Banks lower lending rates after bank cuts

Canada's big banks moved Tuesday to cut their prime lending rates, following a rate cut by the Bank of Canada and confounding some speculation that they would shun rate adjustments.

Royal Bank of Canada, the country's largest lender, was first off the mark, lowering its prime rate to 5.75 per cent from six per cent. Toronto-Dominion Bank, Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, National Bank of Canada and Laurentian Bank of Canada followed suit. The cuts are effective as of today.

The moves came after the Bank of Canada cut its key rate by 25 basis points to four per cent Tuesday morning.

The banks' prime rate is that charged on loans to their best customers, and influences other lending rates and mortgages.

There had been some reports that the country's large banks, facing fallout from the credit crunch and slowing economic growth, might not match the central bank's rate cut. It took several hours for Royal to put out the first announcement.

In a commentary last week, JP Morgan economist Ted Carmichael said the spread between the bank rate and the prime rate has been stable since 2000, but moved in a wide range before then.

Spreads between the two rates widened before or during recessions in 1974-75, 1980, 1981-82, and 1990, when growth prospects deteriorated, Carmichael noted.

As for consumers, the Canadian Bankers Association says on its website that they should shop around to find the best rate.

"Don't be afraid to ask for a lower rate than is quoted. Remember that the posted loan rates are only guidelines," the CBA advises.

"If you're not happy with the rate your financial institution quoted, check around to see what other lenders are offering. Your alternatives include banks, trust companies, credit unions, caisses populaires, mortgage loan companies and government lending institutions.

(Source: Vancouver Sun)