Western Standard - 'Fleeced. Canada versus their banks.'

00:00:00.000 Thank you very much for joining me today to discuss your book, Mr. Spence. I appreciate it.

00:00:04.680 Thank you, Corey. It's a pleasure to be here with you today.

00:00:07.300 Thanks. So I guess I'll just kind of begin at the beginning, you know, because people,

00:00:11.740 even when you travel, you don't think going to another country to look into their banking

00:00:15.160 systems or see differences. So it never really occurs to us to compare for other comparable

00:00:20.400 markets such as the UK or Australia or areas like that, you know, their banking systems,

00:00:26.080 which might be similar to ours, but looking that they're certainly not paying nearly as

00:00:29.620 much to bank as we are, are they? No, they're not. And there's a very good reason for that.

00:00:33.640 And I don't want to get too wonkish from the very beginning here, but in those jurisdictions

00:00:38.240 here in Canada, we pride ourselves on good and close regulation of the banking system

00:00:44.300 because safety matters, right? The matter is stability isn't everything, but without stability,

00:00:49.960 everything is nothing. Well, in the UK, they have tight regulation too, but the regulator also has

00:00:56.440 competition mandate, which means that they not only keep their banking system safe, but they also make

00:01:04.260 sure they're fair. And in Canada, we don't have until recently a well-empowered competition bureau

00:01:12.220 to ensure that we're getting good value for our money.

00:01:15.440 Yes. And so, I mean, a lot of it, and you kind of cover at the start and you cover more at the end

00:01:20.900 of the book, though, that the, I mean, the high horse Canada got on was in 2008 when the bank runs

00:01:26.540 happened in the States, things were, you know, went badly. And that's where a lot of people said,

00:01:30.320 well, we've got our hyper-regulated market. We didn't suffer through those things. Thus,

00:01:33.920 it justifies having such strict controls on our banking system. So, I mean, there's some degree of

00:01:39.380 rationale behind protecting, but if you overprotect, then your consumers are going to lose.

00:01:44.120 Yeah, there's no question. But I mean, I think there's a degree of misunderstanding here,

00:01:47.960 right? We can have, and we should have, tightly regulated banks. Banks are unlike any other

00:01:54.680 industry we have, right? But it's not just the choice between hyper-safety and a casino and a

00:02:00.840 free-for-all. With the advent of financial technology, we can now make our banking market what we call

00:02:07.340 contestable, right? We can contest it. And that means that these fintechs or financial technology

00:02:13.820 companies are able to come in if they were given access to the payment system in Canada,

00:02:17.500 which they're not, not across the board and not in the sense that really creates a degree of

00:02:23.100 competition that would give the banks a run for their money. So if you go to Europe, for instance,

00:02:27.180 everybody wanders around Europe with an app called Revolut. And then Revolut, you can figure out,

00:02:31.980 if you want to do a foreign exchange transaction, you just look at your phone and you see the best rate

00:02:36.060 at the lowest possible cost. And the transaction is done instantaneously. We don't have that option

00:02:44.140 in Canada, and we should have that option in Canada. And the banks know that this is coming,

00:02:49.660 but they're dragging their feet. They're slowing the process down with the complicit

00:02:54.300 shelter of the federal government, which means we don't see open banking in this country until 20,

00:02:59.820 20, 2026 at the earliest. And we don't even have an instantaneous real time transactions payment

00:03:07.900 system. And over 50 countries have this in place. And we don't even have a beta testing

00:03:14.860 instantaneous payment system ready until 2026. It's shameful.

00:03:21.180 It is ridiculous. I'll throw an anecdote that just recently happened in our household. Actually, 0.97

00:03:25.580 we've done some changes in our finances and things and we had a loan combined. And then one major bank

00:03:31.420 was to pay off a loan with another major bank. But apparently the only way they would accept it is

00:03:35.820 with a bank draft. A physical bank draft had to be sent from one major bank to the next major bank.

