Dec. 17 (Bloomberg) -- Bank of Canada Governor David Dodge said the country needs to look at how to boost ``incentives'' for banks to become more innovative and efficient.

Allowing banks to grow, for instance, would provide ``efficiency gains,'' Dodge wrote in a commentary published today in the Globe and Mail newspaper. Other public-policy questions that need to be ``discussed'' include foreign ownership rules covering the financial industry and ``concerns about concentration of market power,'' Dodge, 64, wrote.

``Competition leads to innovation,'' said Dodge, who is retiring as of Jan. 31 after a seven-year term as central-bank chief. ``We should continue to look for ways to improve the framework so institutions can compete across pillars of the financial system.''

Canadian banks are forbidden from marketing insurance products from inside their branches, limiting their ability to expand in that sector. The country's five biggest banks also have been prohibited from merging with each other since 1998.

Canada also needs ``uniform'' securities regulation with better enforcement to become more competitive and ensure companies don't go elsewhere to raise funds, Dodge wrote.

Provinces and territories are responsible for regulating securities, which means companies must seek approval from 13 agencies to sell stock across the country.

Canada loses about C$10 billion ($10 billion) a year in economic output because of the fragmented regulation, according to a government-commissioned report by John Coffee, a Columbia University Law School professor. The country is the only Group of Seven nation without a national securities watchdog.

``Progress in developing uniform securities law and a universally applicable set of regulations has been limited so far,'' Dodge said. ``The diversity of regulation makes it difficult to maximize efficiency in our markets.''

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.

Last Updated: December 17, 2007 10:23 EST