Update January 6th 2009
I
just came across a bad example of how banks can fleece the
customer when they are allowed to operate outside of their main
charter area. They do this legally by buying or operating with
other companies in the financial sector. To give you two
examples I offer insurance policies that banks offer while selling
you a loan or mortgage and what happens when a bank buys an
on-line stock market brokerage. We are just starting to research
this now. In the case of the on-line brokerage we are looking at
E*Trade Canada which according to our research at the Better
Business Bureau is not registered with them and has a C- rating
due to several complaints against them and their refusal to supply
business information to the BBB. This company is owned by the Bank
of Nova Scotia. They will actually charge you a $25 quarterly
"low activity fee" and their solution to avoid it
includes the suggestion that you keep a $5000 cash balance in your
trading account. Which would be mind boggling stupid for the
customer. More to follow on this but if you deal with E*trade
Canada you have been warned. (Editor's
note they changed their name -likely because the old brand was a bit
tarnished)
In the case of insurance
polices on bank loans and mortgages the CBC program MarketPlace
did some research on that one several episodes back and discovered
that the type of mortgage coverage that one bank was selling was
almost impossible to collect on. The bank and the insurance
company was pocketing nearly all of the money. If anyone out there
has already researched this problem and wishes to add to the page
just send me an e-mail and I will incorporate your findings to
share with our readers. I would be happy to include it under your by-line
or anonymously if you wish.
The mindset of a Canadian
bank is to maximize it's profits from each of it's customers and
this is something that is not immediately apparent to the average
Canadian who trusts their banks to provide them with an honest and
fair service. Again lots of very nice people work at our banks.
The problem is not with them it is with the policies the banks
apply to generate profits which while legal are often very
unethical in nature. The CIBC once ran into a problem with
Farm Loans many years ago when they loaned on asset value rather
than the farmer's ability to pay and they ended up owning lots of
farms. They have since modified their loan policies but this is an
example of what can happen when bank polices are set against the
consumer not with them.
There is nothing wrong in my
mind with making a fair profit when you offer goods and services
to the market. The problems start when you make unfair profits
such as those on Canadians withdrawing small amounts from ATM
machines or having to pay for loan insurance that never pays when
they need it or giving young adults large credit card limits until
they get completely ridden with debt and are unable to pay and are
charged even higher interest rates. The spread between the
Bank of Canada rate and the rate bankers charge for loans and
overdrafts is ridiculously large. I do think our financial
system can work effectively and efficiently if there are good
regulations in place which sets out the ground rules. Right now
that is not happening.
Update May 13/2009 The
credit card rip offs from Canadian Banks are so apparent now that
the Minister of Finance will be introducing a new Law on the fees
that Canadian Banks can charge. Details are light at this point.
But this step supports the points made on this webpage. Also a
Canadian Senator has taken on the Credit card industry and is
pushing for changes.
To underline the points made
here about the actual strength of Canadian banks over 100 billion
dollars of government funds have been allocated to take loans off
Canadian Bank books so that they will loosen their lending
practices and get credit flowing again. Well they took the money
and failed to deliver credit to the market! This is outrageous
because the are refusing credit to the very taxpayers that
supported them with billions of dollars. Nice. Most Canadians are oblivious
to what is actually going on.
12 Billion has been allocated
in the Auto loan sector because our banks have been unwilling to
loan there. What this all means is that Canadian banks are NOT
as strong as the government has been saying and it has had to
step in and prop them up. Oh and the Asset Backed Commercial Paper
fiasco mentioned here previously is still a mess. After 18 months
of despair 32 Billion was restructured for individual investors,
however commercial customers have taken a huge bath of the value
of the assets to as much as 35 cents on the dollar to date. Our
banks were directly involved in that one too.
May 13 Update
Money loosing ING Bank Canada the one that advertises
constantly to "save your money" looks like it is going
to be sold. My guess is that one of the other charter banks will
buy it out at fire sale prices. That is how it is done in Canada.
Our banks never fail they are just swallowed by another Canadian
bank to maintain the myth about Canadian bank invincibility. We
will see what happens!
