The Canadian flag flutters in the wind at the TD Centre, surrounded by other bank towers, in Toronto’s Financial District, on March 15.Fred Lum/the Globe and Mail
Move over telecoms. Banks are the federal government’s new punching bag.
Finance Minister Chrystia Freeland took aim at financial institutions again this week when she announced a flurry of policy changes, ostensibly to help Canadians contend with higher interest rates.
The problem isn’t the new mortgage guidelines on accommodating cash-strapped homeowners who are struggling to make loan payments. Those recommendations are clearly intended to minimize risk to the financial system.
Let’s also set aside Ottawa’s designation of a sole banking ombudsman (even though it’s another half-measure to provide recourse for aggrieved consumers).
Rather, the trouble lies with the government’s war on banking fees. It might seem like a pro-consumer move, but it will not reduce borrowing costs. Worse still, it has the potential to create additional revenue pressure for financial institutions already experiencing falling loan demand and rising credit risk.
The Trudeau government seems to be making a sport of politicizing banking regulation in recent years. But since lenders are increasingly shedding jobs to contain costs, this latest move is spectacularly ill-timed.
Banks are easy targets for consumer contempt, and yes, they’re certainly adept at nickel-and-diming us. But the Liberal government is playing a dangerous game by beating up on banks, especially since it is also responsible for maintaining public confidence in the industry.
In fact, this is the fourth time since 2021 that Ottawa has singled out financial institutions for castigation.
Earlier this year, the government announced a proposal to change the tax treatment of dividends paid on Canadian shares held by banks and insurers to increase federal revenues by $3.15-billion over five years.
Previously, it slapped a special levy – a 15-per-cent tax on the average of 2021 and 2020 taxable income above $1-billion – on financial institutions. Ottawa also instituted a permanent increase to their corporate tax rate, but spared other businesses that experienced pandemic surges in profitability.
(Banks will also be affected by a new 2-per-cent tax on share buybacks, but that measure applies to all companies.)
“This is all retail politics,” tweeted David Baskin, chairman and president of Baskin Wealth Management, earlier this week. “If you want the banks to ease up on amortization, taxing them more doesn’t help.”
Neither does putting pressure on banks to reduce fees. Only 31 per cent of Canadians pay no service fees on their accounts, according to the Canadian Bankers Association (CBA). That the vast majority of us do suggests that fees comprise a key revenue stream for banks.
The government seems to be forgetting that consumers and investors are often the same people. Canadians are heavily exposed to domestic banks through direct stock ownership, mutual funds and pension plans.
Retirees who own bank stocks and rely on the income from dividends are sure to be riled up by the government’s crackdown on bank fees. And those are the people who actually turn up to vote on election day.
So, how exactly does beating up on banks serve the public interest?
Perhaps it’s symptomatic of a broader cultural problem in our country.
Goldy Hyder, president and chief executive officer of the Business Council of Canada, suggested that Canadians have a tendency to “rip down” on large homegrown businesses of all kinds.
“We should be celebrating size and scale as an achievement,” Mr. Hyder said following his address at the Canadian Club Toronto on Wednesday.
The Business Council of Canada, the Canadian Chamber of Commerce and the TMX Group have all been vocal critics of Ottawa’s proposals targeting banks in recent years.
It’s no wonder the CBA has also taken the rare step of speaking out about the regulatory uncertainty the government has created for banks.
If consumers are being hosed by our banking oligopoly, then Ottawa should focus on increasing competition. But that requires long-term economic planning and the ability to deliver on promises in a timely manner.
Perhaps it is just a coincidence that Ms. Freeland is focusing on bank fees just as the government’s plan to introduce open banking has stalled – again.
Open banking is a system that would allow consumers and small businesses to securely share their financial data among financial-services providers such as banks and accredited fintechs. Among its benefits, it will make it easier for them to switch lenders to take advantage of, you guessed it, lower fees.
Instead, Ms. Freeland is homing in on fees charged for personal accounts, overdrafts and other services. But we all know that if banks are ordered to lower those fees, they will simply make the money back by raising others.
This is why it is a mistake for parliamentarians to meddle in business decisions.
Chiding banks about service fees is populist, but it isn’t sound industrial policy.