Finance Minister Jim Flaherty has never been shy when it comes to speaking to banks about their mortgage rates. But until now, he’s usually spoken to them mostly through the media, talking about ‘irresponsible lending’ and, at times like earlier this month when BMO dropped their rates, thanking the other big banks for not following suit. But after Manulife started offering rates even lower than BMO’s, he spoke directly to the company, and they ended up raising their rates once again because of it. Now the question is, was that the right for Flaherty to do?
It was on Friday that Manulife started offering the lowest rate ever to be seen (according to Canadian Mortgage Trends,) on a 5-year fixed mortgage. That rate was 2.89 per cent, close to BMO’s 2.99 per cent on the same deal, but with just that many more savings to entice customers. Unfortunately for Manulife, they only had four days to entice those customers, before Flaherty had a spokesperson call the bank and tell them to haul those rates back up.
“We don’t want a race to the bottom on mortgage rates by financial institutions,” Flaherty reiterated to Bloomberg. “I had one of my staff call Manulife and indicate my displeasure.”
Manulife responded immediately and posted a message on their own website that stated, “After consulting with the Department of Finance, Manulife Bank has withdrawn the 2.89 per cent promotional campaign and reverted to our previous posted rate.”
It does seem a little odd that a politician would get so involved with the marketplace. Issuing warnings for both the private and public sector is one thing, but this does seem to be taking things a bit too far. It’s also odd that Manulife would cave so quickly and change their rates. Reportedly, BMO got the same call after dropping their rates, yet they’re still offering that rate to customers.
NDP Leader Tom Mulcair certainly thinks of it as odd behaviour too. Responding to the news that Flaherty was calling on the banks said, “Either we have a market or we don’t. The banks have huge profits. The idea that they shouldn’t be able to give a break to consumers is ridiculous and the idea that the Minister of Finance would basically be trying to create some kind of a cartel among the banks and the financial institutions as to what they can offer consumers by way of interest rates is, I think, completely inappropriate, completely wrong.”
Well, it’s hard to argue that it does seem a little wrong, doesn’t it? Flaherty is desperate to bring home prices down, and to curb household debt. But this outrage to the banks only gives them more publicity, whereas Flaherty could just let them lie and they’d probably go unnoticed by most, with the exception of those who are already looking for mortgages.
Aside from that, does the federal government really have a right to intervene with the way the banks do business? They are already highly regulated by federal organizations such as the OSFI, not to mention the fact that the banks are obligated to make money to help keep our economy afloat.
Flaherty does have tools at his disposal to intervene with the housing market if and when such intervention is needed. However, the banks also have tools at their disposal to help them make profits, and to offer customers the deals that will be best for them. The two should really never mix.
