Who is calling the shots?

Unless you were living under a rock or had your head in the sand, you probably know that most of the central banks lowered their key lending rates yesterday by 50 basis points. This was in response to the ongoing financial crisis that seems to be gripping the world.

The strange part for us Canadian’s is that usually when the Bank Of Canada lowers it’s key lending rate, the major banks usually follow with the same immediate cuts to their prime rate. However this did not happen yesterday, the Bank of Canada drops the rate by 50 basis points and the major banks only cut their prime rate by 25! Their reason for the rebellion, they say according to a Globe & Mail article is that they are already feeling too much pain because of an increase to their lending costs.

How many billions of dollars were injected into our financial system in the past few weeks? How many more do they need? Our banking system is vastly different and more stable than  our friends in the US. Where they have hundreds of banks, we have 5 large players. 

These banks can not possibly be suffering as much as the small business owners and countless home owners across the country who really need the to reduce their borrowing costs. It just looks like they are putting their profits ahead of what is good for their clients.  I am hoping that this is only temporary, if they do this again, then what would we really need a central bank for if our banks are just going to march to the beat of their own drum.

Cheers,

Pat