The Globe and Mail reports in its Tuesday, Nov. 22, edition that Dec. 7 will be a good day in Canadian banking. The Globe's Rob Carrick writes that the Bank of Canada has an opportunity to adjust its trendsetting overnight rate that day, and an increase of 0.25 to 0.5 of a percentage point is widely expected. Like flipping a switch, banks will replicate that increase in their prime lending rates and, in turn, variable-rate mortgages, lines of credit and floating-rate loans. Higher rates on these loans mean two things -- increased costs for borrowers and more money for banks. DBRS Morningstar's Carl De Souza says, "Generally, rising interest rates are positive for banks." That is not, however, the full picture. Rising rates tend to arrive along with setbacks in the economy and financial markets that can hurt bank profits. Expect to see some evidence of this when the Big Six banks next announce financial results. There are two views, one that banks are making money on the backs of struggling borrowers, while the other is that the financial U-turn of 2022 affects banks along with the rest of the economy.
Two versions of reality, both true. The blame game is never as simple as it seems.
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