00:03:42.220 And of course they sent it to the wrong branch and now it's stuck in limbo. But why on earth, when I

00:03:47.740 could tap to make a payment in seconds, anywhere I go, can two major banks not do a transaction on my behalf

00:03:53.900 without charging a fortune and getting it wrong? Because they don't have to, because there's no

00:03:59.260 competition, right? So necessity is the mother of invention. So if we had a degree of competition in

00:04:04.860 the Canadian banking system, and I can assure you that the performance of the banks and the price at

00:04:10.220 which we transact would improve very, very quickly. We've seen this in the past when in the mortgage

00:04:16.060 market 20 odd years ago, 25 years ago, you know, you'd go and apply for a mortgage at the bank. It would

00:04:21.740 take you two weeks to know whether or not you were given the mortgage. And it was kind of a painful

00:04:25.500 nail-biting exercise for many, many aspiring homeowners. And there was a degree of competition at the

00:04:31.420 time from non-bank providers of mortgages. And once that group began to get a decent critical mass,

00:04:39.660 all of a sudden banks could process your mortgage overnight. And so we know that if they're given the

00:04:45.340 incentive to respond, they will. The key question we have to ask ourselves, I think, as citizens and

00:04:52.220 as electors is, why is the federal government sheltering the banks to persist with these practices

00:04:59.260 that keep competition at bay? And the answer is they can, because for some reason, the federal

00:05:04.380 government does not want to take it on. Now, we brought up the financial crisis, right? Sure,

00:05:09.020 the banks didn't go under here. And we should all be extremely grateful for that. And regulation was a big

00:05:13.180 part of that. But that doesn't mean to say that the banks should be free of competition because of

00:05:20.460 it. What people don't understand is that the banks did receive substantial help in terms of liquidity

00:05:26.220 provision from the Bank of Canada. The federal finance department freed up a lot of liquidity in

00:05:32.140 the system by buying mortgages from the bank's balance sheets. And if the financial crisis that had

00:05:38.060 happened another 12 months later, I think you would have found that some of the Canadian banks would have

00:05:42.860 got themselves into some similar trouble. It's just that because more than or about half of their

00:05:50.300 income comes from fees rather than from providing financial transactions, they didn't have to reach

00:05:56.060 out into the risky stuff to retain high profitability targets because they didn't have to.

00:06:02.700 Yeah. So when the government's reticence in going into this, and it's funny because, I mean,

00:06:07.580 they really dedicated a lot of time and energy going after the retail grocer oligopoly that we're

00:06:12.220 dealing with and dragging the CEOs in front of committees and demanding that they explain their

00:06:17.580 4% profit margins, you know, and demonizing these guys. And I don't think they should drag bank heads

00:06:24.300 in and demonize them. But boy, if you really want to show an area where Canadians are kind of being

00:06:28.620 taken to the cleaners, look at the margins on financial institutions right now. And it makes the

00:06:34.380 the grocers look like pikers in comparison. I think this is fair comment, Corey. If you look at 1.00

00:06:44.220 the performance of the domestic commercial and personal lending and payments provision within the

00:06:52.860 domestic market itself, the bank's return on equity until recently was in the high 30%, which is

00:06:58.700 absolutely staggeringly high. And luckily for us, both TD Bank and Bank of Montreal have similar businesses

00:07:07.980 in parts of the US banking market that are much more competitive. And what you find is that their return

00:07:16.540 on equity in those markets is about half of what it is at home. So, you know, you can see that they're

00:07:22.700 extremely well protected. And whenever you bring this up with cabinet ministers and others in the

00:07:28.220 federal bureaucracy, they say, oh, but the crisis, you know, we did so well. Well, the banks are

00:07:33.820 expensive, but we say they're safe. But we've had a couple of recent scandals where we can begin to

00:07:39.900 question that narrative. Are they as safe as they say they are? And are they as safe as we have been led

00:07:46.540 to believe? I'm not entirely convinced. So another area, I mean, the banks have really spread out into

