In Canada's concentrated banking industry, what we need is a public bank

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For those with a yacht or a Porsche, banks are warm, welcoming places. But banks are considerably less hospitable to those needing financial services that don't include "wealth management."

Indeed, for hundreds of thousands of Canadians who have no wealth to manage and really aren't richer than they think, banks are increasingly inaccessible places.

As they've turned their attention to catering to the wealthy, Canada's six big banks have shut down more than 1,700 branches across the country in recent years. In many rural communities today, you're no more likely to see a bank than a buffalo.

This has left hundreds of thousands of Canadians without bank accounts, including many low-income city dwellers -- notably young people with poor credit ratings and lack of identification -- who now rely on pay-day loan companies charging annualized interest rates well above 300 per cent.

All this suggests there's a compelling case for Canada Post to offer banking services to the public -- as it did for decades until 1968. The possibility of reviving "postal banking" will be considered as part of a sweeping review of Canada Post, announced by the federal government last week.

What makes the idea of postal banking particularly compelling is that offering financial services -- even without gouging customers -- is a lucrative business.

So it's not surprising that, as recently as two years ago, senior executives inside Canada Post considered restoring postal banking "a win-win" situation: it would provide banking services for underserved Canadians and earn significant revenue for the post office -- revenue that could subsidize mail delivery.

Their support for postal banking was based on years of research that they'd compiled in an 800-page internal file, including polling data from across Canada and evidence from around the world showing postal banking to be a proven moneymaker.

But if the idea seemed like a sure winner, it ran into a major roadblock -- the fierce ideological objections of Stephen Harper's Conservative cabinet. After all, postal banking would be public banking, and the Harperites were hell-bent on shrinking government, not expanding it.

So instead of opting for a win-win strategy, the Harper cabinet came up with a lose-lose strategy for the post office: dramatic increases in the cost of postage stamps and the elimination of home delivery.

While the Trudeau government's review of Canada Post is primarily focused on the issue of reinstating home delivery (a Liberal election promise), the prospect of turning the post office's 6,500 outlets into a vast, nationwide public banking system -- reaching into even remote parts of the country -- may be the more far-reaching and intriguing idea.

A postal banking system could even inject some competition into Canada's highly concentrated banking sector, one of the least competitive in the world. According to a 2014 IMF report, Canada is among a handful of countries where the three largest banks control as much as 60 per cent of banking assets.

This uncompetitive situation has left Canadian bank customers -- even those lucky enough to locate a branch -- facing some of the world's highest banking fees.

If postal offices throughout the country offered a range of banking services -- savings accounts, low-fee chequing accounts, low-interest credit cards, small business loans -- the big banks might be forced to compete, novel as that sounds.

This would hardly be appealing to our big banks, which are used to having the lucrative banking playground almost entirely to themselves. Even in last year's sluggish economy, they collectively enjoyed $35 billion in profits -- about $4 million per hour per day -- with bank CEOs among Canada's top-paid executives.

Their desire to avoid competing with a public bank may explain why postal banking wasn't developed fully in Canada as it has been elsewhere, such as the U.K., New Zealand, Germany, Switzerland and France, where the Banque Postale is ranked one of the world's top 50 safest banks.

Set up shortly after Confederation, Canada's Post Office Savings Bank was always regarded warily by the private banks that lobbied Ottawa to make sure the postal banking option never became too attractive, according to a report by the Canadian Centre for Policy Alternatives.

Even if the panel reviewing Canada Post ends up recommending the revival of postal banking, the idea could still face heavy headwinds from some of the country's wealthiest, most powerful interests who have never been shy about protecting their turf.

Linda McQuaig is a journalist and author. Her most recent book (with Neil Brooks) is The Trouble with Billionaires: How the Super-Rich Hijacked the World and How We Can Take It Back. This column originally appeared in the Toronto Star.

Photo: Adityo Sastromuljono/flickr

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