Full Comment - December 16, 2024


You won’t believe how badly your bank is fleecing you


Episode Stats

Length

37 minutes

Words per Minute

152.68802

Word Count

5,686

Sentence Count

405

Hate Speech Sentences

1


Summary

Canadians think good things about their banks, but the truth is, they are also ripping us off quite badly. When it comes to bank fees, Canadians pay among the highest fees in the world. Author Andrew Spence, who has worked in the banking industry, takes a look at it.


Transcript

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00:01:58.720 Canadian banks are big.
00:02:03.600 Canadian banks are strong.
00:02:05.120 They're stable.
00:02:06.340 They provide your pension because they're in all of our pension plans.
00:02:09.820 They're funding our retirement.
00:02:11.340 And generally speaking, Canadians think good things about their banks.
00:02:15.460 But the truth is, they're also ripping us off quite badly.
00:02:19.600 Hello, welcome to the Full Comment Podcast.
00:02:21.300 My name is Brian Lilly, your host.
00:02:23.080 And today we're going to look at an issue that started to bubble up on the political side.
00:02:26.680 And speak to an author who's examined this.
00:02:30.520 Might shock some of you, though, to find out that the Conservative Party is the one that lately has been taking an aim at banking fees.
00:02:38.120 Several MPs have raised the issue that, quite frankly, we are being ripped off by our banks.
00:02:45.540 This is a huge issue.
00:02:47.220 The federal government committed to lowering bank fees for Canadians.
00:02:50.480 They have not done that.
00:02:51.620 Compared to the U.S., Canada has 34 domestic banks versus the roughly 4,844 domestic American banks.
00:03:00.760 When it comes to bank fees, Canadians pay among the highest bank fees in the world.
00:03:05.240 Only six banks control 95% of mortgages.
00:03:08.680 Andrew Spence is someone who's worked in the banking industry.
00:03:12.140 He's worked for various governments, provincial, federal, internationally over the years.
00:03:17.680 And he took a look at the banking system and joins us now to talk about it because Canadians pay some of the highest fees in the world.
00:03:26.460 And, Andrew, I'm not exaggerating when I say, flipping through your book, I'd get furious and I'd put it away.
00:03:34.160 And then I'd pick it up again and I'd get furious.
00:03:36.520 And I bet now I'm just angry.
00:03:39.280 How badly are they ripping us off?
00:03:41.360 Well, badly is a simple answer.
00:03:47.000 So, McKinsey, the big global management consultancy firm.
00:03:52.540 I walk my dog past their office here in Toronto every day.
00:03:56.020 Yeah.
00:03:56.660 Wrote an article earlier this year about, is it springtime in Canada's fintech industry?
00:04:04.880 With a question mark.
00:04:06.440 Because the answer is, no, it's dot.
00:04:08.820 It is a silent spring.
00:04:09.960 But in that article, they pointed out that Canada's banks have revenues about 8% of GDP.
00:04:19.600 And the average for the closest countries to ours, in terms of the structure of the banking system, the UK, Australia, and the US, their average is about 6%.
00:04:28.240 And if you go to Europe, where the fintech revolution is in full swing, their take of revenues relative to GDP is just 4.5%.
00:04:39.920 Now, why is that?
00:04:41.420 That is the case, because those countries take competition policy seriously, and they take consumer protection seriously.
00:04:51.740 Whereas in Canada, we either don't take competition policy seriously, and I'm pretty sure we don't, or we don't execute on elements of consumer protection.
00:05:04.200 So the banks are able to take what they want, because the competition is just not there.
00:05:12.160 And that's a function as much as government economic policy and an attitude towards competition that until recently was non-existent.
00:05:23.500 But you said fintech.
00:05:26.700 And then I say, well, but wait, I thought our banks were highly tech-savvy.
00:05:32.960 Our rollout of the Interact system, our debit card system, far advanced in the United States.
00:05:39.200 For years, I've been traveling to the United States with more cash than I would ever carry with me here, because it's not as prevalent.
00:05:46.460 Now, that gap has definitely closed over the last while, but doesn't that prove that our fintech is superior?
00:05:52.940 Look at the Interact system.
00:05:54.500 Not in the least.
