The Fed Gov't and Banks.

Riverwind · March 7, 2007

I think the best way to prove your thoughts on whether ATMs in Canada are cheaper than elsewhere in the world is to do a complete review of the banking system in Canada.

A review of the banking system would be worthwhile. However, it is not likely to change many people's opinion.

Foreign banks find it very difficult to enter the Canadian system in any capacity whether it is as a brokerage or investment bank let alone a retail bank. The bank charter protects against that.

My understanding is foreign banks must set up a Canadian subsidiary that is partially owned by Canadians and it is difficult to find enough Canadians willing to invest the capital in a new bank. I don't see this as much of a barrier if the Canadian market was really as profitable as you like to believe. If ING and HSBC can do it there is no reason other banks could not do it if they thought there were significant profits to be made. My belief is foriegn banks look at the Canadian market and they see a lot of competition and consumers who complain a lot but are not willing to take their business elsewhere (i.e. credit unions).

Mad_Michael · March 7, 2007

There is no problem with Canadian banks than cannot be solved by opening up the Canadian market to foreign banks.

Every problem I've ever seen identified with Canadian banks, has as its root, the lack of actual competition amongst Canadian banks. It is a government mandated oligopoly which in economic terms for the consumer, is the absolute worst of both worlds.

Riverwind · March 7, 2007

There is no problem with Canadian banks than cannot be solved by opening up the Canadian market to foreign banks.

Do you have any basis to believe that allowing foreign competition will change anything? I think it would make the problem worse because we would end up with fewer banks as a result of mergers - not more.

Think about it: Canadians want the convenience of retail branch banking. It takes years and millions of dollars to build up a retail bank presence. It is unlikely that any foreign bank would ever make this investment from scratch - they would simply takeover an existing bank or credit union. This would add no new competition. Furthermore, the big Canadian banks would be allowed to merge to 'better compete' which would actually reduce competition in most communities.

Every problem I've ever seen identified with Canadian banks, has as its root, the lack of actual competition amongst Canadian banks. It is a government mandated oligopoly which in economic terms for the consumer, is the absolute worst of both worlds.

It naive to believe that the root of the problem is lack of competition. Most credit unions offer the same services as banks at lower costs yet Canadians don't move their business from the big banks. ATM charges are easily avoided but most people choose to pay them anyways. Why is that? I think it is because the Canadian consumer values convience over cost even though they complain about the cost.

Charles Anthony · March 7, 2007

Let me just cut to the chase first and then everybody can have fun reading the rest of my post if they want:

There is an academic school of thought that proposes a return to free-banking. They say government should be out of the money market in the same way as government should be out of the pop music or hot-dog vending or the shoe market.

Justify why the agents in the money market should get protection that is different from the agents in any other market.

Do you have any basis to believe that allowing foreign competition will change anything? I think it would make the problem worse because we would end up with fewer banks as a result of mergers - not more.

Who has the right to oppose it?

Should we apply the same rights to the coffee, sugar, bananas or oil markets too?

My understanding is foreign banks must set up a Canadian subsidiary that is partially owned by Canadians and it is difficult to find enough Canadians willing to invest the capital in a new bank. I don't see this as much of a barrier if the Canadian market was really as profitable as you like to believe. If ING and HSBC can do it there is no reason other banks could not do it if they thought there were significant profits to be made.

A potential foreign bank may be satisfied with a little less than "significant profits" but regulation may keep that foreign bank out and never allow consumers the opportunity.

My belief is foriegn banks look at the Canadian market and they see a lot of competition and consumers who complain a lot but are not willing to take their business elsewhere (i.e. credit unions).

That ascertion is like saying "All black modelT Fords are good enough! The government should not permit any other foreign imports."

The Canadian economy may be relatively small but it is still divisible. A regulation or a restriction in the market will not increase available choice.

However, the basic criteria I use comes down to choice: i.e. can the buyer reasonably refuse to purchase the service or can the buyer find another seller. When it comes to ATM fees I think that consumers have choices available so the government does not need to be involved.

