BIG SIX BANKS aren’t passing along the Bank of Canada rate cut to consumers?

Today, the actual BANK PRIME rate should be 2.50%, not 2.70%.   What am I talking about?… follow me on this and let’s see if this makes sense.

It’s been a few weeks since the Bank of Canada cut the rate.  I’ve been waiting to see how this would play out… First, let’s get the terminology clear.    Bank of Canada overnight rate, or Key rate as it’s referred to, directly affects the Retail Bank Prime rate and Variable rate mortgages.   This does not have a direct impact on fixed rate mortgages.

Last January, the Bank of Canada Governor, Stephen Poloz, surprised most economists and financial experts when he cut the rate by 0.25% (well, not all experts, I called for a rate cut just a week earlier).

And the BIG SIX BANKS made headlines when they refused to lower the Retail Bank Prime rate.   There was huge media, consumer and then, political pressure.  Until finally, the Banks caved and lowered the rate…. but not by the normal 0.25%…

No, instead, the BANKS only cut the rate by 0.15% and pocketed the difference.   Yup, they just made themselves 0.10%.

The media was rightfully negative about this. But the BANKS just shrugged this off. And as time passed on, it was forgotten by the media and the public. Just like the Phil Kessel trade, and just like the costly Toronto Pan American games (sorry, couldn’t resist that one).

HOW DO YOU SPELL GREED “B.I.G.  S.I.X.  B.A.N.K.S.”

Here we are again.   Just 6 months later, and the Bank of Canada saw the need to cut the overnight rate again by another 0.25%.  There are growing concerns about the effects of low commodity prices on the economy.  Lowering the overnight rate is one of the tools in the Bank of Canada’s arsenal to combat a slowing economy.

They lowered it with the hopes of warding off any recessionary concerns.   But the BANKS must cooperate. So, what did the BIG SIX BANKS do?  Yup, you guessed it.   They cut the Retail Bank Prime…  and again, by just 0.15%, not by the 0.25% that it should be cut by.

Yet again, they pocketed another 0.10%.   Only this time, we didn’t see any media attention or coverage on this.   I’ve been waiting to see if any headlines would appear.  It’s as though this was okay now.  Like it’s acceptable for BIG SIX BANKS to not share the savings with retail and commercial borrowers.

When did this become okay?  Why isn’t there more media attention?  I’m at a loss for words.   There are only 3 times in modern history where the BANKS did not match a Bank or Canada rate cut.   During the 2008 US sub-prime mortgage crisis, this past January 2015 and again July 2015.  Why is okay?

All I can say is, “shame on the BIG SIX BANKS.”   They can put whatever spin they choose, but the bottom line is their profits have increased at the expense of Canadians.   Hey, I want you to remember this when you walk into your retail bank branch.  “Banks are a business.”  They are going to try to maximize their profits whenever possible.  Too bad it’s on the backs of Canadians.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca