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Originally Posted by Bertuzzied
I know they can do it but isnt' it rather unethical? So have you heard of any other banks following suit? thanx for the info.
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Its not unethical per se, just unprecedented. Banks have not faced a situation like this in living memory.
This is happening industry wide. It has everything to do with profitability. RIght now a loan at prime is not profitable, because banks are giving premiums to long term deposits (such as 4 or 5 year GICs), to keep a good level of liquidity.
On top of that, the Prime rate is 3.00% which really tightens the spread between non-interest earning deposit accounts such as chequing accounts. For example, if you have a line of credit at prime and the bank's treasury department allocates a certain number of chequing account deposits for that line of credit limit, the gross spread last year would at a Prime base would be 6.25%; this year that spead is lowered to 3.00%; keep in mind this simple spread, does not include any potential cost to those funds i.e. borrowing to keep overnight reserves afloat, nor does it account for the overhead costs of salaries/wages, utilities, mainteneance etc.
In all, borrowing at Prime is actually a more recent thing (i.e. within the last 3 decades). In the past you had to be one hell of a customer (in terms of total connected dollars amounts) to even get close to a loan at prime.
Right now lenders cannot even give Prime with 100% cash security on new loans due to the unprofitability of doing so.