Where we get the money?

I decided to write about it because many of my clients ask where we get the money from and how it happens that we can offer lower interest rates than the chartered banks?
Before I do that let’s take a look at the Canadian banking system in brief.

The main component of the money supply is created by and comes into circulation through the chartered banks.
Money and banking are federal responsibilities. Under the Bank Act each bank is incorporated under a separate act of parliament and granted a charter. This is the reason why Canadian commercial banks are called chartered banks.
The largest of the current Canadian chartered banks control lion’s share of banking activity. About 90 percent of total banking assets and deposits and more than 75 percent of payments volume accounted for by the big six chartered banks.
The Canadian banking system is more concentrated than the one in U.S. where there are some 8600 commercial banks and 12,500 thrift institutions.
There was a tendency to merge as it was proposed in early 1998 TD and Canada Trust and even further RBC-BMO, CIBC-TD plan to merge. The federal government vetoed these two mergers on the grounds that they would hinder competition. If the proposed mergers had materialized only four chartered banks would have been left, leading to an even more concentrated banking system. Under new rule set out in early 2000 is not likely that Canadian banks will try to merge again.
In global perspective the RBC the largest Canadian bank ranks as the 48th largest bank in the world.
First five largest are:

Mizuho Holdings (Japan) with $1,876,772 (billions)
Citigroup (U.S.) $1,674,750 (billions)
Sumitomo Mitsui (Japan) $1,338,400 (billions)
Deutsche Bank (Germany) $1,288,926 (billions)
Mitsubishi Tokyo (Japan) $1,196.957 (billions)

If the bank mergers materialize in the future, Canadian banks will move up the ranks but how it will benefit us their customers?
As set out the balance sheet of the Canadian chartered banks cash reserves are only a small percentage of the deposits. That is why that type of banking system is called fractional reserve system it means that chartered banks loan out most of their deposits keeping only small percentage to meet everyday cash withdrawals. If depositors in the chartered banks were to come all at once to withdraw their money, there would be not enough cash reserves to meet their request. In such an unlike event, chartered banks borrow from the Bank of Canada, the “bankers bank.”
Chartered banks are private companies owned by shareholders who seeks a competitive return on their investments. Therefore the primary goal of chartered banks is to try to maximize profits. They loan out as much as of their deposits as is possible in order to increase profits. Those funds that cannot be safely loaned out are used to buy Government of Canada securities. The rate charged by banks on loans to their best corporate customers is referred as the prime rate – the interest rate banks charge their most creditworthy borrowers. Banks earn profit on the spread between deposits interest rates and loan interest rates.
The Canadian banking system is supplemented by other financial intermediaries. This includes trust companies, loan companies, credit unions that accept the funds from private investors, insures companies, successful corporations who have access of money for their ongoing operations as well as small individual savers. They are willing to take a much higher risks than chartered banks and make them available to customers with not perfect credit history. in the form of mortgages and other financial products. That is why we can say YES when banks say NO and offer better rates and more flexible financial product that any of the chartered banks. To put the money in the circulation our lenders present daily promotions up to prime – 2.5%. If by the chance you come around with considerable sum that lies in the bank account earning little bit more than 0% interest that bank pays out you more than welcome to contact me to discuss possibility of becoming one of our lenders. I hope that clears few questions. Please visit my website http://www.theswissmortgage.com/ for today’s promotions and discounts that our lenders may offer.