Douglas P. Welbanks: Banks reap huge profits with plenty of help from Canadian government

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      It should come as no surprise that the Big 5 Canadian banks reported record profits in 2017.

      As noted by CBC, the Big 5 achieved $9.67 billion in combined profits during the quarter, up nearly 20 percent from $8.12 billion a year ago.

      Their combined quarterly revenue was $34.80 billion, up five percent from $33.11 billion during the second quarter of 2016.

      Profits at the Royal Bank of Canada increased by 12 percent in its fiscal fourth quarter, enough to push its annual net income to an all-time record of $11.47 billion.

      It’s no big surprise when you consider that the Canadian federal government guarantees many if not most of the banks’ high-ratio (high-risk) mortgages through the Canada Mortgage and Housing Corporation.

      Any losses with these mortgages revert back to CMHC for a payout to the banks, which are the lenders. This is why CMHC sweats the most over the inflated real-estate bubble bursting. It would absorb astronomical losses—not the banks—in the event of widespread defaults.

      This may account for the usual response to Canada’s high household debt—to raise interest rates—mainly to protect the government from exposure to the very real threat of a market correction and to reduce the number of high-risk mortgages that it insures.

      What's in the public interest falls off the list of priorities—i.e. better regulation for speculative real estate practices and providing affordable housing for new, young, middle- and lower-income homebuyers.

      One may argue what is necessary to address excessively high consumer debt levels would be the exact opposite: a reduction in interest rates to a point where consumers have some chance of paying down the principal.

      Today, some experts suggest that young people may have to save for 20 years for a down payment before getting a house in an urban centre like Vancouver.

      The record bank profits are no big surprise after the constant pressure upon employees to aggressively sell products and by bank executives setting impossible annual targets, which was reported on CBC earlier this year.

      These practices boggle the mind, as well as breach ethical business norms, when banks already have a privileged status in the marketplace.

      The banking industry has gone from wholesome corporate citizens of the past that prospered in communities in which they lived to the Big 5 centralizing and consolidating in Toronto and converting staff and customers into spreadsheet entries on computerized sales charts.

      This is a great way to dehumanize the financial sector and depersonalize the corporate relationship banks have to employees. It makes it easier to reduce and terminate staff, close branches, and pursue profit margins over any other considerations.

      As reported by CBC, employees from all five of Canada's big banks flooded the "Go Public" tip line with stories about how they felt pressured to upsell, trick, and even lie to customers to meet unrealistic sales targets and keep their jobs.

      This is after two of the Big 5 banks were sued for unpaid overtime—CIBC and Scotiabank—which let to a $20.6 million settlement for Scotiabank employees.

      Before Parliament celebrates record bank profits in 2017, deeper inspection may reveal the need for an overhaul of bank regulations.

      Douglas P. Welbanks is a former director of debtor assistance and debt collection for the B.C. government and the author of several books, including Unbreakable: The Ujjal Dosanjh Story and Julius Seizure: The Secret World of Bankruptcy, Debt Collection and Student Loans.