The connection with these two disparate events may not be apparent at first glance. But if the first made consolidation of Canada's banking industry inevitable, the second made it, at least in the banks' view, imperative.

A little history, first. Once upon a time, the banks' position as the gatekeepers of the financial system seemed as sturdy and impregnable as the massive stone buildings in which the typical branch was located. When you had money, you deposited it in the bank. When you needed money, you borrowed it from the bank.

Developments in financial markets changed all that. Nobody puts much money in savings accounts any more -- not when inflation and interest rates are low and stock markets, made accessible to small investors by the advent of mutual funds, offer such superior returns. At the same time, banks found fewer and fewer profitable places to lend funds, at least in the corporate end of the market: whereas in the 1970s bank loans accounted for more than half of all corporate financing, by 1995 that was down to less than a fifth, as corporations flocked into the debt and equity markets.

Fortunately for the banks, the regulatory reforms of the 1980s allowed them to jump into the securities business in time to catch this wave, as lending margins shrank and fee-based services expanded. But by then new challenges were arriving. A regulatory ruling forcing open the Interac network offered their rivals ready access to the payments system. The sudden explosion of the Internet gave impetus to the rise of electronic "virtual" banks, whether domestic, like Vancouver's Citizens Bank, or foreign, like the Dutch giant ING. Promised federal legislation will further open Canada's markets to international competition.

Indeed, the diversification that has been the banks' lifeblood stood in danger of becoming their greatest weakness, as large, specialized competitors, usually U.S.-based, picked them off one by one: Wells Fargo, in small- business lending; MBNA, in credit cards, and so on. All of which the banks might have weathered, were it not for the coming upheaval in the Canadian securities business, their bread and butter in recent years, triggered by changes in the rules governing how pension savings are invested.

These have not changed as yet, mind you: it's still the case that no more than 20 per cent of an RRSP or pension fund can be invested overseas. But reform of the CPP, and the decision to shift the lion's share of the burgeoning CPP Investment Fund, worth more than $100-billion within the decade, into equities, means that restriction cannot long survive. However persuasive the other arguments for lifting the foreign content rule, it is simply intolerable that the CPP, with the entire country's pensions at risk, should be investing 80 per cent of its funds in 2 per cent of the world equity market. And if it is exempted, it is hard to see the same not applying to pension funds in general.

With that, the last impediment to the banks' foreign competitors will be dislodged. It will no longer be a matter of the invaders having to persuade doubting Canadians to give them their business: investors, free to diversify their portfolios, will be eagerly seeking ways to push their funds offshore.

And their first stop will be with the massive U.S. mutual funds, whose fees, thanks to economies of scale, are much lower than in Canada.

All of which makes a compelling case for allowing banks to merge. So compelling, in fact, that it is a certainty that the federal task force on financial regulation will recommend it when it reports this fall.

But if that is the case, then why the rush? Why pre-empt the task force's work, not to mention annoy the Finance minister, with this precipitous announcement? Because considerations of policy do not always survive the dictates of politics. Paul Martin may be personally sympathetic to the banks' argument. But he has a large caucus to keep in mind, for whom bank- bashing is almost instinctive.

Ordinarily, the Finance minister might not be too worried what the back bench thinks. Why might this no longer be the case? Enter the ice storm. The biggest political winner from the crisis, by a country mile, has been Lucien Bouchard. That has set off a flurry of speculation about a spring election in Quebec.

If he wins, and wins big, that raises the prospect of another referendum.

Which would increase the pressure on the Prime Minister, given his enduring unpopularity in his home province, to step down. Which means a leadership race. Which means a right-of-centre Finance minister has to do something to appeal to the left-wing vote. Something like saying no to the banks. Better, the banks may have felt, not to give him that opportunity.

See, I told you it was all connected.