The following comment of Mr Bay Kathwaroon, of Winnipeg, was published in the Feb. 9, 1998 issue of the "Winnipeg Sun":
Your readers must have noticed that bank profits started to take off in 1992. This was because in December, 1991, a new version of the Bank Act was enacted. This act allowed the chartered banks to reduce their primary reserves in the form of cash over a two-year period ending in January, 1994. After that date, chartered banks were no longer required to maintain such reserves.
In plain language, chartered banks are allowed to create new money with nothing to back it up. If I or other readers did this, we would be charged with counterfeiting or fraud, but for the banks, the new Bank Act makes it perfectly legal.
Banks don't create new money by minting coins or printing banknotes of course, but by creating credit. By punching a few computer keys, they create money in accounts where none existed before. They then lend out this newly-created money, and demand collateral and interest for it. They even use this money they have created out of thin air to buy government bonds, and the government pays them interest for it. They're so good at money creation that they now create more than 95 per cent of Canada's money supply. No wonder their profits are skyrocketing.
Another result of the Act was the bank's eagerness to get out of handling cash by encouraging the use of debit cards and other means of electronic money transfer.
I suggest that we don't blame the banks for their actions, because they're only doing what Parliament allows them to do. I suggest instead that we assign the blame to our elected federal government, which has the power to rein them in, but chooses not to.
Ray Kathwaroon
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