Banks' Lending Standards

Last week the newspapers highlighted Ottawa's claim that the banks have to tighten up their lending especially around mortgages and lines of credit. Bureaucrats pointed to the high levels of personal debt and the commodity competitions taking place on mortgages e.g BMO's 2.99% variable rate.

First of all the Bank of Canada and the marketplace establish the base interest rates in our economy, not the chartered banks.

Secondly, I never met a bank or credit union that didn't have strict lending and approval criteria. Many also do sensitivity analysis on interest rates to ensure customers understand and can meet interest rate escalations. Also some of these financial institutions have encouraged consumers to get rid of their credit card burdens through lines of credit covered by collateral mortgages.

On the other hand, consumers need more education on debt management and responsible credit, which is provided by many FI's. Ottawa should look closer at mortgage and lending brokers plus monoline credit card companies who do handle a significant volume of personal debt and find alternative financial firms to book the mortgages.

One chartered bank has now announced that they will "toughen-up" on entrepreneurs declared income acceptance in their lending criteria. Another example of how some banks run hot and cold supporting small business in our country even though they are our "job creators". Be careful when turning the tap off on these important economic catalyst!

Canadians do have high personal debt but let's not treat the symptoms, look at the causes- consumer knowledge, spending habits and multiple sources of funds everywhere including retailers and others. Our banks should maintain quality standards and consumer values in the open marketplace. We need to help people manage their financial obligations and avoid the pitfalls of high interest, alternative credit.

Pat Palmer | Monday, February 06, 2012 | Comments (0) | Trackbacks (0) | Permalink