May 20/2009 Update
As with all banks there is a huge problem with derivative
investments that has been effectively shielded from the average
depositor. Essentially the problem is that banks no longer trust
each other because the actual value of derivative investments is
not what is on the books. Nobody really knows who is holding which
so called toxic investments.
May 20/2009 Update
I was attempting to keep this page relatively simple so that the
widest audience could understand it. That was a mistake. The real
problem with Canadian and other banks today in my opinion is their
highly leveraged derivative investments backed up by hedging which
in normal situations nils out the risk. I know that is a mouthful.
Derivatives are highly leveraged so to avoid a catastrophic loss
banks hedge their risks with some other bank called a
counterparty. As long as the other bank is fine if there is a
problem with the underling or the underlying investment on which
the derivative is based then it's no problemo. The problem is that
derivatives don't show on balance sheets and so nobody really
knows who the counterparty is and what the solvency of the
counterparty is. Now for the really bad news.
Canadian banks have assets in
the hundreds of billions of dollars and this is what the
government has been bragging about. Our banks are required to
maintain a capital ratio of 1 to 18 compared to 1 to 26 for US
banks and a scary 1:61 for European banks. That and the fact we
have a well established branch banking system that is diversified
is all on the good side. Unfortunately they also have
OTC derivative investments in the trillions of dollars and government
is horrified because should we see some failures here the banks
will suddenly become insolvent. You aren't being told about this.
I think that is criminal.
This is the real reason why
the US does not want a large bank to fail. They may act as
counterparties to trillions of dollars of hedge funds and the risk
there is cascading failures of banks and large financial
institutions and a melt down of hideous proportions.
Unfortunately the media is
not trained to ask the type of questions that need to be asked
here. So they can't report back to the public just what is going
on other than general ways and blaming it all on the sub prime
mortgage failures. These failures are just a small part of the
overall problem and risk.
I am not saying you should
panic. All I am saying here is that there is ABSOLUTELY NO REASON
TO BE SMUG ABOUT THE SO CALLED STRENGTH OF CANADA'S BANKS. And we
are tied to the American economy so if their financial
institutions go belly up so will ours likely the same day. And as
we found out with Bear Stearns and Leahman Brothers it could all
happen in a matter of hours. You could go to sleep rich and
wake up with no ATM card and with your assets all gone. That's how
safe our banks are in this environment. It happened in Iceland.
And all because of derivative problems.
The fact that Canadian banks
maintain more capital reserves than US banks misses the
entire point that the trillions of dollars of derivatives our
banks hold could completely trash the banks if failures occur. And
as you read this the USA has stepped in to prop up the very large
US banks that we depend on as counter parties to our derivative
investments. Anyway don't believe me do your own research and I
have included some very useful links below. You won't read about this
in the media and your Conservative government won't tell you about
it either.
I have tried to make this as
readable as possible but now is the time to try and plough through
some other sources on the derivative problem and I have
assembled some excellent links for you below. Good luck and thanks
for visiting!
Update May 24th 2009 I was
asked to explain Finance Minister Flaherty reluctance to cap
credit card rates. Understandably this would be a tremendously
popular move with consumers and would likely win the next election
for the Conservatives so why wouldn't they do it??? As I see it
Mr. Flaherty has very likely been told in very plain terms that if
he moves to cap credit card rates that he risks a catastrophic
banking loss and even possible failure of some Canadian banks.
Just so that you understand this statement I have no proof or
reports the Minister was told this. It is simply my best
guess. I base it on the following logic.
Derivatives are developed
based in part on credit card balances which in turn are based on
receiving a projected return from the balances over a long period
of time. The bankers know that a given percentage of credit card
accounts to do not get paid off every month but instead accrue
huge amounts of interest some as high as 29%. So what they would
do is use that as collateral for a derivative which they would
then sell. If the underlying asset suddenly became worthless as in
the case of a credit card rate cap then the bank would also hedge
it's investments. Now the counterparty could be a US bank on the
verge of going under. We don't know because these types of
investments do not appear on the balance sheets - they are off
balance sheet items.
So to summarize the highly
leveraged derivative investment suddenly becomes worthless the
bank reverts to it's counterparty for the hedge investment which
promptly goes belly up. The bank is now out so much money that it
becomes insolvent and fails.
