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A matter of interest

Robin Christian Blythe Farms Near Kenville,

We are now living in a time when cash is hard to come by for the general public, and therefore harder to come by for a financial institution. Financial institutions source their funding for lending from deposits. Banks and credit unions need deposits, so they have to be careful in setting deposit interest rates that keep them competitive. Better deposit interest rates encourage people to put their hard earned dollars into a savings account of some kind.

The federal government is about to introduce the new tax-free savings account which although the contributions are not tax deductible, the income earned on the savings is tax free. Timing is far from coincidental as Canadians are being encouraged to save more and spend less. Spending less could have a negative outcome as well though as it would mean continued economic slowdown.

We now have financial institutions with low lending rates and creeping ever higher deposit interest rates, which are making their margins smaller and smaller. The financial institutions may adjust their deposit rates ever so slightly lower, but must guard that important competitiveness.

Farmers are not immune to the liquidity crisis. They need to pull up their socks and think long and hard about whether or not they actually “need” that new combine or pickup truck. Most account managers hope to help each farmer who comes into their office, even if “helping” means declining their loan request because giving another debt payment is not in the best interest of the farmer.

Banks and credit unions will be forced to look harder at to whom and for what they are granting credit. In a loan deal, the financial institution is looking at investing in your business as a farmer. The safer that investment, the less likely there will be any affect on availability and cost of credit. Conversely if it is an investment with higher risk, then it will be more difficult to obtain credit as the credit union or bank will be unwilling to risk their depositor’s dollars.

The World Economic Forum has ranked Canada as having the most stable economic system. We can pat ourselves on the back for that, however we must be cautious as we forge ahead in uncertain economic times. The global liquidity crisis is quite literally “global” and we must be mindful of that and govern ourselves accordingly.

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