Canadian banks reach for a larger chunk of US financial market

From New York to Florida, from California to Illinois, Canadian banks have been expanding in the United States. That growth shows no signs of slowing down. The latest move is that the third largest bank in Canada wants to buy the 33rd largest bank in the US.

The Bank of Montreal plans to buy Harris Bank of Chicago for $546 million. The proposed acquisition, which won't be final for about a year, would make the Bank of Montreal the largest Canadian financial institution in the US, the second largest bank in Canada, and the sixth largest non-American bank operation in the US.

A similar takeover of a Canadian bank by an American financial institution would be out of the question. Canadian law forbids it. The chairman of the Bank of Montreal, William Mulholland, said that one of the reasons that his bank bought an American bank is the Canadian government would not have allowed it to buy a bank at home due to worries over the concentration of banking power. There are 11 Canadian-chartered banks, compared with about 14,000 banks in the US.

The door for foreign banks was opened just 21/2 years ago. And the Canadian banking act restricts the activities of the 56 foreign banks operating in Canada by limiting their size to 8 percent of the total asset base of all banks.

American banks operating in Canada have asked for an increase in the amounts they can lend in Canada. The Finance Committee of the House of Commons in Ottawa has recommended an early end to the ceiling on foreign bank assets.

One worry the committee had was that keeping a loan limit on the foreign banks would drive business out of Canada. ''This situation may induce foreign bank subsidiaries to refer their clients to their head office for their loans, bypassing the existing regulation,'' the committee said.

Meanwhile, Canadian banks have concentrated their activities in three states - New York, Illinois, and California - although the ''big five'' banks each operate in at least five states, some in as many as nine. In the past, Canadian banks have been expanding rapidly in the US because it is Canada's largest trading partner. No two countries in the world do more business with each other.

''Even though the United States is next door, it is a very different market, '' says bank analyst Mary Lesslie. Miss Lesslie, who published a report on the activities of Canadian banks in the US earlier this year, says that recently Canadian banks have been sliding. She says that Canadian banks used to have an advantage over their American counterparts, who were limited to operating in only one state. The Canadian banks could establish subsidiaries, branches, agencies, and representative offices in many different states. But a change in the law meant a change in the weather for Canadian Banks. ''The introduction of the International Banking Act of 1978, the majority of which began to be implemented in 1980, closed many doors for foreign banks, thereby eliminating the potential for growth previously enjoyed by the Canadian banks in the marketplace,'' said a section of Miss Lesslie's report.