Procedure and House Affairs Committee on Nov. 1st, 2012

[Anthony Polci]

This is a big difference because then personal credit histories and things become very relevant.

I think it is important to understand the differences when you're assessing the two regimes, because these differences do matter.

[Craig Scott, NDP, Toronto—Danforth, ON]

This could take us back to multiple guarantors. There's a paperwork issue and diminishing profitability.

On this theme of the public duty, Mr. Lukiwski put it really well with a really vibrant example. There are some sectors of bank lending that have slightly different criteria, if I'm not mistaken. There are some banks, anyway, that approach non-profit organizations and lending to non-profit organizations in a different way. Broadly speaking, there's a public duty reasoning I think behind that. I'm not sure if I'm correct in that.

Is there anything we should be thinking about on how lending occurs with respect to non-profit organizations and this public duty discussion we're starting to have?

[Marion Wrobel]

Banks do lend to non-profit organizations and they do have within their organizations individuals who specialize. A part of their business is to lend to non-profit organizations.

I think they recognize the differences in a non-profit organization versus a profit-making organization, but at the same time, when they're making loans, they are largely making loans, again, with the expectation to have it repaid.

Banks do believe very much in corporate social responsibility and they have numerous activities: they give money to charities, they support foundations, they support the arts, they support financial literacy. In those instances, those are expenditures where they do not expect to make money, and they understand that is an expenditure. But when they are making loans, the expectation, at the very least, is that they get the money back.

I think as they develop that corporate culture, as they manage risk, they treat activities associated with corporate social responsibility differently from lending. The culture of prudential lending I think applies to all lending on the part of banks.

[The Chair, Conservative, Joe Preston]

Thank you.

Mr. Reid.

[Scott Reid, Conservative, Lanark—Frontenac—Lennox and Addington, ON]

Thank you, Mr. Chair.

I have no trouble believing that banks would make every effort to use the normal criteria when making political loans, in part because it's good business sense and in part because of course you face extra scrutiny when dealing with electoral events. Perhaps there's a certain unfair bias against your institutions that you would compensate for by being particularly strong in your attempts to be objective.

What worries me, however, is that the Canadian party system is extraordinarily volatile compared to, for example, our neighbours to the south, where red states are particularly red states and blue states are particularly blue. Ultimately, that's why we watch Ohio and Florida every single election.

Here we see dramatic changes and people coming out of nowhere. I just pulled out some examples of people who nobody thought would win, who wound up winning elections. A large number of NDP candidates in Quebec in the last election won, including two members of this committee, one of whom, Madame Turmel, had a long history as a prominent person. The other, Madame Latendresse, who was actually, in my view, one of the best performing members of Parliament when this Parliament was completely unknown, I think ran because nobody else was dumb enough to take the nomination in a riding nobody thought they could win—I think that's a fair assessment. And then she unexpectedly won.

[The Chair, Conservative, Joe Preston]

I think there could have been a more gracious way to put it.

[Scott Reid, Conservative, Lanark—Frontenac—Lennox and Addington, ON]

Similarly, when the Bloc Québécois emerged, and when the Reform Party, to which I belonged, emerged in 1993, it would have been very hard, based on either history or predicted outcomes, to determine that these people would even win their 10% of the vote back. Yet they wound up winning. Sometimes you win with less than 50% of the vote. I first won with 38% of the vote. So things like that can occur.

The whole purpose of the new regime we're attempting to introduce, and it's part, of course, of the regime that started under Chrétien and continues today, is to take the money, or the special access some people have to money, out of politics so as not to advantage some over others. It seems to me that the nature of the unexpected, and the nature of the volatility of the system, may mean that inevitably, as we restrict access, we can wind up, once again, privileging those who have parties with established records. That is a very grave concern.

In Madame Latendresse's case, I think you won with almost no expenditures at all, or pretty close.

When you borrow money, it's with the expectation that the things you do with the money will actually cause you to win. There may be other seats where people would actually have lost because they couldn't have access to a competitive financial environment.

I throw all these things out as problems that occur to me. I'm looking to see if you have any insight as to whether they are real problems or whether you have solutions to them.

[Anthony Polci]

To cut right to the chase, are there going to be instances when banks will say no to candidates or parties? I think the answer to that question is probably yes.

It goes back to a question I answered earlier about the sensitivity on the part of banking institutions to being seen as supporting one party over another through financing. It comes back to what we've talked about a great deal in terms of risk management. If Parliament deems that this is the regime that should be in place for political financing, which we will abide by, does it extend to putting aside risk management consideration? Right now, we are still bound by our prudential considerations. Those have to be front and centre in our minds.

