CANADIAN BANKS IGNORE INTEREST RATE CUTS
January 19, 2008 – 6:37 pmCanadian banks are ignoring the interest rate cuts from the Bank of Canada. Their prime rate has no functional dependancy on the BoC interest rate cuts. The problem has reached a point where banks are refusing to lower rates in an effort to refuse lending their cash resources at such rates. Unless the BoC cuts interest rates dramatically, Canadian banks have the luxury of time to do what they wish. Monetary policy can only do so much when the real problem is a lack of trust and verifiability amongst banks and their customers. With asset prices swinging, why be caught off guard when you can profit from another bank’s ruin.
Monetary policy cannot correct heightened risk aversion. In this Prisoner’s Dilemma, everyone is defecting, its the rational choice but not the sensible one.
