Banks and Bubbles

A couple of days ago there was a good piece in Canadian Business.  The facts are laid out that Big Bank growth and profits track quite closely with our real estate and debt bubbles.

Writer Kevin Carmichael provocatively critiques the Big Banks for their addiction to residential mortgages and their complicity in the two blights of our time – exceptional levels of household debt and the rapid rise in the cost of housing.  The article references several trends, and the alarm being expressed by international banking authorities due to Canada’s ‘credit to GDP gap’.  He also then observes that Royal Bank shares are trading at a price 36% above last year’s.

There is a coy arrangement between major lenders and government, an arrangement that is squeezing middle class and working class households.  The cost of housing is going up much faster than incomes.  At the same time, mortgage portfolios are climbing, and so are bank profits.

Credit unions are tagging along.  Credit unions are certainly not making loud protests and insisting on measures to temper this real estate boom.  Ought we be complicit, or is the right word callous?  Ought we not be pressing the case of ordinary Canadian households, our membership?

In the last few months the Minister of Finance requested comment on CMHC mortgage insurance, primarily focused upon ‘lender risk sharing’.  The proposed measures will, in part, reduce the access to easy credit and will temper the growth in household debt.  They will also have operational implications for credit union capital and administration. The Canadian Credit Union Association asked for no action to be taken.  I fear we are addicted.

I did respond to the Finance Canada consultation.  My letter may not serve the ‘interests’ of lenders but it does ask for steps that will constrain the easy lending regime, a regime that now causes, or at least contributes to, our housing bubble.

This is the kind of issue that credit unions should discuss when we get together at Central1, CCUA and regional meetings?

[photo Metro News; artist Ken Lum and ‘Vancouver Special’.]

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