00:07:51.340 all sorts of side industries, I guess you could say, you sort of speak a bit to that, like areas where

00:07:56.060 if we were going to sort of break up some of the areas that banks get into and allow some more

00:07:59.740 competition, financial advising, investment products, things like that, where the banks really try to suck,

00:08:05.180 you know, customers into further, I guess, being entrenched into their financial lives. Those are areas that

00:08:11.980 other businesses can set up and provide those services without putting your banking structure at

00:08:16.860 risk. Yeah, I think that's right. I mean, I'm often asked, okay, so FinTechs would be good, let's get on

00:08:23.100 and get that done. And, you know, we sit and whistle in the wind and wait for that to happen. I think one of

00:08:30.300 the things that we could do with the stroke of the ministerial pen, if we were so inclined, or our political

00:08:36.940 leaders were so inclined, is to demand transparency from the banking system, right? I mean, if I have

00:08:45.260 a stock trading account at a discount brokerage at the arms of one of the banks, they will probably

00:08:51.500 charge me about $10 to do a transaction, right? Buy a stock, sell a stock, buy a mutual fund, sell a

00:08:57.900 mutual fund, buy an ETF, sell an ETF. I'd like to know what the cost of them is of facilitating that

00:09:04.060 transaction. I'm willing to bet you, Corey, and your listeners and your viewers that it's a couple

00:09:09.340 of cents. So why am I charging being charged $9.99 or $10 for it? It's the same with credit cards,

00:09:15.820 right? I mean, the interest rate on credit cards has barely budged over the foremost 40 years, and yet

00:09:21.180 inflation is significantly lower. The funding rates, the deposit rates that fund those things are

00:09:26.700 very much lower. We're told that there's a lot of fraud in credit cards and that there is, you know,

00:09:33.100 potentially high losses because borrowers are more marginal, and yet when banks securitize those

00:09:39.900 credit card receivables into trusts, S&P have to rate them. And they say, well, you know,

00:09:48.460 a third of all the borrowers are super prime, so you're going to lose money on them. The charge-off

00:09:52.940 rates are 3%, and fraud may well be high. But again, we don't know because we can't see it, right? So I think

00:10:01.340 there is a general sense amongst the population that it's expensive, they're dissatisfied,

00:10:06.700 the lack of choice, the frictions that are put in the way to just do simple payments,

00:10:11.980 five-day holds on checks. I mean, seriously, in a world where countries like Brazil have instantaneous

00:10:21.100 payment systems available for people, why don't we have it here? Let's see,

00:10:25.420 see. And then we can see whether or not you're justified in charging what you do for access to

00:10:31.420 the banking system. My guess is we'd be pretty shocked.

00:10:34.300 Well, they haven't adjusted their rates for the realities of today. I mean, if it was the days

00:10:39.340 of, you know, 40 years ago, and if you were going to transfer funds from one account to another,

00:10:43.980 you'd have to have conversations between real people, paper documents would be brought up and

00:10:48.300 amended and changed. And it's going to be cost, you know, time takes up time and cost. But I mean,

00:10:54.620 we're talking a digital transaction, as you said, pennies, if that, and still, though,

00:10:58.860 the rates stay the same. Same with credit cards. You point out in the book, I mean, yeah, we suffered

00:11:02.780 through double-digit interest rates in the 80s and into the early 90s for even mortgages.

00:11:08.860 Those have come down, but the credit card rates haven't changed a bit. And people carrying high

00:11:13.820 credit card balances on unsecured debt, that's a lot of actually what's pushing a lot of people to

00:11:18.540 some financial distress more than mortgages or other borrowing tools.