I guess one only knows, in some instances, the viability after the fact. In your question you referred to being able to win with less than 50% and so forth. It goes back to a comment I made a minute ago that I didn't expand on very well. It is about the campaign's viability, which doesn't always necessarily mean its electoral success, because a campaign can be a successful financial entity without translating into electoral success. That is part of the perspective of the banking industry.

[The Chair, Conservative, Joe Preston]

Thank you Mr. Reid.

Can I ask one question, Mr. Scott, before we go?

I want to lay out a scenario here. We've all heard about candidates who won who weren't supposed to, but in a normal election—I'll take my own riding as an example. If I needed to borrow money to run an election, it would probably be in the $25,000 to $30,000 range. That would be some one-third of the spending limit or so in my area.

By this bill, it is suggested that I walk into my local branch manager with 25 people to borrow $30,000, or at least suggest a list of 25 people. I can only guarantee by $1,200 at a go. Certainly knowing my bank manager well enough, I know he would say to just go get the money from them. He doesn't need to do all this paperwork for a loan with 25 people guaranteeing $1,200 a time. If you already know them and they already know you, why don't you just get them to give you the $1,200, instead of guaranteeing the loan? I almost can't see a scenario where someone would guarantee a $30,000 loan with 25 people, or where a bank would not try to find another way around that.

What are your thoughts on that?

[Marion Wrobel]

That's the whole essence, Mr. Chair, of the issue around the guarantors. These are relatively small loans; they are over a very short period of time. The costs associated with that up front are quite high, which would then be passed on to the borrower.

It's more than just giving the names of 25 people for the guarantee to be meaningful for the bank.

[The Chair, Conservative, Joe Preston]

You need more security than that? I can't believe it.

[Voices]

Oh, oh!

[The Chair, Conservative, Joe Preston]

I understand.

Mr. Armstrong.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

As I see it, there are three different events where people may come to you for political financing. One is individual riding nominations, one is the actual election campaigns, and the third is, of course, leadership campaigns.

I am going to focus just briefly on individual riding nominations for a moment.

The cap on it is currently about 20% of what the expense limit is for a general campaign to participate in a nomination. That means to spend the limit...I guess how they calculate it is that you are looking at anywhere between $12,000 and $20,000, depending on the size of the riding geographically by population.

Those are relatively small loans. Are banks going to entertain those if someone comes and wants a $5,000 loan to participate in the nomination? Is that something the banks are going to spend their time dealing with?

[Marion Wrobel]

I think that's a good question. These are relatively small loans. A small loan can be a profitable loan. It depends on the administrative costs associated with it. It depends on the ease with which the institution can assess risk and the ability to charge the appropriate interest rate that covers the cost and that reflects the risk.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

So you don't see any scenario where an institution is going to say that those are just not worth it for them to entertain? There is some risk in nominations. More people lose nominations than lose general elections. Maybe they won't be able to pay it back. Is it worth the time for institutions to assess every one of these people? There might be 12 people who contest a nomination, who all come to the bank and each ask for $5,000. Is that going to increase the chances that institutions are going to say they aren't interested in that?

[Marion Wrobel]

You're right, it's a small loan. The administrative costs of small loans are relatively high. It's up to each institution within its own context to determine whether or not that is a loan that can be viable.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Some institutions would say they're not going to do anybody. They might make that business choice for their institution.

[Marion Wrobel]

Some may.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Leadership campaigns are large, expensive campaigns—more expensive than most individual riding campaigns during a general election. But there is also no rebate back from money spent on leadership campaigns.

What do you see is the effect of this legislation on funding and financing for leaderships, from a financial perspective?

[Anthony Polci]

Just looking at the legislation, it is very clear that nomination contests and leadership races have fewer tools at their disposal. The rebate does not exist. Therefore, they become inherently more risky in terms of the options available. I think it is just a feature of what the legislation is outlining.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

So if someone was well-established and had a lot more business contacts and could actually get a whole lot of people to come for a $1,200 guarantee, they're probably more likely to get a loan from institutions than someone who is coming from outside and doesn't have a lot of experience—when you do a risk assessment.

[Anthony Polci]

As it translates into their ability to pull together a successful, viable campaign.

I don't have a commentary on what this type of person might look like. Look at the diversity in the House of Commons. It's more a question of that simple fact—it's the campaign itself that matters.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

So you'd not only look at the actual participants in the leadership campaign; you'd look at the people around them who are supporting them and working with them. Would that be part of the assessment you would do?

[Anthony Polci]

Yes, it's a campaign that you're looking at as opposed to the individual.