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Who's Best Interests Are the Banks Really Looking After?
Written by Peter Lantos
Some people love the banks and some people hate the banks. You have probably heard the expression "Banks always want to lend you money when you don't need it". Then when you do need a loan, they want security and collateral and your first born.
There is no question that Canadian banks play a vital role; locally, provincially, nationally and inter-nationally. Without the banks, our economy could simply not function efficiently or effectively. But are the banks getting too big and going too far to gain market share and profits at the expense of their own customers?
I have had several heated discussions with my friend who is a Bank Manager for one of the Big 5 banks. I told him that in my personal opinion, banks are similar to drug pushers at the local high school or university. Of course he was deeply offended by such an analogy. So I explained myself. As my son entered first year university, most of the banks were on campus offering students a credit card with a $500 limit … no parent co-signature needed, no job needed, and no income needed. By year 2, this limit was automatically increased to $1,500. By year 3, it was increased to $2,500 and by the end of year 4, it was increased to $5,000. The bank's objective? Get these kids hooked on (or addicted to) debt at a young age! That guarantees future bank revenues for another generation.
Let's take a look at a few scenarios that affect everyday Canadians.
2) The average Canadian knows very little about banks and are even intimidated by them. They will often do what the bank "recommends" because of their blind trust in the system. When is the last time your bank manager called to say that it is to your advantage to move from a higher interest mortgage to a new lower interest rate mortgage? When does the bank ever you give a better than posted mortgage rate, GIC rate, or loan rate, unless you ask for it or threaten to take your business to another bank? When is the last time your bank ever called to say you can save money by changing plans on your chequing account?
3) When the mortgage officer "suggests or recommends" that you buy creditor group insurance from the bank in the event that you die, become disabled or have a critical illness, do they inform you that they have only minimal knowledge of insurance products and are not even licensed to recommend a personally owned insurance policy? Watch this segment of CBC Marketplace … http://www.youtube.com/watch?v=qe61HVGIwUo. Does the mortgage officer bother to tell you that 8 out of 10 times, a personally owned individual insurance policy is better (and usually cheaper) than the inferior creditor insurance the bank offers?
4) The banks often emphasize that they are all salaried and not on commission, implying that salaried employees are more trustworthy. But do any of your contacts at the bank ever tell you that every single branch must meet numerous quotas and targets each fiscal year? Quotas for … new savings accounts, new chequing accounts, new RRSP accounts, new TFSA accounts, new mutual fund accounts, new mortgage accounts, new loans, number of new meetings with their in-house financial planners, and on
5) Insurance brokers can offer you the best product for your specific need from multiple insurance companies. Mortgage agents/brokers can offer you the best mortgage from multiple mortgage lenders. Investment brokers can offer you the best investment products or rates from multiple insurance companies and/or financial institutions. A bank employee can only offer you their own bank's in-house proprietary products, mortgages and investments.
This article is not meant to insinuate that the banks are solely self-serving behemoth oligopolies. But one does have to wonder why are the banks are trying to squeeze the credit unions across the country? Why the banks are trying to take over the insurance industry, after they have already successfully bought up almost every major stock brokerage firm in Canada? Competition is good for the consumer and good for the economy. But competition does not serve well for the Big 5 Canadian banks. The less competition they have, the better – from their perspective – not yours.
The main objective of the banks, first and foremost, is to answer to their shareholders and to provide shareholder value. Shareholder value is created through the generation of increased profit which is derived from increased revenues and/or decreased expenses. When is enough, enough? How much profit do the Big 5 banks have to earn year after year to satisfy their shareholders? How long will they continue to squeeze money from their middle class customers knowing that those customers are not getting the best rates for their mortgages, investments, or loans?
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