The real bank cri­sis: pro­tect­ing prof­its at pub­lic ex­pense

The Victoria Standard - - Commentary - MOR­GAN DUCHESNEY

Ac­cord­ing to the in­flu­en­tial and se­cre­tive Bank for In­ter­na­tional Set­tle­ments, Canada faces a pos­si­ble bank cri­sis due to ex­ces­sive house­hold and credit card debt. While not com­pletely in­dif­fer­ent to the con­cerns of work­ing peo­ple, this elite body com­mu­ni­cates only with bankers and gov­ern­ment man­darins who view ex­ces­sive con­sumer debt as a po­ten­tial threat to bank prof­its and share prices.

Declar­ing a so-called con­sumer debt cri­sis ef­fec­tively dis­tracts Cana­di­ans from the lin­ger­ing in­sti­tu­tional prob­lems that un­der­mine the en­tire econ­omy. Ef­fec­tive and per­ma­nent so­lu­tions will never emerge from the coun­cils of those who ben­e­fit from the un­fair­ness of the cur­rent sys­tem.

Through lobby groups like the Cana­dian Coun­cil of Chief Ex­ec­u­tives, the Cana­dian Banker’s As­so­ci­a­tion and the Cana­dian Cham­ber of Com­merce, Canada’s fi­nan­cial elite en­joy priv­i­leged ac­cess to elected of­fi­cials and se­nior bu­reau­crats in Fi­nance and else­where. Cabi­net min­is­ters like John Mccal­lum and Joe Oliver pre­vi­ously held se­nior po­si­tions in the bank­ing and fi­nance in­dus­try while oth­ers like the late Jim Pren­tice as­sumed ex­ec­u­tive bank­ing roles im­me­di­ately af­ter politics. It is naïve to as­sume that bank lob­by­ists would pres­sure banker politi­cians to favour the in­ter­ests of work­ing peo­ple over their pow­er­ful clients.

An­a­lysts who’ve been warn­ing of a loom­ing “bank cri­sis” must have missed the record prof­its Cana­dian char­tered banks are cur­rently en­joy­ing. Th­ese prof­its are largely due to prac­tices like set­ting com­mon in­ter­est rates, hik­ing fees, cut­ting ser­vices and fir­ing thou­sands of em­ploy­ees. Un­like the U.K. and the U.S., where banks have been heav­ily-fined and sanc­tioned for their greed, Cana­dian reg­u­la­tors con­tinue to tread gen­tly.

Even ob­vi­ous cases of money laun­der­ing have been treated with great del­i­cacy by the Fi­nan­cial Trans­ac­tions and Re­ports Anal­y­sis Cen­tre of Canada (FINTRAC). Since or­ga­nized crime and ter­ror­ism rely on laun­dered funds, it is dis­turb­ing to note how FINTRAC ini­tially re­fused to name Man­ulife, the in­sti­tu­tion fined $1.5 mil­lion for its il­le­gal trans­ac­tions. A con­fi­den­tial 2017 De­part­ment of Fi­nance re­port re­vealed that six of the nine ma­jor Cana­dian banks were ig­nor­ing FINTRAC re­port­ing rules on de­posits over $10,000.

Per­haps worse than FINTRAC’S con­duct is the unin­spired be­hav­iour of the Fi­nan­cial Con­sumer Agency of Canada (FCAC), the na­tion’s tooth­less bank watch­dog. Fol­low­ing a spring 2017 CBC in­ves­tiga­tive re­port, the FCAC ac­tu­ally an­nounced its plan to con­duct in­spec­tions of ques­tion­able bank­ing prac­tices a month in ad­vance. One pun­dit likened this to the po­lice post­ing speed trap warn­ings. The FCAC has im­posed a pal­try $1.7 mil­lion in fines since 2001, in­signif­i­cant when com­pared to Bri­tain’s $3 bil­lion and Amer­ica’s $5 bil­lion in penal­ties is­sued over the same pe­riod. Ei­ther Cana­dian banks are be­yond re­proach or the fed­eral gov­ern­ment ap­proves of their mis­deeds.

In ad­di­tion to gov­ern­ment agen­cies ac­tu­ally en­forc­ing cur­rent reg­u­la­tions, a con­sumer-funded bank­ing watch­dog could im­prove bank prac­tices through pub­lic re­ports, re­veal­ing profit mar­gins, ac­cu­rate profit to­tals and bank taxes paid in Canada. The ef­fec­tive­ness of such an agency would be dra­mat­i­cally in­creased by vo­cal sup­port from both fed­eral and pro­vin­cial par­lia­men­tar­i­ans.

While the Bank of Canada is a pub­lic in­sti­tu­tion that in­flu­ences the econ­omy by set­ting in­ter­est rates to con­trol in­fla­tion, prior to 1974, the Bank ac­tu­ally lent money to the Gov­ern­ment of Canada at min­i­mal in­ter­est. Af­ter 1974, the gov­ern­ment ceased “Fiat” bank­ing and be­gan bor­row­ing high-in­ter­est funds from in­ter­na­tional banks while in­sti­tut­ing steady cor­po­rate tax cuts. The Bank of Canada could also be said to “sub­si­dize” pri­vate banks by ex­tend­ing short-term low in­ter­est loans that fa­cil­i­tate prof­itable lend­ing. While this prac­tice does pro­vide sta­bil­ity to the cur­rent sys­tem, it seems un­fair that this priv­i­lege is ex­tended only to ex­tremely prof­itable pri­vate banks.

When the Bank of Canada raises in­ter­est rates to pre­vent in­fla­tion and dis­cour­age ex­ces­sive con­sumer debt, it ben­e­fits wealthy, offshore bond hold­ers, while si­mul­ta­ne­ously harm­ing small busi­nesses who must bor­row money to ex­pand. There is no ra­tio­nal rea­son for the Bank of Canada’s re­fusal to of­fer loans to work­ing Cana­di­ans, upon whose col­lec­tive hard work and thrift the na­tion’s for­tunes de­pend.

There is real irony, and even hypocrisy, in banker’s com­plaints about high con­sumer debt. Char­tered banks profit hand­somely from pub­lic bor­row­ing, driven largely by slick ad­ver­tis­ing that falsely links self-worth to net-worth.

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