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Banks rate rebellion doesn't add up

Globe and Mail Blog Post

Latest comment posted at 6:20 PM EST 11/10/08

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  1. J C from Canada writes: Mr. Willis, Please do not forget to mention that Bank of Montreal and TD Canada Trust have already increased their mortgage rates with expectations that others would do the same (if they have not already). So if I understand correctly, the BoC dropped the overnight rate, Canadian banks only matched that by half, PLUS they increased rates... surprisingly, they did not highlight the latter. How does the BoC expect any strength in consumer spending when banks are smothering their consumers? I'm afraid that our banks are leveraging the "global crisis" excuse as a reason to further pull money from consumers to strengthen already strong balance sheets. All for them to explore opportunities to expand elsewehre. If we apply the slightest bit of logic, we come to realize that consumers are being forced by Canadian banks to reduce spending in an economy that is already feeling the pinch in areas such as manufacturing and retail. So is it really that far-fetched to say our banks are part of the reason why other industries are suffering? Someone at BoC needs to pull up their socks and implement mandates for Canadian banks before consumers become a mirror image of their US counterparts... putting all their money towards a home that no longer holds the same value. Our economic strength lies with consumer spending, no corporation makes profit without it... so stop feeding Zeus lighting bolts when he already sits on a nearly infinite supply. p.s. Just review the Globe's post from earlier this week that showed an average increase of $12K per household over 5 years for a mortgage of $250K (not sure that even buys a house in this country anymore). Now imagine those same figures pumped back into the economy and markets!!! Sincerely, Disappointed in BoC
  2. H M from Canada writes: That's funny, I just got a 2 year GIC for 4.5%, and there are big signs everywhere, and have been for a month, showing this rate sale......
  3. Winter Mute from toronto, Canada writes: http://www.reportonbusiness.com/servlet/story/RTGAM.20081010.wbanksfunding10/BNStory/Business/home

    good answer/discussion wrt your query, Mr. Willis

    so it goes
  4. had enough from Canada writes: Let me throw this at you and see what you think.

    Suppose, just suppose, the Canadian Banks have the strong belief that the entire economy at present is running on emotion and people have panic as their main movitator and are not spending regardless of rates and not borrowing.

    If this were true, then the Canadian Banks may be thinking that they will keep keep the mortgage rates high and the savings rates low and when they see the panic start to drop is when they will increase the savings rates. I think at this point with real estate down and Mfg. down and consumer spending down that the panic means there will be a lot of money thrown at GICs etc. and very little borrowing.

    This means more money sitting and not working.

    Seems to me that this is the time to lower mortgage rates to stimulate borrowing but the Banks here always have a look after themselves first mentality. Just some thoughts
  5. had enough from Canada writes: HM Would I be correct in assuming you did not get that rate at one of the Big 5 Banks?
  6. Check your facts from Canada writes: I am sure that Canadian banks overcharge their customers compared to American banks since every other business in Canada from bookstores to dairy farmers to the phone companies do as well, this article overstates the case. The Royal Bank advertises a 4.5% 4 year GIC on its site. It also advertises a 5 year 6.14% mortgage, as mentioned in the article. THe real spread is 1.64% or less, not the 4.25% quoted in the article. These "special" rates are a fixture on the Royal Bank web site. Only a fool or a sub prime borrower would pay more, and anyone with any negotiating ability or the intelligence to get a good mortgage broker will get a better rate.

    None of these rates have anything to do with the prime rate in any case. What affects the cost of the bank's prime is what it costs them on the market to borrow short term.
  7. G P from Canada writes: ...
  8. G P from Toronto, Canada writes: Check your facts part II. Nothing frustrates me more than when people use false or dated facts to support a point (or agenda) and mislead the rest of us that may not have as much knowledge on a specific subject matter which consequently leads us to drawing the wrong/misinformed conclusions. Our esteemed writer is misleading in (at least) two areas: a) it appears he has seen some of the most current rates for Term products (e.g. GICs) which, as some of the previous responses have already noted, are much higher than Mr Wills is suggesting; and b) He has not factored that there usually is not a match between the banks products that serve as funding vehicles (liabilities) which are the preferred source of funding and the assets they support (e.g. loans, mortgages). In such a case the Bank has to seek more expensive sources of funding e.g. interbank lending. Due to the above the margins at the Canadian banks are under significant pressure. My expectation is that unless these factors start subsiding we can expect banks to be under further pressure to increase their rates in the months to come.
  9. Jack S. from Canada writes: It adds up just fine -- if you're a bank, you want a good rate spread between what it costs you to borrow, and what you pay out on deposits (and take in on mortgages).

    I'm actually somewhat reassured that the Canadian banks are behaving prudently. They may need that capital in the coming weeks.

  10. Dave S from Canada writes: And Canadian banks are in the best financial position of all G7 banks......

    Seems to me a no brainer here. Canadian bank stability is a trade-off between more competitive rates and security.

    It may not be a great deal for consumers or businesses, but right now, I'm willing to cut them some slack if it will help get us through this mess without having to inject taxpayer funds.

    We can get back to bashing bank profits once the dust has settled.
  11. Farrah Jewel from maple ridge, Canada writes: Is it wise to keep my money in the Canadian money market right now, or should I move it to a more secure account.
  12. William Hughes from Vancouver Island., Canada writes: The author appears to have taken his information from web sites. RBC does not publish their "special rates" on their web site. On Wednesday last, that rate was 4.25% for a two-year non-cashable GIC. The author needs to dig more deeply if he wants the real story.

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