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Bank Ethics - BOC rate cut on overnight not passed on to Prime Rate
January 27, 2015 @ 10:14 AM by: Steve Hamoen

Banks fail ethics test by not lowering prime rates

Prime Rate Canada Variable Rate Mortgages


In a recent article, Banks fail ethics test by not lowering prime rates, dated Jan. 26 2015, by Rob Carrick, The Globe and Mail discusses the ethics of the banks and how not only was the overnight interest rate not passed on to the consumers, specifically the variable rate mortgage holders, Line of Credit, and floating rate loans, but also two banks reduced their investment interest rate account from 1.25% to 1%. 

Putting on the consumer advocacy hat one would certainly say that the banks are more oriented to shareholders than their consumers and, without fair open competition, their feet are not held to the fire as would be in a normal commodity style competitive market place. However, there are many industries that are competitive and reflect the same actions. In reviewing the changes in the Canadian dollar on January 26, 2015 by Jamie Sturgeon, Consumer Affairs Reporter  Global News, we will certainly see upwards pressure on consumer goods, etc that are imported to Canada. However when the dollar increased in value did we see the same significant drops on the same goods? I challenge thought that few of these companies do not enjoy the same economic benefit as the relatively tight Canadian Banking Industry.

Putting on a business ethics hat, the banks given their proximity to government policy and their ethics MUST balance economic concerns with non economic concerns such as considering the intent of the BOC overnight rate reduction. However, as Adam Smith put it in An Inquiry Into the Nature and Causes of the Wealth of Nations, 'People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.'