00:05:56.700 So I walked past my bank just the other day, and I glanced through the window, and I noticed that the difference between what they'll sell me, a U.S. dollar, and what they'll buy it from me, is seven cents.
00:06:13.920 Think about that for a second, right?
00:06:15.760 So if I was going to go on a trip to the U.S., I'd go into the bank, and I'd say, I want to buy a thousand dollars U.S., because if the U.S. system is not very good, I won't be able to take my money out, machine, I just need to have that cash.
00:06:25.860 And they'll say, sure, Mr. Spence, give me $1,470.
00:06:29.520 And I say, oh, okay.
00:06:30.960 That sounds familiar.
00:06:32.920 I'm on my way to the U.S., yes.
00:06:34.500 But then I realized, oh, the trick's been canceled, so I don't need these dollars anymore.
00:06:39.120 So I'd give them back to the teller, and I'd say, can I have my money back, please?
00:06:43.060 And she or he would give me $1,400 back.
00:06:48.000 So I would pay 70 bucks just for that momentary transaction in person, in a branch, with a person.
00:06:55.920 Now, if I banked with a European bank, I'd have what's called an open banking app in my hand.
00:07:03.060 My smartphone, I'd say, oh, I want to buy a thousand U.S. dollars, please.
00:07:06.740 You put that in there, they would fine you the lowest cost provider of those funds, you'd hit the button, buy, that money would be instantaneously in your bank account.
00:07:21.940 Now, without having to open a U.S. dollar account, which is what we would have to do here, with a fee, of course.
00:07:30.360 Yeah, so let's go through the transaction, right?
00:07:33.100 So let's say there are a number of fintechs here in Canada that will offer you foreign exchange services at mid-market, right?
00:07:39.180 Halfway between what the bank buys or sells for.
00:07:42.080 But I've got to have a Canadian dollar account.
00:07:44.120 I've got to have a U.S. dollar account.
00:07:47.140 I've got to send the Canadian dollars to the fintech provider that converts it to U.S. dollars,
00:07:52.580 and then he or she has to send that money back to my U.S. dollar account.
00:07:56.500 And I save myself $0.35, but it might take two days, three days potentially.
00:08:02.460 And then I've got to pay the Interact charge of $3, $1.50 each way,
00:08:07.660 even though the cost of the bank is $0.12 for that entire transaction.
00:08:12.500 Hold on.
00:08:13.380 Can you state those figures again, please?
00:08:15.680 Sure.
00:08:16.500 So the bulk fees for banks to transact through Interact are $0.06 a transaction.
00:08:22.140 But for you and me, Brian, to do that transaction, we're paying $1.50.
00:08:27.240 So that's a huge margin over the cost of facilitating the payment.
00:08:33.280 But anyway, we'll come back to that in a minute.
00:08:34.920 Because the key part about why you don't bother with this fintech setup as it is,
00:08:39.720 is because I've got to pay a fee on my U.S. dollar account that I'm holding there
00:08:43.420 for the sole purpose of receiving a U.S. dollar payment from a fintech provider
00:08:48.080 so I can save some money on the cost of transaction.
00:08:51.300 When I add it all up, I'm probably paying more by getting set up to do that
00:08:56.460 because I don't make many foreign exchange transactions per year.
00:09:00.800 All this by way of saying that these frictions are put in place
00:09:05.400 by the fact that our payment system is archaic now compared to what you can get
00:09:13.920 in Europe and even in the United States where their take up of digital banking
00:09:19.940 is significantly higher than ours.
00:09:22.700 The answer every time that someone raises an issue, though,
00:09:27.060 is something that I mentioned in the introduction, and that is stability.
00:09:31.580 We have a stable banking system.
00:09:34.040 We want a stable banking system.
00:09:35.940 This is why we can't allow foreign competition, is because of the stable banking system.
00:09:42.280 So is that a small price to pay or a very large price to pay for a stable banking system?
00:09:48.460 Canada's banking system is stable, certainly because Canadian banks are conservative
00:09:53.740 relative to banking in other parts of the world.
00:09:57.020 But they're also stable, and they also had a better financial crisis in 2008-2009
00:10:03.780 because they are more closely and carefully regulated by Opsi.
00:10:10.220 One of the reasons that both back then, well, especially the United States,
