KNOW
VOUR
BANKS

By PHILLIP LEGG,
Assistant Research Director

Almost everything Canadians do is
affected by the operation of five gigantic
banks.

Businesses depend on bank loans, and so
do individuals. The cars we buy, the trips we
take, the homes we live in, even — in this
credit card society — the clothes we wear
and the food we eat depend on the availabil-
ity and the cost of money, which is the
business of the banks.

Yet we know very little about these giant
institutions, the smallest of which is much

larger than any other corporation in the
country.

2 See Seer |

Phillip Legg was recently hired by
the Regional Council as the Assistant
Research Director under Regional
Research Director Dough Smythe. He
is 27 years old and has a degree in
economics from Simon Fraser Univer-
sity. Prior to joining the IWA Phillip
worked as Research Director for the

Telecommunications Workers Union
(TWU).

Recently, Canadians became excited over
a minor change in the way the bank rate is
set, and the Bank of Canada, our central
bank, occupied the headlines for days. But
. behind the headlines and away from the
limelight sit the chartered banks, whose
activities touch us all directly.

If a businessman has to pay more for his
credit because of a change in the bank rate,
it hurts; if he is refused a bank loan, he may
go bankrupt.

There are eleven chartered banks, butfive
of them control 90 per cent of the market The
Big Five are: the Royal, Canadian Imperial
Bank of Commerce, the Bank of Montreal,
the Bank of Nova Scotia, and the Toronto
Dominion. The little six are; the National,
the Mercantile, the Bank of B.C., the Contin-
ental, the Canadian Commercial, and
Northland. The smallest of the Big Five is
bigger than the small six all put together.

There are distinct differences among the
Big Five, but, as a group, this can be said of
them: they are huge, they make enormous
profits and they pay tiny taxes. They are
getting larger and more prosperous with
every year.

The five largest banks in Canada hold
more assets than the 200 largest non-
financial corporations all rolled into one.

The largest of the Big Five — the Royal —
has 3.5 times the assets of the Bank of

2/Lumber Worker/April, 1980.

Canada. The smallest — the Toronto
Dominion — is almost as big as the nation’s
two largest crown corporations, Ontario
Hydro and Hydro Quebec, together.

Royal Bank is 25 times the size of General
Motors Canada, 4.4 time the size of Bell
Canada (the country’s largest non-financial
institution) and 10.5 times the size of
Imperial Oil.

Each and every one of the Big Five has a
return on equity — profit — higher than that
of Imperial Oil, and, as a species, the banks
do better than the petroleum industry.

Bank profits are not only large, with
returns of about 20 cents for every dollar
invested, they are growing. For the past
three years, while other sectors of the
economy staggered, the banks chalked up

profit advances which, in 1978, averaged 33
per cent.

THEY DO WELL

Banks do well in fair weather or foul. They
are in the business of taking in money, as
deposits, and putting it out again, as loans.
They make a profit on the difference
between these two rates that is called the
spred.

When times are tough, their pool of
resources shrinks but the spread widens, so
they make money. In inflationary times —
now — they have to pay almost as much to
bring in funds as they get for it. The spread
narrows but the pool widens, and they still
make money. And when the return falls off
at home, a current complaint, they clean up
abroad instead. Between a quarter and a
half of the assets of the Big Five are in
foreign funds, and they have been doing
better on these than on Canadian
operations.

Despite their size and prosperity the
banks pay income taxes at an average rate
of only 18 per cent. The Big Five paid lower
taxes — not just a lower rate, but fewer
dollars — in 1979 than they did in 1970,
despite the fact that over the decade their
assets increased five-fold and their profits
multiplied by three.

BY SECURED LOANS

They did this by putting out loans secured
by term preferred shares of their customers.
The returns on these shares are treated as
dividends, on which no tax is paid.

An indication of the widespread use of
this tax loophole can be seen in the dramatic
increase in loans secured in this manner; in
October of 1976 Canadian banks held $765
million term preferred shares, October 1977
it had increased to $3 billion, October 1978 it
stood at $7.2 billion, and a month later when
the loophole was finally shut the figure had
risen to $10.1 billion. Over a period of 2 years
the banks had managed to increase their tax
free source of income by a factor of 10.

Even though this loophole was closed in
November 1978 the banks still benefit from
a “grandfather clause’”’ i.e. loans secured
after November 1978 are subject to tax while
those secured prior to November 1978 are
not. The term of the “old loans” is from 8 to 5
years thus the banks can be expected to
receive considerable tax free income over
the remaining term of these loans.

When revisions of the Bank Act, overdue
since 1977, come back into the House of
Commons, they will be asking for more
breaks. they will get them too, and for that,
they say, Canadians should all be grateful.

RECORD RATES

Prices charged by Canadian industries
are rising at the record annual inflation rate
of 16.2 per cent reached in the oil crisis days
of 1975, Statistics Canada says. And 1975
was the year the federal government
resorted to prices and incomes controls.

The industry selling price (ISP) jumped by
3.3 per cent in January, the biggest monthly
rise since the record 3.6 per cent jump in
January, 1974, StatsCan said recently.

HERE'S HOW
TO RATE THEM

PRESIDENT
Leaps tall buildings with a single bound,
is more powerful than a locomotive, is faster
than a speeding bullet, walks on water amid
typhoons, gives advice to God.

BUSINESS AGENTS
Leaps short buildings with a single
bound, is more powerful than a switch
engine, is just as fast as a speeding bullet,
walks on water when sea is calm, talks with

God.

EXECUTIVE BOARD MEMBERS

Leaps short buildings with a running
start and favourable winds, is almost as
powerful as a switch engine, is not as fastas
speeding bullet, walks on water in indoor
pools, talks to God if request is approved.

FINANCIAL SECRETARY
Barely clears quonset huts, loses tug-of-
war with locomotive, can fire a speeding

bullet, swims well, is occasionally addressed
by God.

1st VICE-PRESIDENT
Makes high marks when trying to leap
short buildings, gets run over by locomo-
tives, can sometimes handle a gun without
inflicting self-injury, dog paddles, talks to
animals.

2nd VICE-PRESIDENT
Runs into buildings, recognizes locomo-
tives two out of three times, is not issued
ammunition, can stay afloat if properly
instructed in the Mae West, talks to walls.

3rd VICE-PRESIDENT
Falls over doorsteps when trying to enter
buildings, says “look at the choo-choo,”
plays in mud puddles, mumbles to himself,

SHOP STEWARD
Lifts buildings and walks under them,
kicks locomotives off the damn track,
catches bullets in their teeth and eats them,

freezes water with a single glance,they ARE
God.

AND DON’T YOU FORGETIT...

A GOODBYE
WITH THANKS

Bob Blasina, the Regional Council’s
full-time legal council for the past
three years, resigned his position April
11 to go into partnership with a law
firm in Vancouver. The following is his
letter of resignation to Regional Presi-
dent Jack Munro.

Dear Jack:

On Friday, April 11th, Iwill be concluding
my employment with the Regional Council
in order to join the law firm of LaCharite,
Alteman and Blasina in Vancouver.

It is with mixed feelings that I make this

move.
On the one hand, I am looking forward to
the challenge of labour law in private

practice. Na :
On the other hand, it is with considerable

sadness that I leave the IWA. Over the last
three years I have travelled extensively
through Western Canada and have meta lot
of very fine people. I have experienced great
satisfaction in representing this Union and
have felt profound pride in the causes it has

pursued. Cor s
I wish therefore to thank the individuals

who make this Union what it is. Thank you
for your heart, humour, determination and

dedication. :
Bob Blasina