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Bank of Canada ‘ready to act’ if financial turmoil spreads

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The Bank of Canada is prepared to support the financial system if the banking-sector turmoil in the U.S. spills across the border and hits Canadian banks and markets, deputy governor Toni Gravelle said Wednesday.

In a speech in Montreal, Mr. Gravelle said that the Canadian banking system remains strong and financial markets are functioning. But he said the central bank was “ready to act in the event of severe market-wide stress and provide liquidity support to the financial system.”

Mr. Gravelle’s remarks were the Bank of Canada’s first direct comments since the failure of Silicon Valley Bank on March 10 sent shockwaves through the global banking system. Two other U.S. regional banks have failed in recent weeks, and Swiss lending giant Credit Suisse was forced into an emergency sale to rival UBS Group – a series of events reminiscent of the financial crisis of 2007 and 2008.

“Canadian banks weathered the global financial crisis well, and, since then, their resilience has been further strengthened with the implementation of new, higher global standards,” Mr. Gravelle told a conference organized by National Bank of Canada.

“But we know we’re not immune to spillovers from what’s happening elsewhere. The financial system is highly globally integrated, so when financial stresses arise outside of Canada, they can negatively affect things here at home.”

In a question and answer session after the speech, Mr. Gravelle said that the recent banking debacles were a “wake-up call” and that Bank of Canada officials were “polishing off our contingency plans.”

The crisis in the banking system has forced central bankers in the U.S. and Europe back into their role as lenders of last resort. After the failure of Silicon Valley Bank, the U.S. Federal Reserve announced a US$25-billion lending facility that allows regional banks to swap their non-liquid assets for cash in the event of a bank run. It also began lending hundreds of billions of dollars to banks through its discount window.

The Swiss National Bank offered Credit Suisse 50 billion Swiss francs ($74-billion) in emergency liquidity to keep it going until its shotgun wedding with UBS could be finalized.

After the Credit Suisse sale, the Bank of Canada, the Fed and four other central banks stepped up efforts to keep U.S. dollars flowing through the financial system by enhancing their swap lines. These allow central banks to trade their own currency with one another, giving non-U.S. financial institutions access to U.S. dollars in the event of a sudden liquidity crunch.

Mr. Gravelle’s speech was mostly a retrospective look at how the Bank of Canada responded to market stresses in the early months of the COVID-19 pandemic. However, the history lesson offered a roadmap for how the central bank might respond to future crises.

Liquidity crises can occur if investors and depositors get nervous and dash to access cash, but banks and other financial institutions don’t have enough on hand to meet withdrawals, and are unable to sell their longer-dated assets because of market dysfunction.

The Bank of Canada’s main line of defence in the event of a liquidity crunch is its “term repo” facility, which lends cash to banks in return for high quality collateral.

“Our go-to game plan to relieve severe market dysfunction focuses on providing collateralized lending in the form of repos to banks. We then rely on the banks to pass this funding into the broader financial system,” Mr. Gravelle said.

In more extreme situations, the central bank can also lend directly to asset managers such as pension funds.

“This would be invaluable if we were ever faced with an event like the pension fund-related stresses in the U.K. gilt market in autumn 2022,” Mr. Gravelle said.

During the market breakdown in March and April of 2020, the central bank also began buying Government of Canada bonds from market participants to prevent this crucial market from seizing up. This program later morphed into the bank’s quantitative-easing (QE) program, aimed at holding down interest rates. The bank purchased roughly $330-billion worth of federal government bonds as part of its market stabilization and QE efforts in 2020 and 2021.

Mr. Gravelle said “the bar is very high” for the bank to launch another government bond-purchase program. He said that overuse of emergency-response programs can lead to “moral hazard,” where financial institutions take greater risks because they expect to be saved by the central bank.

“We will be offering extraordinary liquidity like we did in the pandemic only in extreme market-wide situations, when the entire financial system faces funding constraints,” he said.

Mr. Gravelle also used the speech to lay out the bank’s timeline for reducing the size of its balance sheet, which expanded massively as a result of the QE program. The bank is currently letting the bonds it owns mature without replacing them, a process known as quantitative tightening, or QT.

Mr. Gravelle said he expected that QT would be complete sometime around the end of 2024 or the first half of 2025. The central bank does not envision shrinking its balance sheet all the way back to prepandemic levels, because its new “floor” system for conducting monetary policy requires banks to hold more reserves at the central bank.

“We know [the size of the BoC balance sheet] will be well below our current level of roughly $200-billion. Our best estimate is somewhere in the range of $20-billion to $60-billion,” he said.

The Bank of Canada’s next interest-rate decision is on April 12. After eight consecutive increases, the bank paused its rate hikes earlier this month, leaving the overnight rate at 4.5 per cent. Mr. Gravelle said central-bank officials would be looking at the impact of the U.S. and European banking troubles on the Canadian economy as they prepare for the coming rate decision and update their quarterly economic forecasts.

 

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Dollarama keeping an eye on competitors as Loblaw launches new ultra-discount chain

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September 11, 2024

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Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.

“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.

“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”

Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.

However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.

The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.

Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.

“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.

Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.

“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.

The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.

The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.

The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”

“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.

Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.

Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.

She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”

Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.

To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.

“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”

The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.

“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.

“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”

This report by The Canadian Press was first published Sept. 11, 2024.

Companies in this story: (TSX:DOL)

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U.S. regulator fines TD Bank US$28M for faulty consumer reports

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September 11, 2024

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TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.

The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.

It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.

CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.

TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.

The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.

This report by The Canadian Press was first published Sept. 11, 2024.

Companies in this story: (TSX:TD)

The Canadian Press. All rights reserved.

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Amazon rejects plea to stop selling taxi roof signs as cab scam spreads across Canada

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September 10, 2024

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After a long day at a work event in July, Kathryn Kozody was relieved when she spotted a car with a lit-up taxi sign.

She thought it was odd when the driver told her she’d have to pay her fare with a debit card. Still, a tired Kozody hopped in the car.

“I was like, ‘Fine, it’s kind of weird, but let’s go home,'” said Kozody, who lives in Calgary.

Nothing else seemed off — until the next day when she discovered that almost $2,000 was missing from her bank account. On top of that, her debit card had someone else’s name on it.

Kozody concluded that the taxi driver was a fraudster who, during the debit card transaction, recorded her PIN, stole her card and handed her back a fake.

“I started freaking out,” she said. “It’s terrifying when they have your debit card.”

It took Kozody about two weeks to get her money back from her bank, and she’s still rattled by the experience.

The day after taking what she thought was a ride in a taxi, Kathryn Kozody of Calgary found out someone had withdrawn almost $2,000 from her bank account. (James Young/CBC News)

“It really felt like an invasion of privacy and a violation to be a victim of this scam,” she said. “I really don’t want it to happen to anybody else.”

The taxi scam isn’t new; Toronto and Montreal have been seeing it for years. But the crime is becoming more widespread.

This summer, police in Calgary, Edmonton and at least five cities in southern Ontario, including Kingston and Ottawa, posted warnings online that they had received multiple reports of the scam.

Police and the Canadian Taxi Association say the fraudsters have a helping hand: with the click of a button, they can purchase a generic — but official looking — taxi roof sign on e-commerce sites like Amazon.

Edmonton Police posted this alert on Facebook in July, warning people about an ongoing taxi scam. The city’s police department says that it received about 10 reports of the scam that month. (Edmonton Police/Facebook )

The taxi association has asked Amazon, by far Canada’s most popular online shopping site, to stop making the roof signs so easily available.

“They do have a moral responsibility to at least sell the signs to individuals that are properly licensed,” said association president Marc André Way.

However, the U.S.-based company continues to sell the product to all customers.

“These lights are legal to sell in Canada,” Amazon told CBC News in an email.

‘Eye-popping’ numbers

The taxi scam has several variations but typically ends the same way: the victim pays with a debit card, then the scammer secretly steals it and hands the victim a similar but fake card. Shortly thereafter, money disappears from the victim’s account.

Ron Hansen, deputy chief of police in Sarnia, Ont., said his department received 12 reports of the scam in July, with one victim losing $9,900.

Toronto police report that since June 2023 the department has received 919 reports of the taxi scam, totalling $1.7 million in losses.

Jessica Chin King of Toronto said after a recent cab ride, she got a suspicious activity alert from her bank. She learned $600 had been withdrawn from her account. (Craig Chivers/CBC)

The numbers are “eye-popping,” said Toronto police detective David Coffey.

“When they do get a victim, they are quick to go right into the bank accounts. They’re quick to empty them out.”

Jessica Chin King of Toronto said just 15 minutes after a recent cab ride, she got a suspicious activity alert from her bank. Turns out, $600 had been withdrawn from her account.

“I was like, ‘Wow, I can’t believe that just happened.’ I was in shock,” said Chin King, whose bank later reimbursed the cash.

She said she too was fooled by the taxi sign atop the car.

“I was in the car with somebody who wasn’t a taxi driver. Anything could have happened,” she said. “I was thankful that it was only my bank [account] that was compromised.”

Taxi light for $35 on Amazon

CBC News bought a taxi sign from Amazon for $35. It has a magnetic strip on the bottom, so it easily sticks to the top of a car.

To power the light, an attached wire can be run through the driver’s window and plugged into the car’s auxiliary power outlet, also known as the cigarette lighter outlet.

The taxi association says licensed taxi drivers typically get their roof signs from speciality suppliers, and they are hardwired to the car — not powered via the cigarette lighter.

“When you see that … it’s obvious that it’s not a legitimate taxi,” said Way, the association president.

Last month, Way sent Amazon a letter on behalf of the Canadian Taxi Association, asking it to stop selling the product.

“This is not a safe, practical way to distribute the trusted ‘Taxi’ signs,” he wrote.

CBC News ordered this $35 taxi sign on Amazon. The attached wire can be run through the driver’s window and plugged into the car’s auxiliary power outlet, while the lights for licensed drivers are hardwired into the vehicle. (Sophia Harris/CBC News)

But Amazon told Way — and CBC News — the signs will remain on its site, because the company isn’t breaking any rules.

“It’s going to be quite difficult, I think, for anyone to stop Amazon from selling a product that is perfectly legal to sell,” said Toronto criminal lawyer, Daniel Goldbloom. “It’s true that these taxi signs can be used to commit scams, but kitchen knives can be used to commit murder — and we don’t stop retailers from selling those.”

But Way isn’t giving up hope.

He says the taxi association also plans to ask other online retailers, such as Temu and eBay, to stop selling the taxi signs and will lobby provincial governments for legislation that regulates the sale of the product.

However, Coffey said he believes the best way to fight the taxi scam is to educate people about it.

“Never, never give another person control of your debit card,” the detective said.

Victims Chin King and Kozody also want to spread the word.

“The more people know, the less likely it is to happen again to somebody else,” Kozody said.

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