“As through this world I’ve travelled
I’ve met some funny men
Some rob you with six gun
And some with a fountain pen.”
- Woody Guthrie -
THINK AL PACINO IN DOG DAY AFTERNOON. The film where one man stands up to the banks to get justice. That was David Macdonald from the Canadian Centre of Policy Alternatives (CCPA) at the federal Standing Committee on Finance on June 18.
The committee called the meeting to discuss banking and the federal government response to Covid-19. It was six against one: six bank and high finance representatives and one David Macdonald.
Macdonald’s presentation countered the idea that banks needed even more special treatment. He pointed out:
- federal government action had already provided banks with an extra $300 billion
- the need to make sure no portion of that $300 billion went directly into the pockets of bank executives through bonuses or extra dividends
- the benefits of extending mortgage deferrals
- the benefits of suspending interest charges on all credit debt.
Macdonald reminded the committee of the special “protected nature” of the Canadian banking sector. A reality that has led to extraordinary profits to shareholders and tremendous bonuses being paid to its executives.
“It is time for more to be asked of this sector,” said Macdonald.
Whose $300 billion
Macdonald noted the extraordinary and constant support the federal government gives the banks leads to higher investor confidence and so higher bank profitability due to “an implicit understanding that Canadian banks are too big to fail.”
Macdonald cast doubt on the likely effectiveness of the federal government decisions to free up as much as $300 billion in assets for the banks to use for other purposes, like providing loans to businesses or households.
“This assumes that the banks can find households and businesses who are both credit worthy and are willing to take on another $300 billion in debt in the middle of the worst labour market since 1936,” said Macdonald.
“That $300 billion could be used for other purposes, much less desirable than lending.... For instance, it could be used to pay out shareholders and executives or it could be used to cover loan losses.
Debt help vs. bonuses
OSFI (the Office of the Superintendent of Financial Institutions) has explicitly barred banks from continuing with any existing share-buyback programs—but there is no bar on dividend payments and executive bonuses. The only limit is that these payments cannot be increased, but they can be maintained.
This is not much of a biting restriction, given the already sky-high executive pay in Canada. The fact is that in 2018 the top executives at Canada’s big banks raked in $173 million in bonuses across only 31 people.
Macdonald pointed out a recent Bank of Canada study supported the government’s move to encourage banks to provide 6 month deferrals on mortgages.
Banks are better off if borrowers repay loans rather than having to foreclose on their assets.
Macdonald encouraged the committee to act to provide more direct support to everyday Canadians who’ve lost their jobs. “In particular I’d encourage the committee to require banks not charge interest and other penalties over the deferral period on mortgages, but also on higher interest products like credit cards and lines of credit.”
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