Monday, March 30, 2020

The Ties That Bind Bankers and Government Tighten During Covid Crisis


From the past
  Canadian government bailed the banks out by providing liquidity
“At its peak in March 2009, support for Canadian banks reached $114-billion. To put that into perspective, that would have made up seven per cent of the Canadian economy in 2009 and was worth $3,400 for every man, woman and child in Canada.”
The Harper government stepped in and used a number of measures to free up money for Canada’s banks during the financial crisis — including buying mortgage-backed securities and providing short-term loans.
In 2013 Banking legislation was changed to favour, you got it, banks.
 2020 and the Covid Crisis:

Close ties between big banks and government get even closer during Coronavirus Crisis
 Historic collaboration to support businesses and individuals through difficult times shows Canada’s banking industry is political — and always has been   
Such close collaboration would be a curious sight at any other time. (It's actually the norm) Yet during the current crisis, the federal government and the banking industry have been working together, by hook or by crook, to try to support consumers and businesses. And as the crisis has continued, it has served as a reminder that Canada’s banking industry is political — and always has been.

The very first session of Canada’s parliament saw an “Act Respecting Banks” passed (the norm very clearly) noted Charles Calomiris and Stephen Haber in their 2014 book, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. The new Canadian government then tried to strike a deal with the Bank of Montreal, offering “to create a privileged position for the bank in exchange for its providing finance” for the fledgling regime.
Over the protests of other banks and merchants, it didn’t happen, but one of the main themes of Fragile By Design is “that chartered banks represent a partnership between the parties in control of the government and the founders and shareholders of the banks,” Calomiris and Haber write.
“Bank chartering in the Dominion of Canada was no exception,” they added.
The partnership has held up in more modern times, such as during the global financial crisis a decade ago, which Canada’s banks weathered better than most. Lines of communication remain open as well, as evidenced when the prime minister tweeted thanks to the CEOs of the Big Five for their advice during recent North American free-trade talks.

Deferring mortgage payments came out of a “two-way conversation” between the regulators and the banks, which can provide cash to the real economy in ways that may be difficult for regulators to do directly, according to Andrew Moor, the president and chief executive officer of Toronto-based Equitable Bank.
The banks are doing you no favour by allowing the deferral of mortgage payments
The Canadian Bankers Association has noted banks are offering “flexibility on credit cards and lines of credit, including deferrals and low minimum payments,” albeit with no mention of outright rate cuts, which is something Trudeau raised on Thursday, and that the government then walked back.
Canadian Bankers made NO Concession on credit card rates- NONE.
“the government then walked back” from asking for cuts. 
Trudeau understand who gives the orders.
Granted, it could be to the banks’ mutual advantage to go along with governments. Debt ratings agency DBRS Morningstar said Friday that there are “two crucial elements” that will determine how COVID-19 affects banks’ creditworthiness around the world: the economic fallout and the level of government and central bank support.   
The banks are working to their own advantage. “Banks mutual advantage”
“The details and implementation of many of these packages are still being finalized, but they will mitigate some of the impact of the economic shutdown, reducing pressure on banks,” DBRS Morningstar analysts wrote. “Many of the measures directly involve the banking sector and confirm the importance of the role banks are being asked to play in ensuring individuals and corporates can eventually recover from this shutdown and that credit continues to flow through to the economy.”
“It’s not at all unusual for the banks to cooperate on sort of broad macroeconomic issues, that individually they might benefit but in aggregate they’d lose,” he added. “And it’s symptomatic of the very close relationships between the banks and the central bank. They’re constantly talking to each other.”

Canada’s central bank, the Bank of Canada, has been in close contact with the country’s biggest commercial banks. Governor Stephen Poloz said Friday, after the Bank of Canada announced its third rate-cut this month, lowering its policy benchmark to 0.25 per cent, that both he and Senior Deputy Governor Carolyn Wilkins were meeting twice a week with the chief executives of the Big Six.

“We have a high level of collaboration, even in peacetime,” Poloz said. “We can’t do all this by ourselves, that’s for sure.”
They have a high level of collaboration all the time. War time. Peace time. Makes no difference.

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