Wednesday, August 23, 2006

Aerospace, forestry, mining and other Canadian industries have all registered extravagant booms and catastrophic lows over the years. But one phrase has remained constant in the business news: "Record bank profits."

So yesterday's announcement by the Bank of Montreal might seem oddly familiar. The institution hauled in $710 million in net profits over the last three months, or $7.7 million per day, or $321,557 each hour, 24/7.

This latest record even tops - by a lot - the best estimates of cheerleading analysts. Canada's other chartered banks will also report third-quarter results this week, and most are expected to be as alluring as BMO's. Not bad for an industry that was crying only a few years ago that it was doomed unless Ottawa allowed more bank mergers.

An analyst said one reason banks are minting money these days is that "corporations have more cash than they have opportunities" - they're tripping over themselves to acquire other firms, and as it happens, banks provide a full line of merger-and-acquisition services.

A vibrant, healthy and prosperous banking system is in our collective interest, obviously. Many Canadians own bank stock, through mutual funds or pension funds or directly.

But wouldn't it be nice if once - just once - families, or small businesses, had more cash than opportunities? If, say, the banks cut back on the multitude of fees and charges they impose on consumers?

As The Gazette's Paul Delean disclosed this week, the lengths to which banks go to squeeze every last penny from Canadians, usually involving highly obscure tactics, are provoking a push-back reaction.

The latest, he noted, comes in the form of a consumer class-action suit in Ontario to nullify banks' gains on foreign-currency transactions for registered accounts.

There are literally dozens of fees, from $100 to close your account to overdraft charges to ATM fees. These are the same people who charge you 19 per cent on your credit card, but pay you one or two per cent on your savings.

Maura Drew-Lytle, speaking for the Canadian Bankers' Association, argues that retail service fees account for "barely" five per cent of Canadian banks' revenues. But considering that the Bank of Montreal alone had revenues of $2.6 billion for the latest three months, five per cent starts to loom large as an aggregate number.

What this sector needs, and urgently, is more competition. There are about 60 banks in Canada, but most Canadians deal with one of just seven major banks.

In the U.S., there are 8,790 banks. On a per-capita basis, then, Americans have 15 times as many banks to choose from than we do - and many of them are local and regional banks, which tend to be close to their consumers and far more competitive than the Canadian behemoths.

The federal government has the power to open the field to more competition, and should use that power.

Profits are a good thing, not a bad thing. But the steady increase of profits by almost every player in a mature industry suggests the balance between banks and their consumers needs a little tweaking.