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RICK SCIBELLI JR./The New York Times

Those seeking a culprit for households' runaway debt levels now have a convenient target, courtesy of a Bank of Canada study that suggests it is lenders that are at fault. Problem is, the closer you look at this idea, the shakier it appears. Blaming fierce competition among banks and payroll lenders for Canadians' debt binge is akin to holding grocery stores liable for obesity.

The central bank's research shows that "neighbourhoods with more bank branches and payday lenders per capita (i.e. more competition) have looser lending standards (higher leveraged households) and experience greater bankruptcies (i.e. instability)."

Unfortunately, the study doesn't probe the direction of causality. It may be that banks promote excessive lending in neighbourhoods where competition is fierce. However, it's also possible that neighbourhoods with big appetites for debt attract large numbers of lenders to service that demand.

One of the more disturbing aspects of the study is its implicit assumption that lenders, not regulators, should be the ones policing the overall use of credit in the economy. Sadly, this is not a new notion in Ottawa. The Globe's Tara Perkins reports that Finance Minister Jim Flaherty cautioned bank executives a year ago about competing too hard to lower mortgage rates. To which an appropriate response might be: Isn't it the Bank of Canada's job to regulate interest rates? And the Finance Minister's job to set mortgage rules? Perhaps it's those regulators who should be held responsible for the credit binge.

The recent study on lending competition offers no insight into what level of self-regulation can be demanded of banks and payday lenders, yet that is the key question. The shareholders in these companies assume they will pursue any legitimate expansion opportunity – and that's an entirely reasonable expectation in any free enterprise system.

The alternative would be to expect these businesses to deliberately avoid profitable opportunities to lend money – in other words, to stop operating like private enterprises. Rather than catering to customers' demands, they would have to cut off legitimate clients or raise prices on their loans above what the market dictates if they fear that household debt is running too high for the government's liking.

Private-sector CEOs should not be put in a position where they have to choose between fulfilling their legitimate desire to build their businesses, and restraining the flow of credit because of some vague expectation on the part of the Finance Minister.

Vigorous competition, easy availability of products, and lower prices are generally reckoned to be good things for the consumer. Bankers should not be blamed for pursuing those goals. If regulators want to restrict credit, they have the tools to do so. Let them use them.

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