When a policy product like the Budget is released, it is hard to fight the compulsion to “control-F” the PDF and scour for keywords aligned with our interests and hopes.
For instance, Budget 2022 only contained the word “privacy” two times, the word “competition” 11 times and the word “Vass” zero times.
There is no Control-code to read between the lines of the budget - at least not yet. And that’s when the document shifts away from being a sort of super short-term policy playbook to a pack of dorky Tarot cards.
As I pluck some policy proposals from that deck, I note that Budget 2022 has signalled an important public policy power shift.
The federal government’s emphasis on making life more affordable is translating into new accountabilities for banks - institutions that have long evaded any sort of disciplinary attention from governments. If anything, they (or their CEOs) have been implicitly elevated in Canadian policy-making. We treat the banks as if they are impartial public policy gurus when really, they're just self-interested corporations that are prone to capture the process for their own benefit.
The recent and prominent example of this new expectation of accountability is the excess profits tax. Maybe it’s worth asking how the profits got to be “excessive” in the first place, and whether and how our collective trust in the banks may have been exploited in the process.
Couple this one-time tax with the interventions mandated in the Deputy Prime Minister’s mandate letter, such as: reviewing bank fees and charges and to require adjustments if they are excessive; and continuing to engage with stakeholders to lower the average overall cost of interchange fees for merchants, and it feels like the bank’s social licence to definitively shape national policy decisions is being demerited.
Another clue that there is a power shift occurring is how ahead of the release of the budget, bank CEOs and other corporate leaders were complaining in the Globe and Mail about “soda pop” policies. I guess I missed the clause in the Bank Act that explained why or how the big 6 banks make public policy in Canada. If anything, recently, it seems as if they’ve been inhibiting policy progress on important initiatives like open banking and payment modernization.
I can imagine that it may be comforting to call on a handful of bank CEOs to stress test a policy proposal on short notice. But why are we(or were) treating these guys like the Avengers when we have so many other constructive actors in the financial space?
I don’t think the banks have consistently been responsible innovators. In the earliest stage of the pandemic, banks designed and offered mortgage deferral programs. And they masterminded the ‘tax’ of charging interest while that mortgage was deferred. At the time, I tried to design my own mortgage deferral calculator because I was curious (and I have a lot of friends and hobbies). It was…hard. So when people needed support, did the banks have their back, or were they out to make a buck? Thankfully, these mortgage calculators now exist; so Canadians don’t have to make a blind (and, arguably, bad) decision at a time of crisis.
Back to the wo-mandate letter as I complete my “reading”:
“Require federally regulated financial institutions to offer flexible repayment options to individuals who face a life event causing financial stress, including a six-month deferral of mortgage payments in qualifying circumstances.”
Do we need to charge interest on mortgage deferrals, or can we show the world what compassionate banking looks like?
It’s an open question whether Canada’s banking sector “innovates.” The banks seem to be good at purchasing and/or mimicking fintechs, but bad at ceding space (digital infrastructure) to them. That said, we’re seeing “innovation” occur in spite of the banks’ gatekeeping and bullying. Take the ‘buy now pay later’ approach to renting that fintechs like Chroma and Zenbase are piloting. In comparison, RBC Venture’s big idea is that you can pay your rent with your credit card.
New expectations of the broader banking industry to be more responsible actors extends to the provincial level as well. The Ontario Securities Commission’s recent mandate refresh included competition. Perhaps the concept will extend to the anticompetitive practice of tying; especially to commercial clients when there is sort of an implied coercion from banks.
To be clear, the market power of the banks is unchanged in Canada. But the presumed policy power associated with that market share might be eroding, and it’s the banks’ fault and to our benefit.
I’m not saying that the term “bank” and associated privileges shouldn’t be protected. But are they a little too protected if there’s only been one new banking licence in the past few years?
Now that the Government of Canada has low-key called out the banks on their bad behaviour, the government’s gaze may wander to meat producers that fix their prices or grocers who fine manufacturers amid supply chain disruptions or retailers that are profiteering in the pandemic.
On the cusp of meaningful competition modernization in Canada, the banks have been disciplined by the policy actors that they have long been chummy with. Moving forward, we should anticipate banks to be on their best behaviour and continue to demand more of them as consumers. Our trust in them deserves scrutiny and substantiation.
The banks totally deserved a gold star for not collapsing our economy in 2008(!). But we can’t ride the 2008 train forever. What do we want to be known for in this country when it comes to our financial sector?
Canada’s competition problems aren’t just the product of an outdated and under-enforced law. They are also the result of an entitled elite that confused purchasing and market power with policy power. That seems to be changing. It will make policy-making messier, and much better.
🏦 This post builds on a conversation I had with the Betakit boys.
📻 Thank you to the Big Story team for amplifying the “regs to riches” post on hyper-personalized pricing. 💖
📺 Yes, I can reference the Kardashians when making points about public policy. Thank you to TVO’s The Agenda for a thoughtful examination of “hustle culture.”
🍕 Vass Bednar wants to grow up to be a teenager.