00:11:22.940 Yeah, there's no question. And I want to come back to the point I made right at the beginning,

00:11:27.260 Corey, if you don't mind, which is to, you know, OSFI, OSFI does a good job of regulation, right,

00:11:35.660 ensuring safety, no question about that. And I think they're an important agency, and they need to

00:11:39.660 be free to do their job. But they don't pay any attention to competition issues, right. So in the

00:11:46.380 United Kingdom, for instance, the Financial Conduct Authority actually has responsibility for competition

00:11:52.860 as well. And so there are many charges that the people who are financially marginal, usually the

00:12:01.100 poor, who find themselves in difficulty, will find themselves overdrawing their accounts, where they

00:12:07.180 will be charged a simple fee every time they are overdrawn, will be charged interest on the money that

00:12:13.660 they've essentially borrowed from the bank that tolerates that. They'll be charged 50 bucks for an NSF

00:12:18.540 check, non-sufficient funds to bounce a check. And this is allowed to go on. So in the UK,

00:12:26.860 the Financial Conduct Authority looked at these various charges and said, sorry, you no can do.

00:12:33.500 You're not allowed to do that. Moreover, you have a duty of care. If you can program your system to

00:12:40.620 assign a charge and a fee every time someone's overdrawn, you can identify, given the profile of the

00:12:46.540 customer, whether or not that person is marginal or not, or maybe in some difficulty. And now UK banks

00:12:53.180 have a duty of care, they have to find out what's going on in that person's life to ensure that the

00:12:59.260 banks don't essentially levy a port act. And meanwhile, there's no agency here in Canada that's charged with

00:13:06.300 that responsibility. So we have some gaps in our regulatory structure. If we're not going to allow

00:13:11.900 competition, regardless of where you are on the political divide, all of us need a degree of protection,

00:13:17.260 if we cannot look to competition to protect us. And the reason we like competition is because

00:13:24.540 it prevents the most egregious of these charges emerging, and it also forces incumbents to become more

00:13:30.940 efficient. And so to my mind, we've known this in economics, well over 100 years, why aren't we doing

00:13:38.780 something about it? Yeah, well, and in Canada, the government pressured actually and, you know,

00:13:43.900 they didn't impose, but they really twist the arms hard and brought about a grocer's code of conduct

00:13:48.620 that they have to abide by now for depending on how they deal with suppliers and pricing and things

00:13:53.020 like that. I guess before I let you go, the main thing is getting the political will because there

00:13:57.580 doesn't seem to be interest or will on the parts of our government. But right now we're going into an

00:14:01.580 election year now is a good time to get the pressure on the folks running for election saying,

00:14:06.700 hey, can you speak up on this? And of course, the best way to do that is to get the public informed

00:14:10.700 because they don't realize how they are being fleeced as your book puts it. So I mean, before

00:14:15.020 I let you go, you know, where can people find a copy of this to find out for themselves and see how

00:14:19.660 well you've broken down, you know, how badly we're kind of getting it in the Canadian system and how we

00:14:23.580 can work towards solving this? You can get it on Amazon, you can get it directly from the publisher,

00:14:27.980 Sutherland House Books. My wife encouraged me to record it. So you can lull yourself to sleep with my

00:14:34.060 voice if you so desire. I think at the end of the day, Corey, with this book, we've deliberately

00:14:40.220 written it for a general readership. And we want people to have the ideas, have the knowledge and

00:14:48.060 have the language to understand their predicament and to ask for more and to demand better. Democracy

00:14:54.860 is not about showing up every four years to cast a vote. It's about engaging with your MPs, engaging with

00:15:01.580 your representatives every day. Because if we don't, then we get what we deserve.

00:15:07.660 Well, absolutely. And if we can arm ourselves with information, it makes it harder for them to baffle

00:15:11.580 us with B.S. when we try to ask them why things are the way they are. So I really appreciate you

00:15:16.940 writing this and coming on today to talk about it. And I hope we can talk again down the road after the

00:15:21.740 banking system has been fixed up for us. Well, we will see. Thank you very much, Corey. It's been a pleasure to be here with you.

00:15:27.260 Thank you. Thank you.

Western Standard - November 04, 2024

'Fleeced. Canada versus their banks.'

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