The big banks’ dependence on housing undermines Canada’s prosperity
It is the banks’ earnings season, when Canada’s major financial institutions report results for their first quarter. Analysts expect the banks to show a major slowdown in mortgage lending, with worse portended for the rest of 2023.For the sake of the future of the economy, banks should be weaned offand lend more to businesses – and governments and regulators should encourage competition and adjust rules to help make that happen.
This has the effect of crowding out other types of lending. Only 13 per cent of the assets of chartered banks were business loans, according to Bank of Canada data from December. And small and medium-sized enterprises received a tiny share of that small slice: 12 per cent of business loans in Canada went to SMEs, according to 2020 data from the OECD. The OECD average is 44 per cent.
In fact, the government is already picking up the tab in another way: Small businesses turned away from commercial lending are often encouraged to apply for loans at the Business Development Bank of Canada. BDC does valuable work, but as a Crown corporation, it means too much of the risk of supporting entrepreneurs is foisted on taxpayers.
Lack of financing is not the only reason for Canada’s low productivity, but it is an important one. And there are some ways the government and regulators can nudge things along.
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