What is equitable for banks’ while they are receiving direct government assistance and during this recession?
This was an unprecedented week for the financial services industry in Canada, with a ground breaking $200bn made available to support Canadian Banks.
Budget 2009: Canada’s Economic Action Plan
Action to Improve Access to Financing and Strengthen Canada’s Financial System
Providing up to $200 billion through the Extraordinary Financing Framework to improve access to financing for consumers and allow businesses to obtain the financing they need to invest, grow and create new jobs.
These measures are available only to Schedule A Banks.
Federally regulated financial institutions are eligible to sell into the facility and provincially regulated financial institutions may be eligible on the approval of the Minister of Finance
These extraordinary support measures beg the question of what accountability Canadian taxpayers should expect from the recipients of this assistance.
Two questions to muse collectively:-
1. How will the financial institutions be held accountable for participating in these measures?
- Will the government set lending volume objectives on a quarterly basis?
- Will the government set rate caps by risk criteria, sectorial volume objectives etc?
2. How do we contextualise other recent announcements made by Canadian Banks?
- Personal Line of Credit interest rates increased by 1% or more
- Fees introduced to Line of Credit holders with zero balance
- Decreases in the central bank rate not passed on to reflect consumer and business lending rates
- Increase in credit card rates if late on a payment, and to cover expected higher default rates
- Increased merchant fees for credit card transactions
Bank names are withheld to keep the focus on the broader issue of raising prices while receiving assistance in a time of financial crisis.
Thoughts welcome.
