Steadfast Finances
A Personal Finance & Investing 101 blog that delves into current events, consumer education, and techniques to improve your bottom line.
Lessons Learned from Canada: Banking is Supposed to be Boring
Banking is supposed to be boring. There, I said it.
I’m not a banker, nor will I likely ever be one in the future (unless my P2P lending plan works out supremely well), but as I’ve mentioned several times, banking is all about the boring ol’ 3-6-3 rule.
Bring in deposits at 3 percent (the interest we receive on our savings accounts), loan money out at 6 percent (the interest rate we pay on our mortgages), and hit the links by 3pm. Somewhere in between, bankers net a tidy 3 percent profit without breaking a sweat, as well as charging a few exorbitant fees for all the documentation.
It’s Slow. It’s Steady. It’s based on gradual capital appreciation by lending money to people who you are almost certain will pay the loan back plus interest. Pretty simple stuff.
That to me is what banking is all about, and that’s why banks that stuck to this old school Savings and Loan banking principle (banks like ING Direct) did not find themselves faced with high default rates, writing off bad loans, and putting their financial institution at risk of insolvency.
So I found it somewhat painful to see our courteous neighbors to the north — Canada — on CNBC today showing us how it’s done. Not only are the majority of their major banking institutions doing well, but they’re growing and meeting analyst’s expectations.
Way to go Canada! And kudos to you for having the foresight not to (nearly) bring down your country’s financial system.
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10:17 pm
I wonder if this is just “news” now to CNBC…. it’s been known for quite some time. Laughing at the host who’s asking whether Canada’s strong banks are just due to having resources to sell to the Chinese. That’s only been an extremely recent development. If you want to be impressed, take a look at the 1-yr charts on BMO, BNS, TD, RY or CM – almost perfect V formations! But by the way, Canada’s banks don’t have the mere “savings and loan” model – they are fully integrated investment and retail banks, so I guess much more like JP Morgan Chase, if I understand Chase correctly.
[Reply]
Matt SF Reply:
September 16th, 2009 at 10:49 pm
Hmm, I’m not sure about it just being news. I’m sure it was news to some people who saw the video today.
And I completely agree with you on the Canadian banks. However, I was not aware that Canadian banks had outperformed U.S. indices like the S&P 500 over the last decade, but that was a secondary reason why I posted the video. Another reason for props!
For the record, I don’t have a problem with investment banks (like JP Morgan, Goldman Sachs) as it may have sounded. I wasn’t directing my comments toward them. What bugs me were the standard everyday banks (like Bank of America, Chase, etc) got themselves into trouble stepping away from their proven money makers searching for a golden goose with subprime loans, mortgage backed securities, etc.
[Reply]