That is my best guess why the
Minster did not act. He would never admit it of course because the
government does not want the public to know the truth regarding
the derivative problem and Canadian banks.
Again folks I could be wrong.
Check it out yourself. But that is my best guess.
Update
May 26th/2009 I was asked for my opinion on the CDIC
the crown corp that guarantees certain types of bank deposits to
$100,000 per account. First you may like to review this
article in the Globe and Mail to get you thinking between
the lines. The CDIC can borrow up to 15 Billion dollars which
sounds great until you consider how many billions are in Canadina
bank accounts. Recent legislation also allows them to from a type
of transition bank to take over failed banks which when you think
of it is quite strange given that our government has been bragging
to us how strong our banks are.
The CDIC was formulated to
provide insurance against relatively minor bank failures NOT the
meltdown of major banks. What happens if the trillions of dollars
of off balance sheet OTC Derivative investments fail and Canadian
banks collapse when counterparties to these investments are found
to be insolvent? There is absolutely nothing mentioned about
possible bank meltdowns at the CDIC site.
My opinion on the CDIC is
that they would be unable to pay depositors should a major bank
derivative based failure occur. The reason that they were
given the ability to form a transition bank I think is
because an effort would be made to separate the failed bank's
deposit liabilities from it's failed derivative liabilities. I am
not sure if they can do this. By this I mean they would take over
the deposit accounts of the bank and use their lending limits to
carry on business with these customers but not pay them out.
You need to realize that
unlike a lot of companies a bank maintains two sets of books. One
set of books relates to your accounts which are assets to you and liabilities
to the bank and the other set relates to banking as a business
with all their assets and liabilities with the exception of the
off balance sheet derivatives which are accounted for in a
different way. Most branch bankers have absolutely no clue of what
is going on with bank finances at the corporate or head office
level. If you asked your local banker what a credit default swap
was he would pee his pants. (ok that was a joke!)
Now the CDIC "transition
bank" might work IF there was no run on the bank and IF
several banks did not fail at the same time. If the question is
-Can I trust the CDIC to protect my deposits if one bank fails my
answer would be yes. If the question is-" would the CDIC be
able to protect my deposits if there were general failures in our
Banking system?" my answer would be an unequivocal
"no". Again that is just my opinion.
As an example of bank
nationalization you might wish to review the wikipedia entry for Northern
Rock Bank of the UK.
There is a possibility
that there will be no bank failures in Canada and who can complain
against that -not me. My point is that we Canadians have been fed
a line of bull about the relative safety of our banks and have
been led to believe that bank failures are a very remote and most unlikely
possibility.
The purpose of this
website is to uncover BS and suggest a better way and that is what
we are doing here. A better way is to be honest about the risks so
that we can all in our own way adjust our lives to meet them.
Would you act any differently
if you thought that instead of your deposits being 100% protected
against any loss that they were only protected against single bank
failures? And is your trust in the financial health of your bank
the same knowing that they have trillions of dollars of
questionable OTC derivative investments in off balance sheet
accounts? Those are investments you may not even have known
about before reading this article?
And why isn't your
government or banker telling you anything about these
problems?
As the Corporate Secretary
says " Whatever!"
Read her book.
It will cheer you up and explain how business works in
Canada. I maintain that every day above ground is good so
nothing really bothers me much. The cup is nearly full, the sun is
out, Harper and wrong way Flarherty are like a bad dream fading fast, and it's another
great day!
The Corporate Secretary has
written what her Publisher describes as "The best book
ever written on business in Canada."
We made some
mistakes when first promoting Marcie's book but we think we have it right
now. So we don't do this anymore....Amazing how sensitive Authors
can get sometimes...
UPDATE
OCTOBER 10/2008
There has been a melt down of
world financial systems and economies since originally writing this
article so I better bring it up to date. The Conservatives have been bragging about how
wonderful the Canadian Banking system is and how robust it is and
how safe we all are. That's basically a spin placed on facts to
hopefully win the election in a few days. Here is the reality:
1. Canadian Banks are not as
strong as we are led to believe. Main sources of money are the
excessive service charges and high interest rates they charge on
credit cards. These charges are directly related to the economy and
will be greatly reduced as the economy slips, as loans default and
as financial transactions reduce.
