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The Real Bank Crisis: Protecting Profits at Public Expense

As published in the Victoria Standard: May 9, 2018.

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.

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.

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 and 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 UK and the US, 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 in fines since 2001, insignificant when compared to Britain’s $3 billion and America’s $5 billion in penalties issued over the same period. These numbers suggest two unlikely possibilities, either Canadian banks are beyond reproach or the federal government approves of their misdeeds since Canadian bankers differ little from their British and American counterparts.

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 actually 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. As well, the Bank of Canada could 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. As well, 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.