00:10:15.280 got into so much trouble is because not only did they liberalize their system,
00:10:22.000 that is, make it more competitive,
00:10:23.480 they also dropped the ball on regulatory oversight by various regulators.
00:10:31.220 So in Canada, we had a clear cap on how much leverage banks could pursue.
00:10:36.180 We had significantly higher capital standards than the Basel II Accords,
00:10:45.000 which was a sort of a globally agreed-upon capital minimum.
00:10:49.040 And so, and we also, because the banks have this oligopolistic grip on their customers,
00:10:59.320 and because they are allowed to assign fees to many, many different dimensions of transactions
00:11:04.920 that go through the system at ever higher prices,
00:11:08.180 they did not have to reach out along the risk curve
00:11:12.000 to try and satisfy high expectations of returns.
00:11:16.860 And so we avoided the ugly politics of bailouts, for sure, because our banks didn't go under.
00:11:23.020 But I don't think people realize that Canadian banks had a significant amount of help from our authorities,
00:11:29.200 especially from the Bank of Canada Finance Department,
00:11:32.760 that provided a significant amount of liquidity to help tide them over.
00:11:36.960 The quantitative easing.
00:11:38.140 Yes. Well, we didn't do quantitative easing so much in Canada,
00:11:41.860 but we do have emergency liquidity funds available in times of crisis.
00:11:47.040 And those funds were heavily drawn upon by the banking system,
00:11:51.140 and appropriately so, because that's what it's there for.
00:11:55.100 But the Finance Department also bought a large number of illiquid mortgages from the banks
00:12:00.420 that reliquified them at a time when they needed it the most.
00:12:04.900 So let's not be in any doubt that the banks were able to sell through
00:12:12.140 because they were so exquisitely well-managed.
00:12:15.880 They were so exquisitely conservative.
00:12:18.340 There was a significant amount of assistance from the state that helped us.
00:12:22.380 But the point I wanted to make was,
00:12:24.920 sure, we didn't have to bail them out, right?
00:12:27.600 Like the UK did and like the US did.
00:12:30.060 And I would say that stabilizing intervention is always profitable, right?
00:12:34.360 And it was, even for the US Treasury.
00:12:37.560 But we didn't need to intervene in that way
00:12:40.460 because we as consumers and taxpayers give the banks help every day.
00:12:48.260 You've been up going through some of the daily transactions that we do.
00:12:53.840 And those are the small ones.
00:12:56.260 But a lot of small transactions add up to a lot of money.
00:13:01.820 Give me a few examples and compare it, as you do in the book,
00:13:06.080 to the Australians and the Brits.
00:13:09.500 Because I think that's insightful for people who will.
00:13:15.200 I mean, it's that Canadian, you know, reflex.
00:13:18.880 Oh, no, we couldn't possibly do like the Americans do.
00:13:22.260 But, hey, let me get down to the United States as quick as I can for a holiday.
00:13:27.720 So the Brits and the Australians have similar banking systems to us,
00:13:31.240 but they pay far less.
00:13:32.780 How were they able to do that?
00:13:34.140 The banks are still profitable.
00:13:35.920 I never hear that Barclays is going under,
00:13:38.420 or Royal Bank of Scotland, or any of the, you know.
00:13:40.760 They're doing okay.
00:13:41.840 Well, let's talk about this.
00:13:47.480 Let's talk about what happens here in Canada.
00:13:49.440 The first thing to frame this,
00:13:52.640 Canadians, many Canadians still use paper checks
00:13:55.480 to settle their transactions, right?
00:13:59.120 And so every now and again, for whatever reason,
00:14:02.560 you might bounce a check.
00:14:03.960 You don't have enough in your account to cover the check that you've written.
00:14:07.360 So if you do that, you'll get a charge of $48.
00:14:13.320 Think about that for a second, $48.
00:14:15.760 If you were to find yourself on the wrong side of that transaction
00:14:19.340 in the UK of Australia, come anywhere from $2 to $5, maybe nothing.
00:14:24.540 So that's a huge difference.
00:14:26.440 Just $2 to $48.
00:14:29.320 No, no.
00:14:30.680 No, no, it's $2.
00:14:33.420 That's what I'm saying.
00:14:34.120 It's $2 in some of these places.
00:14:36.560 Right.
00:14:36.620 It's $48 here.
00:14:38.600 Right.
00:14:39.700 And thankfully, I haven't bounced a check in quite a while