2. Emergency assistance was
required to bail out banks from some of their mortgage investments
to the tune of 25 billion dollars. The government lied about the
significance of the bail out. They claimed it was a paper
transaction and that taxpayers would incur no additional risk as the
loans were already insured by the CHMC and that in fact they
inferred the government might actually make a profit holding the
investments for an average of five years. The neglected to point out
that the underlying property values associated with the mortgages
are plummeting and that risk is actually being increased while the
banks walk off with a cash infusion and reduced risk. The taxpayer
pays. But the taxpayer gets no access to credit the very reason
for the cash infusion in the first place!
3. To infer that Canadian Banks
which are small by world standards are the strongest banks in the
world overlooks the fact that many world banks are giants in
comparison and are more powerful than Canadian banks. Canadian banks
have been unable to operate successfully outside of Canada because
they cannot compete with foreign banks. The Canadian market is very
easy for them as they have been ripping off their customers here for
decades. But outside Canada banks are more competitive. Something to
think about.
4. With the meltdown of American
banks- Canadian banks are looking south to pick them up at fire sale
prices. One example is the Bank of Nova Scotia as it attempts
to buy Ohio-based National City Corp which could be purchased for
under 4 Billion which is only ten cents on the dollar. Its priced
that low for a very good reason and should Canadian banks go
shopping for bargains invariably they will learn the hard way that
Canadian Banking does not work in the USA. The TD and Royal are
actively looking at distressed US banks. I think that they will find
that recapitalizing US banks using their Canadian customer base to
provide the capital will be a very bad plan. It will weaken the
Canadian banking system and lead to failures here which are normally
hidden in our system by the use of the merger process.
5. Its entirely possible for
panic to lead to a run on a Canadian bank or Banks and the failure
of banks here. Nobody likes to talk about this or even admit that it
is possible but in fact it is entirely possible and likely as the
economy continues to spiral down and stock market fortunes are
lost.
That pretty much brings us up to
date in Banking in Canada. There are a lot of very nervous bankers
in Canada these days. And the public is not being told what the
dangers really are.
Cheers!
Update
May 26th 09 Finance Minister Flarhety is quite the
weasel when it comes for putting a spin on bad news. He has been
excusing himself for not placing a cap on credit card rates
by pompously stating that Canadians have access to many low
interest credit cards and he infers that they just need to get off
their bums and pick out a lower interest card. Thus the logic that
there is no real need to place a cap on interest rates. Bullshit!
I did some research and yes
there are some lower interest cards out there but there is a
big catch. The card interest is keyed to your credit rating.
If you are maxed out on say a high interest Canadian tire card you
can't just amble over to the TD and get their low interest card as
Mr. Flaherty infers.
First you need to qualify for the lower rate and if you are
carrying a large balance on your credit cards already -they won't
give it to you. Or to put it another way the only ones who will
quality for lower credit card rates are the affluent Canadians who
have money. So Minister get your facts right before you use
bullshit to explain why you did nothing to help millions of
Canadians who are overwhelmed with credit card interest rates as
the prime rate for banks drops to practically zero. And where is
the media and why are they letting this Minister get away with
these types of silly statements?
Update
May 29/2009 Some bad news from the Royal Bank of
Canada one of Canada's largest banks as it's Q2 results were a
loss of 50million compared to last year's results of a profit of
928 Million. This is quite significant. For more details go to the
bloomberg
site. My opinion is that Canadian banks can only
do well in Canada because of the Bank Act which gives them a
license to print money. They have a much more competitive
situation in the USA where customers demand more value. In this
case the RBC purchased the Raleigh Bank with 441 branches in the
USA and in one year managed to go from a $38 million dollar profit
to a 1.13 billion dollar loss - pretty much proving my point. You
decide.
Also note that absolutely not
a word was said about derivative investments being a part of the
loss. The word was not mentioned.
Also not mentioned was the
fact that RBC will likely not being paying any taxes in Canada thanks to
this loss in the USA. So guess what Canadian taxpayers??? You are
subsidizing the ex Raleigh Bank customers. If you can't make that
connection then there is not much I can do for you. Lets see if
anybody in the media picks it up.
