Friday, November 30, 2007
OTTAWA - Today, as Canada’s big banks begin to report billions in total losses from risky investments, the Canadian Community Reinvestment Coalition (CCRC) highlighted the lack of effective action by Conservative federal Finance Minister Jim Flaherty to protect financial consumers and communities across Canada by requiring banks to prove their branch closures have been justified, to prove their credit card interest rates and service charges do not amount to gouging, and to prove they lend and invest responsibly.
Minister Flaherty’s Bill C-37, passed last spring (To see the CCRC's submission to the Committee, click here), changed federal financial institution laws including the Bank Act but contained only one significant consumer protection measure and no bank accountability measures. As a result Canada’s banking law continues to have key gaps that were closed 20 years ago in the U.S., even though an oligopoly like Canada’s industry usually requires greater regulation.
"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, super-powerful 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 through excessive secrecy about their lending and investment records.
In contrast, in the U.S. banks have been required for years under the Community Reinvestment Act 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. 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 did 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 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. (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 (in a PDF-format document), click here)
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. 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.
Overall, there is no valid reason for bank mergers in Canada. According to Statistics Canada, Canada’s big banks control as an oligopoly almost every section of the financial services sector, their profits are a clear sign of lack of competition, and according to Fortune magazine they are all within the top 35 banks in the world in terms of profits as a percentage of revenues, and profits as a percentage of asset. As well, every study shows that banks bigger than Canada’s big banks are not better banks.
"All of the studies that have been done show that Canada’s banking sector is among the most concentrated and profitable in the world, 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 enact the following bank accountability measures:
For more information contact:
Canadian Community Reinvestment Coalition
P.O. Box 1040, Station B, Ottawa, Canada K1P 5R1
Tel: (613) 789-5753
Fax: (613) 241-4758
Copyright 2007 Canadian Community Reinvestment Coalition