00:14:42.520 because I didn't know it was that high.
00:14:44.560 So I was actually in the UK recently,
00:14:46.800 and I walked past a bank machine in Picadilly Soka Station in London.
00:14:52.160 And above it, broadly advertised, was free withdrawals.
00:14:58.440 So if I go and take money out of another bank's bank machine here,
00:15:03.760 I'm going to get hit with a fee of $150.
00:15:05.340 Just like that.
00:15:07.720 Whereas in the UK, you won't pay anything for that.
00:15:10.460 So, and overall fees for a fee for a checking account can be minimal to zero in those countries.
00:15:19.060 So here's the thing.
00:15:21.280 After my book was published, I had an op-ed in the Globe and Mail
00:15:25.920 outlining some of these costs.
00:15:28.300 And on my LinkedIn account, I received a message from a member of the public
00:15:33.400 that thanked me for outlining just how egregiously high these fees were
00:15:40.360 and how arbitrarily they were applied.
00:15:42.660 And he told me a sort of almost distressing story about how he had to take over his father's financial affairs
00:15:51.680 because his father was going really too old to manage them.
00:15:55.400 And he outlined $2,500 worth of charges that his bank had hit him with because he was bouncing checks.
00:16:07.720 He wasn't keeping track of his bank balance.
00:16:10.640 Every time he went into overdraft, he got hit with a fee.
00:16:13.860 Then he got hit with overdraft interest charges.
00:16:16.480 Plus the fees on the bank of some account, rather, of some $15 to $20 at a time.
00:16:23.160 And over a two-year period, it was $2,500.
00:16:25.760 Now, in 2019, the Financial Conduct Authority in the UK banned their banks from charging any of these fees
00:16:38.000 on any of these transactions.
00:16:40.000 Moreover, they gave the banks a mandate, or no, not a mandate, a requirement, a duty of care.
00:16:48.720 Because if you can write an algorithm that can assign a charge every time someone's account is deteriorating,
00:16:54.020 then you can have a signal that perhaps you should look at the details of why that cat
00:16:58.700 or that person's financial affairs are deteriorating.
00:17:01.880 And you need to go and find out why and see if you can help them.
00:17:05.500 We do not do any of that here in Canada.
00:17:09.460 I can't imagine that happening at all.
00:17:13.980 At the beginning, you were going through the—you put in very detailed terms.
00:17:24.020 The Interact system.
00:17:26.340 And you mentioned free withdrawals earlier, but I just wanted to pull it up.
00:17:31.600 You point out that most people don't know this.
00:17:33.880 The Interact system is jointly owned by all the banks.
00:17:37.000 And it makes a profit.
00:17:38.760 And they all make a profit off of it with these six-cent transactions that they'll charge us $1.50 for,
00:17:44.260 or the merchant a fee for.
00:17:46.980 But you point out the cash withdrawal, that if it's $1.50 on a $1,000 transaction, that's 0.15%.
00:17:58.440 But you go down to a withdrawal fee of 3%, or sorry, 7.5% if you're going at $20.
00:18:06.540 So a young person going out to spend, you know, some spending money, they're paying 7.5% to get $20.
00:18:14.600 Yeah.
00:18:15.540 Yeah.
00:18:16.380 It's shocking, isn't it, right?
00:18:18.300 It really is.
00:18:19.500 I mean, that was one of the ones that really pissed me off.
00:18:23.800 Well, yeah.
00:18:24.620 I mean, the whole payment system needs some examination.
00:18:30.520 Now, the anecdote I was giving, or not so much an anecdote, I was illustrating the difference
00:18:34.880 between having an open banking app on your phone where you could do your foreign exchange
00:18:40.500 transaction in the blink of an eye at the lowest possible cost.
00:18:43.780 And that requires an enhancement to our payment system here in Canada.
00:18:50.100 And for some time, there's been a proposal to introduce an instantaneous settlement system
00:18:59.860 here in Canada called Real Time Rail.
00:19:04.340 Now, the Canadian payment system has been a thorn in the side of the federal government
00:19:11.880 for over 40 years, as I outlined in the book.
00:19:15.560 And there have been various attempts to loosen the bank's grip over that payment system, because
00:19:22.580 they use it as a sort of a castle wall and a moat to keep competition at bay.
00:19:29.800 But every time the federal government attempts to open that up to more competition, somehow
00:19:39.840 the banks reassert that control and dominance over it.
