Canada’s seven biggest financial institutions are ramping up their venture investing after years of declines, but deal making still has a long way to go before returning to its pandemic-era peak.

The Big Six banks and Desjardins made six publicly announced direct investments in startups between January and the end of August, worth a total of US$177 million, according to PitchBook data. That’s a significant increase in deal value from 2024, when venture investing amounted to just US$40 million, but only about a quarter of what it was in 2022, when those financial institutions made 17 investments worth US$654 million.

RBC was the most prolific venture investor, publicly disclosing 38 deals since 2015, with CIBC close behind at 36, the data shows. The numbers likely understate total equity financing, as banks often keep their venture bets private.

Jan Christopher Arp, founding managing partner of the Holt Xchange, a fintech venture capital fund, said he still considers it a tough market for raising funds, despite the recent uptick. “It’s rebounded a bit because it fell off a cliff. It went from zero, super, super terrible, to potentially a bit better. But it’s still down,” he said.

Big banks’ deep pockets and financial expertise have the potential to make them powerful venture investors, but regulators put heavy restrictions on the activity. Making bets on unproven tech companies is, by definition, highly risky. People can pull their bank deposits out at any time—leaving them vulnerable to runs if depositors lose confidence in their ability to manage risks, and ultimately putting taxpayers on the hook to bail them out.

The Office of the Superintendent of Financial Institutions (OSFI) disincentivizes Canadian banks from venture investing by requiring them to set a significant amount of capital aside to cover the risk of something going wrong. In 2023, OSFI set the risk weight for venture investments—a number used to calculate how much banks must hold in reserve—at 400 per cent. That’s much higher than the 250 per cent risk weight assigned to other types of equity investments, such as stocks in public companies. 

Jie Zhang, a finance professor at Trent University, said these guardrails mean there’s little risk of Canada experiencing the bank runs and failures that periodically wreak havoc on the U.S. financial system because of venture investing gone wrong. “They are not allowed to be highly exposed to venture capital,” she said.

Despite the restrictions, major Canadian banks have gone through cycles of stepping up and pulling back on venture investing over the past 10 years. They ramped up their venture deals in 2019 as the tech sector heated up, before scaling back in 2020 as the pandemic battered markets.

As valuations ballooned in 2021 thanks to rock-bottom interest rates and a tech-powered stay-at-home workforce, bank VC deal values once again surged, reaching their peak in 2022. Banks invest disproportionately in the fintech sector, which was hit particularly hard by a post-pandemic deep freeze for tech, but has since experienced a rebound.

Philippe Daoust, managing director of National Bank’s venture arm, said the lender has maintained its conviction in the value of the asset class since launching its venture arm eight years ago. He said the bank invests in fintechs that help the bank achieve a goal faster than it would be able to by developing software internally or buying it from a big tech firm.

Another reason for launching National Bank’s venture arm was to support the country’s tech ecosystem and help address the country’s productivity problem, he said. “The Canadian ecosystem needed a boost, and as an institution working nearly exclusively In Canada, we needed to be part of the ecosystem.”

OSFI and the Bank of Canada have both recently encouraged Canada’s big banks to take more risks in an effort to strengthen the economy in the face of U.S. tariffs. Zhang said she agrees with this approach, but thinks increasing lending to established businesses would be a better way for banks to make the economy more resilient than ramping up venture investing.

“I don’t think it’s a good strategy to [focus on helping] startup firms establish their business. I think the current urgent job for the banks is to help Canadian corporations get out of the tariff crisis,” she said.

Arp said he thinks more bank venture investing in Canada would be a good thing, and has publicly expressed concern about Canada’s bank regulations that disincentivize venture investing. He said many of his fund’s portfolio companies court U.S. banks as customers and investors because it’s easier and faster, to the detriment of the economy

“Not innovating is a risk. Not doing anything is a risk,” he said. “You should be placing these bets.”