The Canadian banks are pushing for a big increase in cash as they try to regain the confidence of investors.
The banks have been trying to boost revenues by hiking their dividend by 25 per cent and selling their common shares.
But those steps have had limited success.
In March, Canadian Bankers Association chief economist Robert Pratte said that the banks have “lost the market by about two per cent” in the last year, and the Canadian economy has been hurt by the recession.
Pratte says the bank lobby is trying to “mislead Canadians” by claiming that there is a need to have more cash in the bank for the rest of the economy.
“We’ve been saying this for years and years,” he said.
“We want to have a stronger economy, we want to grow the economy, and we want our banks to have the money to pay the interest they owe.”
But he said he’s concerned about what he calls “over-borrowing” and said it’s not helping the economy in the long run.
“What we’re seeing now is over-borrowing of the banks, particularly by Canadian banks,” he told the National Post.
“The Canadian economy is not growing.”
While banks have raised dividend and share prices over the past year, they have struggled to match that growth in cash balances.
In May, the bank executives’ annual report showed the total amount of cash in banks’ balance sheets was about $15 billion.
In its latest quarterly report released Monday, Canadian Imperial Bank of Commerce said it expects the total cash balance to be about $16 billion by the end of 2019.
The bank’s cash balance has risen to $19.9 billion in April, the highest level in the past six months.
That represents a drop of nearly $3 billion from the same month last year.
“While we believe there are still a number of risks to the economy,” the bank said, “the level of cash is sufficient to support the economy and the outlook for the economy remains strong.”
The Canadian Federation of Independent Business said it believes the banking industry needs a $500-million boost to help it become more competitive.
“A cash-heavy environment creates an environment for financial institutions to under-capitalize,” said Chris Wysocki, the federation’s president.
“They should be looking at their own cash positions and assets.”
The bank lobby said the banks need to be more aggressive in raising capital, and that more cash would be good for the Canadian job market.
“If the banks can’t provide a return on their capital, then they need to find a way to generate more cash that is safe and that is sustainable,” said Dan MacKay, president of the Canadian Association of Financial Institutions.
“And that’s a goal that’s really being driven by the bank lobbyists.”
Some analysts believe banks need more cash to keep their businesses solvent and make more profit.
The Canadian Federation for Independent Business estimates the industry needs $3.4 billion to $4.5 billion in cash by 2019.