00:19:43.280 So, the Canadian payment, the CBA used to manage the payment system, then it became the Canadian
00:19:50.440 Payments Association, then that was rebranded a few years ago to Payments Canada, when they
00:19:56.300 were going to take responsibility for delivering real-time rail.
00:20:00.280 And then they decided, well, we'll outsource that to Interac.
00:20:05.240 And who owns Interac?
00:20:07.100 Yeah.
00:20:07.980 Right.
00:20:08.460 So, you get the story here, right?
00:20:10.680 You can make this stuff up, I mean.
00:20:12.180 And so, anyway, real-time rail was supposed to have arrived, or the tracks to real-time
00:20:18.920 rail, as it were, should have been laid down by last year.
00:20:22.340 And now, nobody seems to know when it's coming.
00:20:26.420 And it's not, you know, hyperbole to say, we don't know when it's coming at all.
00:20:33.040 So, if we don't have instantaneous settlement, we don't have access to open banking.
00:20:38.780 If we don't have access to open banking, we remain in the bottom five of 70 countries globally
00:20:47.100 that's not making its mark in digital banking, which is pathetic, because we have one of the
00:20:55.600 highest rates of smartphone penetration in the world, and we are a highly digitally literate
00:21:02.100 country.
00:21:02.540 But we can't get there, because we can't access it.
00:21:07.140 So, going in this direction, the real-time rail, that would lower costs for merchants who
00:21:13.500 are always talking about the high fees the banks put on them.
00:21:16.360 That would lower costs for consumers.
00:21:20.200 What's standing in the way of us adopting this?
00:21:23.480 I mean, are there disruptors?
00:21:25.000 At one point, PayPal was a disruptor for the banking system.
00:21:27.880 It's kind of faded.
00:21:29.040 I don't see as much use of that, although I was offered PayPal as an option to book a
00:21:33.360 flight just recently.
00:21:36.100 You know, are there tech disruptors out there that could push this along?
00:21:40.240 Yes, absolutely there are.
00:21:42.400 Canada has already quite a well-developed fintech industry, but it's stalled.
00:21:51.140 NEO, for example, the bank headquartered in Calgary, became the payments provider for Tim
00:22:01.840 Hortons, for instance.
00:22:03.020 So, we are making some penetration, but the key point is that we still have to go through
00:22:07.360 the payments calendar, which is run by the banks, run for the banks, and there's only
00:22:14.300 so much we can achieve without this instantaneous settlement system.
00:22:20.400 So, we're not getting the full benefit of the infrastructure that we've already been put in
00:22:27.680 place, because it's just sitting there on the periphery, and we're unable to leverage it to
00:22:33.920 our full advantage.
00:22:35.020 So, imagine, you know, that there's about 2% of GDP that's being funneled to bank shareholders
00:22:39.700 that could be distributed to customers and a new nascent industry to create opportunity
00:22:45.740 for a highly educated young population.
00:22:51.300 So, I mean, the costs are more than just the cost to you and I as consumers.
00:22:55.060 There are real negative network effects, as it were, for the economy as a whole, because
00:23:00.500 we refuse to modernize our system.
00:23:03.980 And whether that's a combination of institutional obstructionism and bureaucratic inertia, I'm not
00:23:12.700 really sure, but I am more than convinced that both of those issues is restraining our development.
00:23:21.020 We need to take a quick break, Andrew, but when we come back, I want to talk about opening
00:23:24.660 up the banking system, busting it open with competition.
00:23:28.340 Is that one of the answers?
00:23:29.440 More in moments.
00:23:30.420 Canada's banking system costs as a fortune, as you've been hearing, and if you're like
00:23:49.720 me, you've just been getting angry or listening to Andrew talk.
00:23:52.300 No offense, Andrew, but you're bringing us great information.
00:23:57.780 It's just infuriating.
00:24:00.440 Canadians don't like to like our airlines because we only have a couple of them.
00:24:04.640 We don't like to like our cell phone providers because we only have a couple.
00:24:08.180 That's how we like industry in Canada.
00:24:10.300 It seems in banking that it's much more wide open because we have big six banks.
00:24:15.760 We also have credit unions, which once upon a time charged lower fees.
