Ask most Canadians on the street their thoughts about Canada’s Banks and you aren’t likely to get a response favourable to the banks.They see obscene profits, equally obscene credit card rates, an abundance of charges that can only be exceeded by the legal community and above all, a general decrease in personal service.These are only the common complaints.
Contrast this scenario to the American banking system and Canadians ask why we are being ripped off and no one is willing to put an end to it.There is no doubt the amount of open competition in Canada between our banks is limited, perhaps even to the point of collusion but that would be illegal and of course no law abiding business would engage in such a practice.
It would not be an unfair statement that Canadians are subsidizing foreign banking operations of our Big Six banks.Consider the plight of CIBC and BMO who were seriously exposed to the Subprime market and credit crunch from their foreign operations.Certainly while all the banks were exposed to some degree, these two were the most vulnerable.Why?Because domestic rules do not generally apply to foreign operations but domestic operations must maintain their overall liquidity.Still, their collapse was not much of a possibility.Their situations required government intervention to assist them in the short term but failure?Hardly a reality.
So, the other side of the coin then has to be protectionism because foreign banks are precluded from setting up shop in Canada.This truly is the heart of the Canadian consumer’s plight.Competition is being prevented.One would think this might be a bad thing.While the effects on the consumer are obviously opposed to our best interest, at least on the surface, this protectionist policy is actually protecting Canadians.This writer would argue that there isn't enough protection for Canadians because of the limits allowed for foreign investment into Canadian securities such as pension plans.Consider the massive losses Canadian pension plans have taken since the beginning of the global financial crisis.
So, what is the solution?Do we relax the rules and allow foreign banks to set up shop here?Certainly there would be fewer charges and costs to the consumer but would the security of our system remain intact?How do Canadians reduce their costs?
We do have a system of Credit Unions and Trust companies that can provide banking services at the storefront level.While the cost of doing business with them might be less, their mandates are such that they must be regional and depositors can share in the profits by joining such organizations.Since they are essentially “local” the returns of their profitability are shared by the communities in which they reside.The Big Six can make no such claim.However, accessing their services outside of the storefront is no less expensive than using one of the Big Banks.
Canadians do need to pay less for banking services and they do need more personal service but no one is listening; not government, not regulatory agencies and certainly not the banks.Will Canadians actually ever get a break?Not likely.Are the banks protecting Canadians?Not likely.Are the rules of banking in Canada protecting the banks and thus Canadian deposits?Absolutely.