Consumer Debt and Warnings:
As consumers, we are being told every day, by everyone, how not to borrow and how to improve my credit score. Stern warnings are issued to Canadian borrowers each day, they are told that their debt ratios are way over their heads.
Weak performance of consumer retail outlets bear the chilling attestation that the we are listening.
Age of Rating:
Let us not forget that everything and everyone are subjected to rating. When we are going to buy a computer we try to see how many 5-star reviews it has – we use rating everywhere. We look at our political leaders and rate them. We look at thumbs ups, +1′s and likes. This is the age of rating. It starts from school and continues till the end.
Responsibility of Banks:
Banks play a major role in our society. They not only help us with our financial needs but also are big sponsors of our social events. We feel proud saying that our financial institutes are one of the worlds best. Money gets one – among many other things – power. Therefor it is necessary that those institutions have required measures in place to deal with complicated issues.
Banks are public companies so they also have responsibilities towards its shareholders. In Canada large public pension funds hold a sizable chunk of bank shares. A minor drop in its share price will erase some of the future incomes of – would be pensioners. Hence, it is important that they maintain a good credit rating.
Rating Improvement Ideas for Banks:
Rating of a bank is nothing but a complicated process of calculating how many stars it can get. There are many institutions who are experts in doing so. Let us have a look how a bank can get maintain good rating.
Don’t borrow recklessly:
Don’t ask the country for stimulus:
Don’t touch your rainy day fund:
Don’t mortgage properties which may lose value:
Don’t bloat your operations:
Don’t just lend in real-estate:
Don’t get into risky instruments:
Don’t discourage small business borrowers:
Don’t expect the government to bail you out:
Don’t publish obscure financial results:
Don’t try to get into every niche:
Don’t ignore a small depositor:
Don’t pay too much salary:
Don’t ignore consumer complaints:
Don’t overlook corruptions:
Everyone should borrow wisely. A bank borrows in the name of raising funds. It has many ways of borrowing money from the market. Each borrowed dollar comes at a price. Each paper carries a payout commitment. If a bank borrows too much then the pressure of servicing those debts will also mount.
Asking the government to spend more money on its programs only put more pressure on the tax payers – which possibly includes the banks too. If the government wants to spend more without raising tax then it puts pressure on the currency and buying power of the consumers.
Each bank is supposed to have its capital reserve. Using that reserve to increase income is not a good idea.
Mortgages on risky assets are not a good investment. It may bring in some additional income but the risk is bigger than the profit.
Big and inefficient operations are a big drain of corporate funds. Banks should be running lean and smart.
Putting all your eggs in one basket is not a good idea.
In other words – don’t buy risky bonds with very high yields as they may not be paid out.
Business are the foundations of an economy. Borrowing should be simple and easy for a small business.
If you are not good enough then you should fail.
Reports should be clear and understandable. Cooking a report with too many confusing ingredients will cost you your credit score.
No one can master everything in life. Pay attention to what you do best and work on your weaknesses. Don’t try to maximize your profits by getting into every corners.
It is very important that you pay attention to your small clients.
You figure how you deal with this.
How you handle complaints goes towards you credit.
There are many types of corruption in this industry. Not all of them are black and white. As an example – insider trading has a very negative effect. Last scandal was the LIBOR fixing.
The last thing is for Bank of Canada – A Lender of Last Resort should not turn into an Anytime Lender.
I am not an economist. But I can read news and I can see why the credit scores of the banks are going down. Banks do not have credit sore but they are rated and it is called credit ratings.