Yesterday’s rate cut announcement by the Bank of Canada (BOC) governor, Stephen Poloz, caught all Economists by surprise. The BOC cut their overnight rate by 0.25%. Historically, and traditionally, this meant that the Bank Prime rate would follow. Bank Prime rate is 3.00% and we expect it to fall to 2.75%.
But HOLD ON!…Today, it’s the BOC governor, Poloz, that will be surprised as TD Bank says they WON’T be cutting their Bank Prime rate! The BOC cut the rate to help stimulate the economy. Businesses borrow commercial funds priced against Bank Prime… and consumers borrow lines of credit and Variable rate mortgages against Bank Prime.
TD’s announcement is a slap in the face to Canadian consumers, businesses and the BOC. We can recall just one other time in recent memory, when Bank Prime rate did not change with the BOC rate. That was back in December 2008 when the BOC cut the rate by a whopping 0.75% in an attempt to avoid a major recession. The BIG SIX BANKS only chopped this rate by 0.50%… Never got a good reason why they did this.. something about uncertain cost of funds at the time… but they’ve NEVER readjusted the Bank Prime to where it should be….
What ever happened to that extra 0.25% profit margin for the past 6 years? Anyone asking that question? Well, maybe here’s an answer.. Have the BIG SIX BANKS reported any losses during the past 6 years? Or have they reported record earnings? Yup, record profits almost every year….even during the recession years. Aren’t you glad you could contribute more to the bottom line?
So here we are again… the BOC has made a big move to help Canadians… and the BANKS are finding excuses to NOT cut your rate. Canadians should be outraged! This is a kick in the butt! Come on BANKERS, get with it. You’ve been given a lower cost of funds for the purpose of passing this benefit over to the public. Stop wasting time and cut the Bank Prime rate!
My hope and my wish is that the BIG SIX BANKS will stop fooling around and cut the rate quickly. The longer they wait, the more negative press they will receive.. the less effect the BOC rate cut will have for Canadians! Step up and make the move… Perhaps our Minister of Finance, Joe Oliver, will get an informal message over to the BIG SIX BANK leaders to make the change… Or maybe Canadians will get fed up enough with their Banks to seek alternative financial institutions such as Credit Unions.. ? stay tuned..!
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Steve Garganis 416 224 0114 firstname.lastname@example.org