Hey All,

I just wanted to share this beautiful picture of a Vancouver Downtown Sunset taken from North Vancouver on a foggy day.

Enjoy!
The Richard Morrison Team.

By Frank Pingue - Analysis

TORONTO (Reuters) - A decision by Canada’s biggest banks to pass along all of this week’s central bank interest rate cut to customers suggests its credit markets have begun to thaw even as lending in many countries remains in a deep freeze.

Within minutes of the Bank of Canada cutting its benchmark rate on Tuesday by a half percentage point to 1.00 percent, Canadian banks lowered the rates they offer to their best clients by an equal amount.

Canadian banks, which have remained profitable even as the global financial crisis has ravaged their foreign peers, were criticized in the last quarter of 2008 when they twice decided not to pass along the full rate cuts made by the Bank of Canada, a decision they justified on the grounds of tight credit markets.

That was then; this is now. The fresh willingness of banks to follow the leader in easing borrowing conditions could mark the beginning of the end of a crisis that has threatened to stifle the Canadian economy for months or even years to come.

“The fact that we saw the match from the banks with the Bank of Canada rate is probably consistent with the view that there has been a slight improvement in tone with the markets,” said Craig Wright, chief economist at Royal Bank of Canada.

The country’s chartered banks, ranked last year by the World Economic Forum as the soundest in the world, have historically moved their prime rate in lockstep with the central bank. The prime rate, offered to top customers, determines what banks charge on a host of loans, credit products and some mortgages.

But the decision to hold back some of the easing late last year was a reminder that the central bank’s benchmark rate alone does not dictate where banks set their lending rates, and that the industry is not obligated to match Bank of Canada rate moves.

“People have this idea that there is this automatic link between the Bank of Canada’s rate and prime rates,” said Don Drummond, chief economist at Toronto-Dominion Bank. “That hadn’t been the case for some time.”

Even so, banks have come under pressure from federal finance and central bank officials to loosen lending to support the faltering economy. The banking industry has responded warily, arguing that prudent lending practices in the past have helped it avoid major losses.

Analysts said it was falling short-term borrowing costs, rather than political pressure, that played the biggest role in the decision to match the most recent rate cut.

POST-CRISIS EASING

Signs of the thawing in money markets include the “Ted Spread”, which measures the premium that banks charge for three-month dollar Libor, or the London interbank borrowing rate, over ultra-safe U.S. Treasury bill yields.

The spread dipped below 100 basis points this month for the first time since just before investment bank Lehman Brothers went bankrupt in September, suggesting credit conditions have eased.

In Canada, economists pointed to the declines in Canadian bankers’ acceptance rates as also indicating easier credit conditions.

“Short-term funding costs for the banks have been better behaved, allowing them to match the Bank of Canada’s move,” said Avery Shenfeld, senior economist at CIBC World Markets.

“Longer-term borrowing costs for the Canadian banking industry are still much higher than they normally would be with the central bank having eased so aggressively.”

If the situation holds, Canada’s commercial lenders will be more willing to match additional central bank rate cuts, which could come soon.

Eight of Canada’s 12 dealers, surveyed by Reuters on Tuesday after the Bank of Canada cut rates, forecast the bank will ease again in March, with two calling for a 25-point cut and six calling for a 50-point cut.

But they said there is no guarantee Canadian banks will match central bank cuts. With the global financial system once again under strain, analysts said short-term credit markets could tighten, giving Canadian banks less room to maneuver.

“There is still a lot of uncertainty. The confidence is lacking and that leaves markets generally vulnerable,” said Royal Bank’s Wright. “It’s too early to say that it’s all over.”

(Additional reporting by Jennifer Kwan; Editing by Jeffrey Hodgson and Peter Galloway)