[R-G] Big Canadian banks snub BoC interest rate cuts

[Anthony Fenton]

http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20081008/world_economy_081008/20081008?hub=CTVNewsAt11

Big Canadian banks snub BoC interest rate cuts

Updated Wed. Oct. 8 2008 9:49 PM ET

CTV.ca News Staff

Major Canadian banks are not passing along the Bank of Canada's half- 
point cut to the lending rate and instead are cutting their prime  
rates by just a quarter of a percentage point.

The move comes as a surprise, as the big banks normally always follow  
the central bank's cuts, even if they say they can't afford it.

The Bank of Canada slashed its key lending rate to 2.5 per cent  
Wednesday, one of many central banks making the move around the world.

Toronto-Dominion Bank was the first institution in Canada to make a  
cut Wednesday, cutting their prime rate to 4.5 per cent. The other  
major Canadian banks followed throughout the day.

The snub of the federal government has not gone unnoticed.

Finance Minister Jim Flaherty has called for a news conference early  
Thursday morning, where it is believed he will take questions to  
address concerns about the economy.

Sherry Cooper, BMO Capital Markets chief economist, said that the big  
banks simply couldn't afford the cut.

"We're all hording cash and as soon as that happens there is very  
little that the central bank or government can do directly," Cooper  
told CTV News.

She added it would take a year to 18 months before the effects of the  
rate cuts could be seen.

The United States, the United Kingdom, Europe, Switzerland, Sweden,  
China and Hong Kong also cut their lending rates Wednesday trying to  
bolster the wheezing global economy.

The unprecedented move came as markets around the world struggled to  
navigate the turbulent global economy, with many offering bailouts to  
try and keep their economies going.

Oliver Bernard, the International Monetary Fund's Chief Economist,  
said that with the global moves to cut rates the "risk of a Great  
Depression is nearly nil."

Markets close up

The Toronto stock market managed to close up 225.84 points Wednesday  
in its first positive showing in five days.

Canada's S&P/TSX finished the day at 10,055.39 points. On Tuesday, the  
TSX had lost more than 400 points and on Monday, it lost 573 points,  
slipping below 10,000 for the first time in three years.

Despite gains made by the TSX on Wednesday, New York's Dow Jones  
industrial index finished down 189.01 points to 9,258.1. The Nasdaq  
composite index lost 14.55 points to 1,740.33, and the S&P 500 index  
dropped 11.29 points to 984.94.

BNN's Michael Kane said the rate cut move fits with efforts by many  
nations to shore up their banking institutions.

England, for example, partly nationalized its banks on Wednesday to  
help provide stability. The British government's efforts cost $87.5  
billion.

"The event that occurred here today with the co-ordinated interest  
rate cut should support what the Bank of England did by buying into  
its banks to stabilize that situation, and other governments are  
making similar moves as well," Kane said.

However, he pointed out that inter-bank lending is still at a virtual  
standstill, and the interest rate for those loans has not yet been  
adjusted.

Adam Taylor of the Canadian Taxpayers Federation said Wednesday's  
interest cut shows nations are now recognizing they need to combine  
forces to solve the problem.

"I think it's recognition that the global economy needs all the  
countries in the global economy to come together, to work together  
when they need to, and this is a good move and one that should allay  
some of the fears that are out there," he told CTV's Canada AM.

Earlier Wednesday, Flaherty said the Bank of Canada has already taken  
steps to protect the economy, such as boosting the availability of  
funding to banks and widening the range of collateral it will accept  
-- as well as the co-ordinated interest rate cut announced on Wednesday.

"This significant action will provide timely support for the Canadian  
economy," Flaherty said.

"I welcome the strong international co-ordination that central banks  
have displayed throughout the financial crisis, most clearly expressed  
in the co-ordinated rate cut today. This same commitment to co- 
operation needs to be reflected by finance ministers."

Early Wednesday, markets in Europe tumbled amid ongoing fears over  
credit markets.

And in Asia, the Japanese Nikkei had its worse day since the stock  
market crashed in 1987.