Better banks needed, not bigger banks

(The following opinion piece, by Duff Conacher, Coordinator of Democracy Watch and Chairperson of the Canadian Community Reinvestment Coalition (CCRC) was published in slightly different form in the Ottawa Citizen on September 16, 2005, in the Halifax Chronicle-Herald on September 18, 2005, in the Montreal Gazette on September 19, 2005, and in the Brandon Sun on September 20, 2005)

Unfortunately, many recent articles in the media across concerning the federal government's review process for proposed bank mergers neglect to mention two key points, and neglect to include key information about Canada's big banks and bank mergers.

First, the Liberal federal government has a bank merger review process already (anyone can read it on the following Department of Finance webpage: http://www.fin.gc.ca/finserv/docs/finserv2e.html#Merger).  Since that process was established in 1999, the Liberals have also maintained a ban on merger proposals.  The banks don't like the current review process (because it includes a public interest impact review by a House of Commons committee), and so they have been pushing since 1999 for a weaker review process.

Second is the fact that the Liberals' bank backers are split on another part of the review process.  Some of the banks want a first-in, first-out review process so that the first merger proposal would have a better chance of getting through, while other banks want a process that would review all proposals (and their impacts) together.  As only one bank merger is likely legal under Canada's competition law, this is no small issue.

No merger of the big banks in Canada is in the public interest, as every study ever completed (including by the U.S. Federal Reserve Board) has shown that banks larger than Canada's big banks are less efficient.  Also, any merger that the banks would want would result in bank branch closures that hurt communities, job losses, and higher charges on services and loans (because of less choice) for consumers and businesses.  The banks have tried over the past several years to deny this reality (with the assistance of the Senate Banking Committee, many of whose members have had formal ties to the banking industry), but thankfully polls show that most Canadians do not believe the big bankers' or senators' false claims.

In addition, our banks have clearly shown that if they were bigger, they would lose even more of Canadians' money investing in speculative and criminal corporations like Enron and Worldcom (CIBC has already lost $1.5 billion on its investment in Enron, as well as paying $2.8 billion so far in penalties for financing Enron's fraudulent activities -- that's $4.3 billion that did not go to maintaining full-service bank branches across Canada, did not go to lowering service charges and credit card interest rates, and did not go to financing job-creating businesses).

Anyone who thinks CIBC is the only rotten apple in the barrel should be aware that TD-Canada Trust lost about $1.3 billion, and the Bank of Montreal $682 million, due to their investments in Enron and Worldcom, while Royal Bank has lost about $200 million due to its investments in Enron and Scotiabank has lost about $750 million in the past decade on its investments in shaky, often corrupt economies such as Argentina and Mexico.

The federal Liberals should be focused instead on making our banks better, not bigger, but they have been negligent since being elected 1993 because they have failed to regulate the big banks effectively to ensure they provide full banking service to everyone, and treat everyone fairly and invest Canadians' money in sustainable, Canadian-economy-building activities.  In contrast, for more than 20 years the U.S. Community Reinvestment Act has helped ensure that Americans can track key details about their banks, and U.S. government regulators regularly review American banks' lending, investment and service records and reject merger and takeover proposals and require corrective action if a bank is not treating all customers fairly.

The Liberals have been so negligent that, if Finance Minister Ralph Goodale did approve a merger of two banks, he would have absolutely no idea whether the new megabank's lending, investment and service record was better or worse than the two banks' past record.

The Liberals' negligence has also created a two-tier banking system in Canada, mainly because the Liberals decided in 1997 not to require banks to prove that branch closures are justified, and not to remove all of the barriers the banks use to discourage low-income customers.  As a result, banks have closed branches across the country (especially in low-income neighbourhoods) and continue to turn away people with low incomes for unjustifiable reasons, forcing them to use gouging cheque-cashing outlets and predatory lenders.

Even if credit unions and small banks did take over some bank branches as a result of a merger (as they say they are ready and willing to do), people in low-income neighbourhoods would still be without access to basic banking services because few branches are located in those neighbourhoods anymore (again, due to the federal Liberals' negligence).

The Liberals' negligence in failing to ensure effective bank accountability in Canada is not surprising given that the banks were the largest corporate sector donor to the federal Liberals every year from 1993 to 2003, and in 2004 the big six banks loaned the Liberals a total of $34.8 million.  The sayings "he who pays the piper calls the tune" and "money talks" apply directly to the Liberals' policy decisions concerning banks since 1993.

Canadians can only hope that the federal Liberals (and, in a minority government situation, also all federal opposition parties) will soon finally listen to and address the long-standing concerns of 20 million Canadian bank customers, and stop protecting Canada's big bankers from effective accountability.  Canadians, and the Canadian economy, need better banks, not bigger banks.

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Canadian Community Reinvestment Coalition
P.O. Box 1040, Station B, Ottawa, Canada K1P 5R1
Tel: (613) 789-5753
Fax: (613) 241-4758
Email: cancrc@web.net

Copyright 2005 Canadian Community Reinvestment Coalition