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Home *Opinion*

CERB is a subsidy to the banks

by Matthew Hayes
July 10, 2020
3 min read
CERB is a subsidy to the banks

Toronto's Financial District. Photo by Arild Vågen/Wikimedia Commons.

Canada’s projected $343 billion deficit will draw a great deal of ink from traditional budget hawks, but Canadians should know what the effect has been: it prevented a financial crisis—at least for now.

This is important to bear in mind because ratings agencies are already clamouring for evidence that the Canadian government has a repayment plan. Accordingly, working Canadians would have to endure another decade of slow growth and austerity.

Though much of the emergency coronavirus stimulus was paid out directly to individuals or private firms, its benefits accrue disproportionately to the banking sector, which is disproportionately owned by the wealthiest 1 per cent of Canadians.

The effects of an economic crisis are different than the effects of a financial crisis. Thus far, during this COVID-19 era, we have been experiencing an economic crisis that has mostly affected workers, many of them young. We have yet to endure a financial crisis, which would affect the banks and their ability to lend money.

Despite the bank bailouts of 2008, and even before coronavirus, the financial sector remained unstable, with significant risks of a new crisis, caused by a build-up of debts that can’t be paid back. A sluggish recovery in the 2010s made the problem worse.

This is why the Canada Emergency Relief Benefit (CERB) is so important. The government did not do you or any of your friends a personal favour by “taking on debt so you wouldn’t have to.” That only makes sense if you are the only person going into debt. But with Canada’s big six banks offering deferrals on $180 billion in mortgages by the end of May, it is clear the risk of defaults is much more systematic.

If enough workers can’t pay their rent or mortgages, and if businesses can’t meet their loan obligations, the crisis could spiral into a banking or financial crisis, with the potential to do much more damage over a longer period.

Therefore, every major Western country has implemented something like Canada’s CERB—ensuring that workers are able to keep making credit card, rent or mortgage payments—and governments have bailed out or provided emergency funding to major industries like airlines and hotels, who have been plowed under by the reduction in travel.

The CERB is a subsidy to Canada’s big banks, enabling cash strapped individuals to continue paying their debts—debts that have grown significantly since the 1992 reforms to the Banking Act, which unleashed new leveraging practices (lending out the same dollar more than once) and risk taking in the financial sector.

That also means, of course, that the stimulus helps banks maintain risky, anti-social lending practices that have helped push the price of housing and overall indebtedness to record highs. These practices, a product of financial deregulation in Canada, are immensely profitable (the big six Canadian banks made above $45 billion in net profits last year), but pose systemic risks that the public eventually will have to pay for.

Canada’s stimulus packages are certainly helpful for the people who receive them, but they are no charity or government hand-out. They are a lifeline to the banks, Canada’s most profitable industry. They are designed to keep those profits rolling.

Who takes in those banking profits?

Banks in Canada are owned mostly by an array of other financial companies that we all depend on—including other banks, insurance companies, and pension funds. Many of us own a small piece of them, and no one would want these institutions to fail. It would mean the loss of our savings and security.

But the profits of banking are not shared equally by all Canadians. Some pensions are larger than others. Some shareholders hold more shares. Canada is, after all, a very unequal society. The Parliamentary Budget Office estimates that the richest 1 per cent of Canadians owns 25.6 per cent of all the wealth in the country.

That wealth depends on banking, and if the economic crisis became a financial crisis, it has the potential to hit the wealthiest Canadians hardest.

Every $1 billion the Canadian government spends on CERB supports a system that disproportionately benefits the richest 1 per cent of the population (that is, people with portfolios north of $9 million CAD, according to one calculation).

When it comes time to figure out the political question of how we are going to pay for all this debt, let’s not forget: the ones who should pay most are the ones who most benefitted.

Matthew Hayes is a sociologist and Canada Research Chair in Global and International studies at St. Thomas University. His book, Gringolandia: Lifestyle Migration under Late Capitalism (University of Minnesota Press) explores global inequality in the lives of North American migrants to Ecuador.

Tags: banksCanadaCanadian Emergency Relief BenefitCERBeconomic crisisfinancial crisisMatthew Hayes
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