It’s time that Canada’s bankers got their collective butts kicked.
We’re three weeks into a full-blown national cash crunch brought on by the COVID-19 pandemic, yet rather than proactively offering a bold, aggressive and united policy to help Canadians when we need it the most, our banks have been too timid, too careful and too slow to help.
Every other institution in the country seems to understand the serious nature of the crisis we’re facing. Indeed, political parties and business competitors across Canada are fervently working together right now to come up with ways to innovate and help Canadians weather the storm.
Instead, our banks are dealing with issues on a case-by-case basis: they still charge exorbitant credit card interest rates; they still haven’t lifted many fees; cash-strapped small businesses have to go through the same long approval process for credit-line extensions or loan applications. Same with individual loan approvals.
It’s basically business as usual.
Consider the case of credit cards. Charging interest rates of 20 per cent or more on credit card debt is “gouging” in the best of times. Doing it in a time of global pandemic and economic recession/depression is piracy on the high seas. Kudos to Prime Minister Justin Trudeau for calling out the banks on this last week.
Sure, the banks have deferred payments for up to six months on mortgages and some loans — but the interest charges continue to accrue. Credit card payments have been deferred as well, but interest charges and transaction fees stay the same. Mortgage rates have actually bumped higher despite the collapse in government bond yields, which the banks use to price their homeowner loans. ATM fees and a rash of other charges that pad the banks’ bottom line still seem to be off the table.
What have the big banks cut? The interest they pay on high-interest savings accounts.
Keep in mind, the banks are not suffering. Yes, they are facing their own staffing and operational challenges, but there is so much they could be doing that doesn’t risk front-line staff.
Instead of just waiving credit card payments, the banks can slash or even waive interest rates for three to six months on unpaid amounts and waive the 90-per-cent cut of transaction fees they take from merchants. Bank loans officers should be able to immediately make a call at their level on extending credit lines without having to file a complete application and sending it up the chain for approval. Interac fees should be dropped. ATM fees should be waived.
The banks shouldn’t wait to be asked by the prime minister before acting on any of these measures. They have all the ammunition they need to do it on their own.
The Bank of Canada in the past two weeks has stepped up in a huge way to backstop Canada’s banks. It has aggressively cut overnight lending rates, allowing banks to keep more cash on hand for its customers. The BOC has also unleashed a flood of transactions with a wide array of financial instruments in the funding markets designed to keep the banking and financial system as well as provincial governments’ short-term lending needs liquid enough to meet increased demand from consumers and businesses.
All of this is designed to add another $300 billion of lending capacity into the economy.
The banks can’t give out free money to everyone. Nobody wants our banks to bleed during this crisis, but nobody should believe that our banks are hurting, either. After all, they operate in a cozy oligopoly that pretty much protects them from foreign competitors. They are accountable to their shareholders, not to their customers.
In the 2019 fiscal year, Canada’s top 6 banks (BMO, CIBC, National, RBC, Scotia and TD) generated net profit of $46.6 billion. That’s about $1,240 for every man, woman and child in Canada. The CEOs of Canada’s major banks regularly earn direct compensation in the range of $10 million-plus every year, excluding pension and other compensation items.
That’s a lot of money. So if those who have more, should do more, now’s the time for Canada’s bankers to do more.
Or, here’s a better idea: let’s get Finance Minister Bill Morneau to rewrite the Bank Act and let more foreign banking competition play in our back yard. Competition has a way of driving down consumer costs and increasing service.
Now, that’s a butt-kicking that Canadians would love to see.
Rick Peterson is an Edmonton businessman and former Conservative Party of Canada leadership candidate.