00:24:20.300 Now they charge the same as the banks, you know, last time I looked, they're nicer banks
00:24:27.200 that still charge you through the nose.
00:24:29.020 So what's the solution?
00:24:30.840 Do we need to bust open competition?
00:24:33.120 Because I'll tell you, I'm headed down to Florida to see my folks and they bank with Royal
00:24:39.840 Bank in Florida.
00:24:42.540 They're allowed to go down and buy American banks and TD, they own the Eastern U.S.
00:24:47.260 Seaboard.
00:24:47.640 Bank of Montreal just bought up a huge chunk of the California banking system while already
00:24:54.460 having a big footprint in Chicagoland.
00:24:58.020 We don't allow that here.
00:25:00.160 Should we allow foreign banks, be it Barclays, be it Bank of America, to come into this country?
00:25:06.120 So this is a complicated issue.
00:25:10.780 I think the answer to that is, well, no.
00:25:16.020 My sense is, and having spoken to federal policymakers over the years, there's always been the concern
00:25:24.700 that if you allow a U.S. bank of any heft that has the same capability as a Canadian bank,
00:25:35.060 you're possibly and most likely looking at one of the big four money center banks, right?
00:25:39.620 That would be Bank of America, Wells Fargo, City Bank, J.P. Borgen.
00:25:45.500 And if you look at their balance sheet and their income statement, they look an awful like
00:25:50.440 Canadian banks.
00:25:51.760 They have, they're large, they're much bigger than the Canadian banks, obviously.
00:25:56.140 They're large, they have a degree of market power that equals that of the Canadian banks
00:26:02.120 in their domestic market.
00:26:04.440 And so it's not clear that if they were to come up here, they would do anything different
00:26:09.240 than the Canadian banks, because that's what they're doing at home.
00:26:14.120 There are about another hundred banks in the U.S. that are small regional banks that don't
00:26:18.660 have that market power, that do fund entrepreneurs and small businesses, and occasionally one or
00:26:24.120 two of them goes under.
00:26:25.980 But the U.S. authorities are willing to accept that as a price for there at least to be some
00:26:31.380 financing for local economies to entrepreneurs, because those businesses don't have the same
00:26:37.000 market power.
00:26:38.140 So the other issue you have with a market like Canada, which economists say is not contestable,
00:26:45.620 you can come up here and have a contest with them and hope to win, those banks would have
00:26:51.160 to come here, face high costs on the way in, would likely have to hire staff from the local
00:26:59.080 bank, just because there are always differences between markets, they would be subject to what
00:27:04.460 we call adverse selection, which is, you know, who would be my new borrower as well, the people
00:27:08.460 that the Canadian banks won't lend any money to, and they don't lend them any money for
00:27:11.800 a reason, right?
00:27:12.560 They may be high risks.
00:27:14.100 So at the end of the day, this has never really been seen as a solution for this problem
00:27:18.560 of oligopoly.
00:27:19.440 However, the reason I put the fintechs on the table very early on is because now we do have
00:27:27.680 a way to introduce competition to the banking system by what we call unbundling the bank,
00:27:34.860 by allowing individual and small providers to come in and offer many of the different services
00:27:42.260 that the banks offer at a competitive price, even though they don't have to build an entire
00:27:47.800 bank to do that.
00:27:50.160 And this is the reason why the banks want to slow warp the arrival of fintechs, and you
00:27:55.880 can understand why.
00:27:58.420 So that is digital technology, digital banking that will finally crack open this incontestability
00:28:07.240 problem.
00:28:08.900 We've seen some attempts at that before with Tangerine, I forget what it used to be called,
00:28:14.200 and now it's...
00:28:15.440 ING Direct.
00:28:16.280 ING Direct.
00:28:17.500 That was a much lower-tech attempt at doing a similar thing.
00:28:22.680 Changed to Tangerine, got bought up by Scotiabank, and now it's just Scotiabank's low-cost option.
00:28:28.840 You had PC Financial, which has had some success.
00:28:36.240 Is it just the new technology that's coming on board that makes it easier to do this unbundling?
00:28:42.440 Yes, it is.
00:28:44.120 Right.
00:28:44.360 Does that help the small businesses?