As you might expect when any organization
releases terrible news like this they put their best spin on it.
We need an intelligent analytical media to give us the truth. It
will be also interesting to see if our Conservative government
continues to pretend that our banks are rock solid. Time will
tell.
In summary the idea here was
to get you to re think your opinions on the Canadian Banking
system. We will all have our opinions. And there are a lot of
powerful interests spinning information making it difficult to
understand what is really going on. I have identified some
very interesting links below which you might find interesting. Is
Canada going to become another Iceland? I don't think so but no guarantees
either!
June
30/2009 Update Moody's
downgrades Canadian Banks! Like we didn't warn you about
this! Read it and weep.
I have had some evil thoughts
about ponzi schemes and Canadian banks based in part on the press
related to the Madoff case. When you consider the capital
requirements and if you look at it from a critical point of view
the scheme begins to take shape. I don't have the time to develop
the idea but it is worth considering.
July
1/2009 Now some
more bad news about Canadian Banks and further support for
the views I have been expressing here. It seems that the Banker
Magazine released its top 1000 banks in the world and Canadian
Banks which our Finance Minister has touted as the strongest in
the world failed to make it in the top 30. In fact the CIBC made
it as the 15th worst bank by losses.
July
20th Update I noticed a couple of points worth
mentioning. First of all the media and the government are being
especially quiet on the multi trillion dollar derivative
investments of Canadian banks. It is as if nobody wants to talk
about it. Secondly, I notice that this webpage is getting a lot of
traffic from banking centres around the world including Canada. Oh
lets toss in a third one -President Obama's approval rating has
just fallen below 60% and is headed south as his stimulus plans do
not appear to be working. One naturally wonders if the financial
slide continues will the derivative monster come out to play and
destroy our Canadian banks in the process? Other world banks face
the same question as their health is all predicated on the
recovery of the US economy.
September
1st 2009 Update I see that President Obama's approval
rating has dropped another 9 points to 51%. I also noted that
Canadian banks declared excellent profits. Lets think about that.
How could the banks possibly have excellent profits when
over a million Canadians are unemployed, when business is
suffering, plants are closed, retail sales are down. The
ONLY answer folks is that the Canadian banks have been fleecing
their customers with the huge spreads between bank prime and what
they charge us. And this is done with the full support of the
Government to ensure that our banks appear strong. Why the media
is not picking up on this fact - I don't know. We have been
reporting it here and our online poll is reporting what Canadians
really think about our banks. And I might add that some very
powerful interests are closely monitoring this page and website.
It makes me a bit nervous actually. But facts are facts and that's
what we report here. We don't do "spin". Check out
our links for some very thought provoking ideas and facts.
Summary
Canadian banks are not perfect nor are they as strong as the
government makes them out to be. However you can receive very good
service from them IF you talk to your local Banker and ask for
help.
Banking and Bullshit really go together. I once worked in a bank. This was before
computers. When computers entered the scene the bankers saw the great potential of
computer generated service charges and specifically their new found ability to collect and hide
them.
It was like magic! They
went for it and made billions of dollars of additional profits while
completely automating the process and firing staff. Lets consider how the old
system worked. After that lets take a contrarian view of Canadian Banks and see
where it might lead. If nothing else it is always interesting to rethink what we
already know to be true. We either prove that we are correct or learn
something new!
Now
for the good news! Surprisingly, there is a way of avoiding some
of the more serious bullshit in banking. Get to know and talk to a banker.
Branch bankers are honest types and have professional ethics. They
are great people and are there to help you. I know, I once worked in a bank. As a general rule they will help
you but you need to ask the right questions.
About your Author I am
an average Canadian retired fellow age 61 with a University degree
and life experience across several industries including banking,
government and business. This website is a hobby where I
investigate bullshit in our society and where possible -suggest a
better way. In the case of Banking in Canada and the Derivative
Market I feel that there are many issues which are not being
adequately covered in the traditional media so I have drawn your
attention to some of these issues here. Although I have taken
University courses in Economics I am not an Economist nor do I
pretend to be one. I have worked in a bank at the branch level but
have never worked in the head office level where derivative
investments are made. 