as to make such service too costly.

Yet in the world of Canadian banking, the consumer is very near the bottom of the interest-group totem pole. And the reason, ironically, is the prohibition, not of mergers, but of takeovers. No one shareholder is permitted to own more than 10 per cent of any bank, in the interests, it was thought, of preventing the concentration of economic power in the hands of a few. In fact it has done just that, only the few in this case are not the banks' owners, but their managers.

Secure from all threat of hostile takeover -- along with the emptying of the executive suites that would follow -- senior managers at the banks are insulated from much of the pressure to perform well for shareholders. The proposed mergers only mean that a larger number of shareholders can be fleeced by an even more entrenched management team.

Talk of shareholders being fleeced may seem odd, given the rapid runup in stock prices the banks have enjoyed in recent years. But for the banks, making money in the Canadian market is like shooting fish in a barrel, especially since their absorption of the brokerage industry. Shareholders are not exploited only because consumers are.

The quick answer on everyone's lips since the merger talk began is foreign competition. If there aren't enough domestic banks to provide consumers with effective competition, let foreign banks do it. Which is fine in principle -- it seems odd to protect the same banks that so many of us are so mad at -- but harder to realize in practice.

For all the advances in telephone and electronic banking, it still probably requires a network of branches on the ground to compete in the financial services sector, at least at the consumer level. It's not that the banks make much money on traditional retail banking any more. But the branches are a gateway to other, more profitable services, like selling mutual funds.

The two merged banks will each have something in excess of 2000 branches across the country. To put this in perspective, the more than 50 foreign "Schedule B" banks have less than 300 -- combined. Without a comparable branch network, they cannot hope to be more than niche players in the Canadian market. And the only realistic way to build such a network is to acquire it -- from one of the existing Canadian banks.

That means, at a minimum, the 10 per cent rule has to go. If the banks want to be more competitive abroad, they will have to accept more competition at home.