BANK MERGERS THAT ARE NOT IN THE PUBLIC INTEREST?
Friday, January 26, 2007
Today, the Canadian Community Reinvestment Coalition (CCRC) called on federal Finance Minister Jim Flaherty to do more than express concern about some bank service charges, and to use Bill C-37 to close all of the accountability loopholes in the federal Bank Act that allow Canada’s big banks to charge customers whatever amounts they want and to hide key details about their service, lending and investment records.
Yesterday, Minister Flaherty said that he has asked the banks “Is there a justification, is there a rationale” for charging bank fees that TD Bank, for example, does not charge in its U.S. operations, and that banks in England don’t charge.
Federal finance ministers or junior finance ministers expressed similar concerns about bank service charges and/or credit card interest rates in 1988, 1995, 1997 and 2001, but all of them chose to protect the big banks from accountability rather than do anything to protect the 20 million Canadian bank customers from gouging.
Minister Flaherty recently introduced Bill C-37, which changes federal financial institution laws including the Bank Act, but the bill contains only one consumer protection measure (reducing the time period that banks can put a hold on a cheque) and no bank accountability measures. As a result Canada’s banking law will continue to have key gaps that were closed 20 years ago in the U.S.
“No corporation has a right to gouge, withdraw or withhold service unfairly, especially when providing an essential service such as banking,” said Duff Conacher, Coordinator of Democracy Watch and Chairperson of the CCRC. "But the federal Conservatives have continued the Liberals’ negligence by allowing Canada’s super-rich big banks to treat 20 million Canadian bank customers pretty much however they want, to do whatever they want with Canadians’ money, and to take over other companies even if it isn’t in the public interest."
Every poll conducted in the past decade has shown that 90% of Canadians believe banking is an essential service similar to heat, electricity, and phone service, but while companies providing those services are required by law to prove their prices are fair and to provide services fairly across the country, the federal government continues to allow Canada’s big banks to charge whatever they want for most services, to close branches in many, mostly low-income communities (creating a huge growth in gouging cheque-cashing outlets), and to escape accountability by keeping secret their lending and investment records.
In contrast, in the U.S. banks have been required for years under the Community Reinvestment Act (CRA) and related laws to disclose detailed information annually proving that their service, lending and investment records are fair, and if they have a poor record they are not allowed to expand and must take corrective action (To see details about the Community Reinvestment Act (CRA), click here -- To see details about the $4.2 trillion in reinvestments that have resulted from the CRA since 1977 (in a PDF-format document), click here). As well, more than 30 U.S. states regulate credit card interest rates by preventing them from increasing more than a set percentage above the prime lending rate in the state.
Royal Bank , Bank of Montreal and TD Bank all own U.S. banks and operate successfully under the U.S. legal requirements, and TD has cut one U.S. service charge that they continue to charge in Canada.
Bill C-37 also does nothing to ensure that a public interest review occurs whenever a bank proposes to take over another company, or merge with another financial institution. In contrast, under the Community Reinvestment Act and related laws the U.S. government reviews most mergers and takeovers by banks to determine whether service, lending and investment (especially small- and medium-size business lending, and community development lending and investment) will improve. If the banks involved have a poor service, lending or investment record, the merger or takeover can be rejected or the banks required to take corrective action and set measurable targets before the merger or takeover proceeds.
The former federal Liberal government did no review of the takeover of Canada Trust by Toronto-Dominion Bank that occurred in 2000, and so the federal government has no idea whether TD/Canada Trust has a better or worse service, lending and investment record than in the past. (To see the CCRC's review of the TD Bank takeover of Canada Trust, click here)
In contrast, TD Bank faced a full review of its takeover of Waterhouse bank in the U.S., as did the Bank of Montreal when it took over Harris Bank in Illinois, and Royal Bank when it took over Centura Bank in North Carolina. In fact, all three of these banks have board committees that monitor the fair service, lending and investment records of their U.S. subsidiaries, but not for Canada.
Over the past 15 years, Canada’s big banks have been allowed without any public interest review to take over investment companies (and now control most of the assets in Canada’s investment industry), trust companies and insurance companies.
Overall, there is no valid reason for bank mergers in Canada. The record profits by Canada’s big banks are a clear sign of lack of competition in Canada; Canada’s big banks are in the top 10 in all key categories of banking in Canada and are also among the top 10 most profitable banks in the world, and; every study shows that banks bigger than Canada's big banks are not better banks. (To see the CCRC's position paper concerning reviewing bank mergers and takeovers and competition issues, click here)
“All of the studies that have been done show that bigger banks provide worse service at higher prices, are worse at lending to job-creating small and medium-sized businesses, and are less efficient so even shareholders’ are hurt by bank mergers,” said Conacher.
The CCRC is pushing the federal government to make the following changes through Bill C-37:
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Copyright 2007 Canadian Community Reinvestment Coalition