However, the discussion in this thread involves more than ATM fees and the Opening Post said: "Let business do what they do, leave government to government." to which you objected.

That said, such an arguement means nothing to someone who has already decided that there is no such thing as an unfair advantage in a free market.

Of course it means nothing. That argument also means less than nothing without a defense.

It is like trying to explain the finer points of evolution to someone who beleives that the world was created by a diety 6000 years ago.

No. It is like explaining the finer points of evolution without an explanation of evolution.

It is also like explaining to a Canadian farmer that Canadian consumers do not need Canadian farmers to be protected by government.

Riverwind · March 7, 2007

Who has the right to oppose it? Should we apply the same rights to the coffee, sugar, bananas or oil markets too?

Banking is a service that is a key part of our monetary system. As long as we wish to keep our own currency we should ensure that banks operating in Canada are Canadian owned.

So I guess the real question is why should we have our own currency? I see it as a key part of Canadian sovereignty and allows the Canadian economy to adapt to changes in the world economy. I also realize that such an argument means nothing to someone that despises governments in all its forms.

Mad_Michael · March 7, 2007

Who has the right to oppose it? Should we apply the same rights to the coffee, sugar, bananas or oil markets too?
Banking is a service that is a key part of our monetary system. As long as we wish to keep our own currency we should ensure that banks operating in Canada are Canadian owned.

Canadian monetary policy has absolutely nothing to do with the nationality of the ownership of our banks.

I couldn't care less if every bank in Canada was own by Swahilis.

All that matters is that Canadians receive satisfactory service from said banks.

Riverwind · March 7, 2007

Canadian monetary policy has absolutely nothing to do with the nationality of the ownership of our banks.

Banks are the tools the BOC uses to increase or decrease the money supply. Banks should be Canadian owned because:

1) Canadian owned banks are committed to Canada - they are interested in seeing the economy grow an prosper because that is the only way they can grow and prosper. Foreign banks don't care about Canada - they just want to suck as much money as possible out of the country. If Canada takes a dive they can just move elsewhere.

2) The fractional reserve system means that banks must be backed up by the government (i.e. depositors must be proctected from bank failure). The Canadian government should not backing up banks owned by foriegn investors.

If you don't like banks then use a credit union.

Saturn · March 7, 2007

Banks are the tools the BOC uses to increase or decrease the money supply. Banks should be Canadian owned because:
1) Canadian owned banks are committed to Canada - they are interested in seeing the economy grow an prosper because that is the only way they can grow and prosper.

Canadian banks are free to invest outside of Canada and make plenty of profit there. They will of course benefit from a strong Canadian economy as they are better protected in Canada than elsewhere but that doesn't mean they will pass up an opportunity to gouge Canadians. Obviously, it pays to gouge.

Foreign banks don't care about Canada - they just want to suck as much money as possible out of the country. If Canada takes a dive they can just move elsewhere.

On the contrary, Canadian banks can't wait to take their Canadian made profits and invest it overseas - the more investments they make overseas the less they'll care if Canada takes a dive.

2) The fractional reserve system means that banks must be backed up by the government (i.e. depositors must be proctected from bank failure). The Canadian government should not backing up banks owned by foriegn investors.

Are foreigners prevented from investing in "Canadian" banks? Are Canadians prevented from investing in foreign banks? Why shouldn't the Canadian government back up foreign banks?

wolfd · March 8, 2007

Are you proposing then to repeal the Bank Charter Act? That's government interference in the market. As you said, lets leave business to business. That Bank Charter Act is just government meddling. Let the banks have a free market - a real one that allows CitiBank to compete on a level playing field. (our bankers would have a heart attack at the thought of it). Canadian banks LOVE regulations that protect their monopoly - they supposedly hate all other regulations. How typical.

If it means Canadian Banks will be allowed to merge, (they are not presently allowed to do that), yes repeal the Bank Act.