Canadian banks have done nothing to alarm anyone about their health lately, but their customers will still be watching them with hypervigilance because of recent events in global banking.
Routine communications will be read more closely, which means banks probably don’t want to repeat the miscalculation Canadian Imperial Bank of Commerce CM-T made recently. In what should have been an innocuous letter to some of its clients, the bank raised trust issues that reflect on the entire financial industry.
The letter was sent last month to outline changes to account agreements for customers holding non-registered guaranteed investment certificates. Here’s the interesting part of the notice, located on the last of four pages: “We have added a new section as follows, which allows us to change any term of your agreement with at least 30 days notice. If you do not wish to accept, you can close your account without cost.”
A few Globe and Mail readers got in touch to present the obvious question raised by this wording, which is whether the interest rate on a GIC could be lowered before maturity.
CIBC says the answer is no. “These account changes don’t affect the rate or the length of the term of any GICs [customers] hold with us, which we will always honour,” the bank said in an e-mail reply to questions. A spokesperson later added that the bank understands it could have done a better job of communicating with clients.
Two levels of trust are needed for our financial system to run smoothly. First, clients need to trust that the companies themselves are strong and durable. Doubts about this recently started a fatal run on deposits at two U.S. banks, Silicon Valley Bank and Signature Bank.
Canadian banks are different – more prudently run and better regulated. And yet, I’ve seen high levels of customer edginess since SVB imploded a couple of weeks ago. Readers want reassurance that they can trust their financial institutions.
They’ve been asking questions about the coverage offered by Canada Deposit Insurance Corp. and wondering who protects their securities and cash if their investment firms become insolvent. The answer to that latter question is the Canadian Investor Protection Fund, which was the subject of a column last week.
The other aspect of trust is that a bank or investment company will behave in a civil way and honour its commitments. Clients for the most part understand that fees tend to go up over time and that terms and conditions will sometimes get tightened in a bank’s favour. But one of the most fundamental aspects of giving your money to a bank or investment company is that a deal is a deal.
This is particularly true with GICs, which have the word “guaranteed” in the name. That’s huge these days. Money has been flying into GICs lately because of high interest rates, but also because people like the idea of reducing risk down to levels near zero for at least some of their money.
The wording of CIBC’s letter suggested the guarantee was open to interpretation. You can see clients struggling to make sense of things in an online forum on the Canadian High Interest Savings Bank Accounts website. Asked to look at the “change any term of your agreement” section in CIBC’s letter, three different deposit brokers thought the bank was giving itself room to change GIC rates midterm.
Mary Rygiel of Conservative Investors’ Services checked the account agreements at 10 random GIC issuers she deals with and didn’t find this kind of term or condition. “A deal is a deal!” she said by e-mail.
Ironically, most of the CIBC letter is boilerplate. Its main purpose seems to be increasing the ways the bank can reach out to GIC holders beyond mail while also amending the definition of some technical terms.
Worries about global banks continued into this week after a sharp drop in the price of Deutsche Bank shares on Friday. Still need some reassurance about the financial strength of Canadian banks? Try this: On life’s list of things to worry about, rank our banks near the bottom.
Trusting banks to do the right thing is a bit more complicated. At CIBC, legal, marketing and managerial people came together and approved a letter to GIC holders that makes you wonder.
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