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Equitable Bank’s New Deposit Machine

EQ BankA colossal $400 billion of Canadians’ money is rotting in non-interest bearing chequing and savings accounts, and EQ Bank wants to do something about it.

EQ Bank is a new all-digital/no-branch operation run by mortgage lender Equitable Bank. It launched last week with a head-turning 3% interest rate on a no-fee bank account.

Much has already been written on its features (unlimited transactions, free electronic transfers, free bill pay, photo deposits and five free Interac e-Transfers, but no ATM access, debit card or cheques). What we found most interesting, as mortgage analysts, is how it’s run.

“We are reinventing what a digital bank must look like,” CEO Andrew Moor told CMT. “Of all the listed TSX banks, we are the most efficient schedule I bank in the country.”

And it better be. At 3%, its savings rate is an extraordinary 125 basis points above the next closest regular rate for a high-interest savings account (source: Fiscal Agents).

The company pitches the offer as having a non-promotional everyday rate. In other words, there’s no expiry date for the interest rate. Clearly, Equitable is intent on making a splash, but Moor is the first to admit he “would not expect to be above-market forever.”

When asked how this will help Equitable Bank’s mortgage business, Moor said the assets it acquires could be used to fund:

  • Prime mortgages
    • Specifically for the time period until they are securitized.
    • While it already has “warehouse credit lines” less than 3%, these new deposits help it diversify its short-term funding sources.
    • At 3%, the cost of funds is too high to fund prime mortgages outright.
  • Alt-A mortgages
    • Its average alternative mortgage is priced in the 4-ish per cent range, Moor says. So this creates a bit more spread with a 3% funding source.
  • Commercial mortgages
    • …which are also higher yielding.

EQ Bank’s entrance into the market sets the latest standard for other bank hopefuls in the mortgage space (Street Capital comes to mind, with its pending bank licence). It may also set the pace of client acquisition. The company hopes to draw 10,000 new accounts and $200 million in new assets in its first year, an achievable-sounding number for a company with $8 billion in deposits already.


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