Thursday, July 05, 2007

Banks Want No Part of Political Loans

The Globe and Mail, Steven Chase, 5 July 2007

Canadian banks are growing increasingly uneasy about a recent Harper government bill that would force financial institutions to become the sole source of big loans to federal political candidates.

Senior officials at two major chartered banks say the financial sector was caught off guard by Bill C-54, which was tabled eight weeks ago.

They warn it may thrust them into an uncomfortable position of altering political careers with lending decisions and open them up to unfair criticism.

“What do [banks] do . . . with an application from a candidate with a spotty financial record?” said a senior bank official speaking on condition of anonymity.

“If they turn the candidate down, they may be influencing the democratic process,” he added.

The bill would outlaw a practice of turning to family, friends and wealthy business people to underwrite political campaigns. Union and corporate loans would be banned.

Only banks, credit unions and similarly accredited financial institutions will be able to lend more than $1,100 to candidates, political parties or riding associations – at commercial rates of interest.

Party leadership contenders will be especially hard hit because the bill places stringent limits on providing guarantees or collateral for politicians and they typically need big dollars.

Bankers – citing concern in at least three big banks – say it puts them in an awkward position of being a gatekeeper for candidates, and leadership hopefuls in particular.

“Imagine the negative publicity if a [rejected]… applicant for a loan just happened to be running on a platform that included an excess profit tax on banks,” one banker said.

The bill, which the NDP supports, has been interpreted as a Conservative-led shot at the Liberals.

Candidates in last year's Liberal leadership race turned heavily to loans, borrowing from relatives and wealthy businessmen in the first major party campaign conducted since political fundraising laws were tightened in 2004.

Banks fear they could also find themselves in a politically hazardous situation where they are criticized for favouring one candidate over another under the new system, which would also requires disclosure of lending terms.

“If one is a bit of a deadbeat, and one is not, they're going to get a different rate,” a second banker said.

“If one candidate gets a loan at prime – 6 per cent now – and another gets it at prime plus two, or 8 per cent, there might be an allegation you are trying to shut someone out or favour someone.”

Conservative House leader Peter Van Loan said he thinks banks will be able to navigate the new federal rules — as they already have elsewhere.

“The banks, credit unions and trust companies have proven themselves capable of handling this responsibility in provinces where they are already the exclusive legal source of major political loans such as Ontario,” he said in a statement yesterday.

“It would be surprising to find they feel they cannot manage the same responsibility with federal political loans.”

NDP MP Pat Martin, a member of a parliamentary committee that studied the bill, said the banks are late to the table with criticism of a measure that already underwent legislative scrutiny in June.

It sits at report stage in the Commons now.

“They missed the boat and now they are throwing a spanner in the works . . . with all the money they spend on government lobbying, you would have thought they would have been better prepared for this,” Mr. Martin said of the banks.

The best hope for the banks is that the Tories prorogue Parliament in the fall, which essentially wipes the legislative slate clean, including Bill C-54.

The Canadian Bankers Association declined to comment.

Gerard Kennedy, a contender in the last Liberal leadership race, said the bill could put banks in the position of choosing who can participate in a leadership campaign.