00:28:47.540 Because you spend a good time in the book talking about how in the United States, in Britain and
00:28:56.720 elsewhere, banks will lend.
00:28:59.140 And you just mentioned it.
00:29:00.040 The smaller regional banks will lend to small businesses in the U.S.
00:29:04.360 And small businesses here have an incredibly tough time getting loans.
00:29:10.400 That's why people take out a line of credit on their home or families pool together money
00:29:16.060 to start a business.
00:29:17.720 Because if you go to Royal Bank, if you go to Scotiabank, if you go to BMO, they're going to laugh at you.
00:29:23.960 Very much.
00:29:24.880 I mean, yeah, I make the point in the book.
00:29:29.380 Our banks are not in the business of risk, right?
00:29:33.040 They're in the business of profit.
00:29:34.360 So, if you want to borrow money from a bank, you've got to show a good base of collateral, right?
00:29:42.500 You have to show that if you don't honor your obligations, there's some security for them to seize.
00:29:47.800 Now, banks have to be very careful about credit because they invest over very long periods of time.
00:29:58.780 But we can withdraw our deposits tomorrow.
00:30:02.340 And so, that does make them very sensitive to loss.
00:30:04.720 And we shouldn't bash the banks too heavily because we need them to avoid that kind of risk.
00:30:13.460 And they are expert at granting credit.
00:30:15.440 So, you know, we have to respect that to a degree.
00:30:18.600 It helps our system run.
00:30:20.940 Yeah.
00:30:21.340 But when you look at the spread between a small business loan and a large business loan,
00:30:28.060 there's over 2, 2.5%, whereas elsewhere in the world, it's only about 0.5%.
00:30:32.300 Right.
00:30:33.160 So, other countries are willing to put the resources into looking at the risk
00:30:39.180 and adequately pricing the risk and distributing more credit.
00:30:43.620 We don't because our banks don't have to.
00:30:46.960 They don't feel compelled to.
00:30:48.760 They think it's too much risk.
00:30:50.600 And there's no agency saying that this is the problem.
00:30:54.260 Now, we do have two government agencies that have grown out of this problem, right?
00:30:58.780 We have the Business Development Corporation, and we have the Export Development Corporation,
00:31:04.240 both specialized roles.
00:31:06.860 But I don't know the BDC as well as I should, for full disclosure.
00:31:12.480 But one has to think that, you know, all of a sudden,
00:31:16.300 if a government agency is granting credit and underwriting risk,
00:31:20.100 then you've got to think, what's the risk that they're worried about?
00:31:23.320 Is it they're worried about the risk of loss or are they worried about reputational risk
00:31:27.680 that comes from lending money and then losing money?
00:31:30.080 Because politically, there will be a price to pay for that if it got too big.
00:31:33.500 So, we're stuck here, right?
00:31:35.360 And there is no clear way to take this forward without some sort of reform.
00:31:40.600 I've just looked up the Bank of Canada's prime rate, 5.95% right now.
00:31:49.700 So, that means that for someone who is in a small business,
00:31:54.420 they're more likely looking at just below 8.5% for a loan.
00:31:59.260 That's a major hit.
00:32:01.400 Well, when inflation is falling back to 2%, yeah.
00:32:03.640 The real rate of interest is very high.
00:32:05.980 So, the Conservatives have taken up this issue of banking fees being too high,
00:32:12.600 but they are instinctively not big fans of going in for regulations.
00:32:21.400 So, I mean, they'll do regulatory reform,
00:32:24.120 but adding on new regulations is not generally their forte.
00:32:29.840 How can they come about this?
00:32:31.720 I think back to when Jim Flaherty was finance minister
00:32:36.020 and there was a demand that we needed more low-priced daily banking options.
00:32:42.180 And Flaherty just said,
00:32:43.100 okay, you as an industry have to come up with solutions that meet this,
00:32:47.880 and if you don't, I'll impose them on you.
00:32:50.620 And all of a sudden, the bank suddenly had all these programs for students and seniors,
00:32:55.240 and you can, for this one low fee,
00:32:58.240 do all of these things that used to cost you a very high fee.
00:33:00.980 Is there something that, given that where the polls are at
00:33:06.420 and where things appear to be headed,
00:33:07.900 the Conservatives are most likely to win,
