CANADA FINANCE-World crisis puts bank mergers out of mind

* Canada bank mergers highly unlikely now

* Global crisis has shown bigger is not necessarily better

* Canadian banks hiring from rivals that grew too fast

By Pav Jordan

TORONTO, July 3 (Reuters) - The global financial crisis may have taken mergers among Canadian banks off the table once and for all as the breakdown of major financial institutions around the world has shown that bigger is not necessarily better.

Canadian banks tried to merge in the late 1990s, arguing they needed to become global players, or risk becoming irrelevant.

Now chief executives at Canada's biggest banks say the crisis has showcased the resilience of the national banking system to the financial turbulence that has brought some of the mightiest global institutions to their knees.

"This concept of having to be bigger to be successful has been proven to be a flawed strategy," Royal Bank of Canada Chief Executive Gord Nixon told Reuters in a recent interview.

Before the crisis struck, Canada's No. 1 bank was often compared with Royal Bank of Scotland (RBS.L), which in the space of a few years went from being a domestic bank to a global presence. It was held up as an example of everything Royal Bank of Canada (RY.TO) should be doing, but wasn't.

Last year the once-mighty Scottish bank had to be bailed out by the British government and is now 70 percent state-owned.

WHAT IF?

Two would-be mergers in 1998 -- one between Royal Bank and Bank of Montreal (BMO.TO), and the other between Canadian Imperial Bank of Commerce (CM.TO) and Toronto-Dominion Bank (TD.TO), were scuttled by then Finance Minister Paul Martin as public criticism of the plans ran high.

Had the acquisitions been allowed to be completed, many ask what that would have meant for the Canadian and even global banking systems today.

"Had Royal and BMO closed, would they have gone and bought Lehman Brothers?" said Stanley Hartt, chairman of Macquarie Capital Markets Canada and Canada's deputy minister of finance in 1985.

Lehman Brothers filed for bankruptcy protection last September, shaking up the entire financial system.

"And had they done that, would they have had the discipline to say to those guys, 'no, no, no, to heck with this 40 times leverage? And don't take all those risks!'," Hartt said.