Good morning. The big banks posted stellar quarterly results last week, but not all is well in the industry. For too long, our regulators have prized stability over growth – unnecessarily so. This must change. That’s in focus today, along with the looming (potential) Air Transat strike.
Up first
In the news
Tech: Microsoft vows to protect “digital sovereignty” in a $7.5-billion Canadian data-centre expansion during uncertain geopolitical times
Mining: Anglo American scraps a controversial executive bonus plan tied to its proposed acquisition of Teck Resources on the eve of the shareholder vote for the deal
Trade: U.S. and Canada discussed tariff-rate quota for steel before trade talks halted
Investigating: Ontario Provincial Police launches probe into company that received more than $40-million from the provincial government
Canada’s outsized fear of bank failures makes it harder for newer banks to enter the market, dampen innovation and raises costs for customers.Illustration by doomu
In focus
Fear is compromising our banking system
I’m John Turley-Ewart, a contributing columnist for The Globe. I write about banking because few other industries have such an impact on the economy and the personal aspirations of Canadians.
When a person walks through a bank’s doors, or logs in to their online banking account, they want to sustain their financial well-being. The experience matters.
Much of this I learned working on the front lines in bank branches while at university and later in graduate school. Cashing cheques, paying bills, preparing money orders and opening accounts are, on the face of it, mundane tasks.
But when you spend much of your day performing these services, meeting and talking with the people who need them, you see firsthand the special place a bank has in every person’s financial life. Providing mortgages, car loans and credit cards – even doing collection calls – only reinforced this.
Money is personal, and when a bank fails to meet expectations, it can be taken personally. Expand that to the country and the banking system itself, and it is easy to understand that banking is also political.
I was so struck by the personal and political aspects of banking that I decided to do a PhD in Canadian business history and focus primarily on banking, to trace how our banking system came to be and evolved over time. It has been at the centre of my intellectual curiosity ever since.
I’ve learned that through this country’s banking history one can place a unique lens on the Canadian experiment itself. Canadians have looked to their banks as places of opportunity since the earliest days. National hopes and personal dreams have been made and denied in the many banks that have come, gone and persisted over time.
Bank failures have shaped the banking system we see today, in which six large banks control about 90 per cent of bank assets, while other, smaller banks struggle to grow and find their place. The concentration we see today is a conscious choice by Canadian governments.
Compare that to the U.S, where over the past decade the country has seen roughly 70 new banks launched. Our number of banks continues to shrink.
We have traded competition for stability, and the fear of bank failures persists today, driving new regulatory mechanisms and policies that make it harder for Canadian banks, large and small, to serve the economy and Canadian aspirations.
This trend is a curious one given that we have not had a bank failure in 40 years.
We look at one such instance of that trend today. The domestic stability buffer is a special rainy-day reserve fund stacked atop other rainy-day funds that the largest banks are compelled to hold to cover potential losses, taking billions out of the economy in the process. This isn’t good for Canada, which would be better served by a system that saw rainy-day funds tailored to the actual risk banks are exposed to rather than a one-size-fits-all buffer.
Charted
Foreign funds dry up
The Globe and Mail
The Globe and Mail recently visited Save the Children in South Sudan to report on how one of the largest hunger crises in the world is poised to become even worse. The crisis is the result of a number of factors including government corruption, escalating factional violence, extreme poverty and climate change, but it is further fuelled by a reduction in foreign aid from the United States and other Western countries.
Quoted
There are first officers flying the same airplane as I do on Air Canada, earning more than I do. That gives you the idea of the split.
— Louis-Éric Mongrain, an Air Transat captain and vice-president of administration and finance at ALPA Canada
Air Transat pilots want to bring their wages as close as possible to salaries of Air Canada pilots as part of a broader campaign by North American airline unions to set a new standard of equal pay. Air Transat and the Air Line Pilots Association remain in tense negotiations over a new contract.
If they don’t agree to a new collective agreement, the pilots would strike as early as tomorrow, leaving passengers scrambling. Here’s what to know if you’re flying.
Up next
More files we’re following
Building homes: Ottawa is considering tax reforms to attract large foreign investors for Canadian real estate developments, with support for such reforms coming from the head of Build Canada Homes.
Nation building: One of Australia’s largest infrastructure investors is expanding in Canada as the federal government moves to attract more foreign capital into nation-building projects.
Building burning bridges: Donald Trump said he is considering “very severe” tariffs on imports of fertilizer from Canada, while preparing a multibillion-dollar funding package for its own farmers. The White House called it a financial bridge to a less subsidy-dependent future.
At the bell: Earnings today include AutoZone Inc., Ferguson Enterprises Inc., and Groupe Dynamite Inc. The U.S. Fed meeting also begins.
Morning update
Global markets drifted as traders turned their attention to the Federal Reserve meeting and the implications of the U.S. allowing Nvidia’s second-best chips to be exported to China.
Wall Street futures edged up, while TSX futures pointed higher.
Overseas, the pan-European STOXX 600 was flat in morning trading. Britain’s FTSE 100 edged up 0.11 per cent, Germany’s DAX rose 0.31 per cent and France’s CAC 40 retreated 0.57 per cent.
In Asia, Japan’s Nikkei closed 0.14 per cent higher, while Hong Kong’s Hang Seng dropped 1.29 per cent.
The Canadian dollar traded at 72.24 U.S. cents.