00:33:10.100 where would you direct them or steer them?
00:33:14.380 I would, first of all, start where the UK did with open banking,
00:33:19.700 which is bring all the banks into a room and say,
00:33:21.940 okay, folks, we are going to launch open banking in 18 months,
00:33:26.420 and you're going to do it whether you like it or not,
00:33:29.040 and these are the rules.
00:33:32.220 This is how it's going to get done.
00:33:33.680 You can go over there and talk to the FinTech guys,
00:33:36.520 and I'm going to assign an implementation trustee that will get this done on date X
00:33:43.940 according to the principles that that trustee decides upon
00:33:48.020 once you've all had an opportunity to air your positions.
00:33:52.440 And what would that do for the average consumer?
00:33:56.580 It would do, it would open up.
00:33:59.160 In the UK, there are 151 potential suppliers of financial products
00:34:06.020 that anybody who has the open banking app on their phone can take advantage of,
00:34:12.220 and that will bring a degree of price competition at a furious and fast pace
00:34:16.880 that the banks will have no option but to respond to.
00:34:20.040 And let's face it, incentives matter here.
00:34:22.740 I have no doubt in my mind that the banks could respond positively to that
00:34:26.700 once the incentive was put in front of them.
00:34:29.080 So that's the first thing that the conservatives could do, get tough.
00:34:33.220 Secondly, cast your mind back to all the fee assignment that the UK government banned
00:34:42.240 so you can do exactly what Jim Flaherty did.
00:34:46.600 Hey, I think you guys need to back off this stuff.
00:34:50.000 Here's the list.
00:34:51.240 I'm giving you the grace and favor to do so.
00:34:55.560 But let me, let there be no mistake.
00:34:58.060 If you don't, I will make it happen.
00:35:00.080 Just lay down the law.
00:35:04.080 Do it or I will.
00:35:04.900 Yeah, enough's enough, right?
00:35:06.580 I mean, you know, I think we, our banks are expensive, but they're safe.
00:35:11.340 Okay.
00:35:11.880 This is what we hear all the time, right?
00:35:15.420 But the TD money laundering scandal was unfortunate.
00:35:20.840 But I think that, that sort of drew the curtain a little bit on,
00:35:24.760 well, are they as safe as we think now?
00:35:26.920 Right?
00:35:27.140 And the other issue is with the mail strike, right?
00:35:31.020 With, with, with about a, I don't know what that number is, can't quite remember,
00:35:35.460 but, but a quarter to a third of payments still being, being executed by a check.
00:35:41.060 With a mail strike, there are all these checks stuck in mailbags and the sorting offices of
00:35:45.360 the nation and payments are not getting made.
00:35:47.300 And so we've now introduced a degree of, of, um, instability that our obsession with stability
00:35:55.060 and safety has created.
00:35:57.000 Just the irony of ironies, right?
00:35:59.040 So, so clearly things have got to a pass where what we did yesterday is no longer good enough
00:36:06.060 for today, let alone tomorrow.
00:36:07.500 I, uh, I was owed two settlements that were rather large recently.
00:36:12.100 And then the bank, uh, the postal strike happened.
00:36:15.700 I was terrified.
00:36:16.940 They would, they would put the check in the mail.
00:36:19.360 Thankfully, an electronic transfer, an e-transfer showed up, which, I mean, you, you also have
00:36:24.820 problems with how we do e-transfers in this country that we're not as advanced as, as elsewhere.
00:36:29.580 I know about that.
00:36:30.140 No, we are not.
00:36:30.820 No.
00:36:31.620 No.
00:36:31.820 All right.
00:36:32.620 Uh, Andrew, I want to thank you for your time today.
00:36:35.020 It, it's been fantastic.
00:36:36.240 The book is Fleeced, Canadians versus their banks.
00:36:39.480 It's a short read.
00:36:40.780 Um, get it in paperback format because throwing your Kindle or iPad at the wall will cost you
00:36:47.560 a lot more.
00:36:48.100 Thanks so much for your time, Andrew.
00:36:49.760 Brian's been a pleasure.
00:36:50.700 Thank you very much for having me.
00:36:52.200 Full Comment is a post-media podcast.
00:36:54.380 My name's Brian Lilly, your host.
00:36:55.980 This episode was produced by Andre Pru with theme music by Bryce Hall.
00:36:59.700 Kevin Libin is the executive producer.
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00:37:11.720 Thanks for listening.
00:37:12.900 Until next time, I'm Brian Lilly.