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

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

It would seem that we would, at minimum, need some kind of coordination between the two, the collection officer and the superintendent, if that's the preferred route. It's something we would need to discuss.

One of the forms of collateral that was mentioned by the minister is what is known as a “rebate” to local campaigns or to the national level. One concern we've heard is that this gets banks into the business of projecting or predicting outcomes, because there's a threshold before rebates are payable—I think it's 10% at the moment—in terms of the electoral result.

Is this the kind of predicting that banks are going to be capable of doing? Will they accept rebates as collateral? Do they already in some circumstances?

[Anthony Polci]

I believe it really becomes a question of the viability of the campaign itself, as opposed to.... It may sound odd to say there doesn't have to be a connection between the viability of the campaign and the electoral outcome, but it is a question.... There is a range of factors in assessing a loan, and that would be the case in political financing as well.

Is the campaign viable? It comes down to asking if it can generate revenue through fundraising in order to repay its debt.

The rebate is absolutely an element, as you've pointed out. If that's going to come into the discussion for the terms of the loan, then assessing whether a rebate is a potential would have to be part of the equation

It's a combination of factors. A campaign's financial viability on its own merits is something a bank would be interested in.

[The Chair, Conservative, Joe Preston]

Thank you, Mr. Scott.

Mr. Garneau, seven minutes.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you, Mr. Chair.

My questions are similar to Mr. Albrecht's and Mr. Scott's. I guess the first one is a very general one. Are you comfortable with this legislation, or do you think you're being handed a bit of a hot potato?

[Anthony Polci]

The industry doesn't have a position on the bill for or against it. We haven't come at it from that angle, and banks operate within the laws of Canada. As Mr. Wrobel noted, banks are federally regulated, so we're used to that sort of oversight.

I think, though, the one concern I would state is that we watched very carefully the discussion around this legislation in the House of Commons and at committee, and the allegations or the charge that perhaps banks would be controlling access to the political process concerns us. The banks will make decisions based on lending decisions. They will look at the financial viability of a campaign, as I've said, and their ability to repay. It's not a question of anything other than that. This is what banks do.

So the idea that banks could be accused of favouring one candidate over another or one party over another is a cause for concern for the industry, but if Parliament sees fit to have political financing conducted in the way that it's proposed in Bill C-21, the banks would absolutely comply with the law.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

They are very public events, elections or leadership races, and those kinds of things. There's a public element to it.

Getting back to a point that Mr. Scott brought up, as part of your decision as to whether you will provide a loan, the issue of the rebate can be a central part of that. As he pointed out, rebates are not given unless you get at least 10% of the vote. Are you ready to get into the process of entering into that analysis about that particular candidate, whether you think that candidate may get 10% of the vote, because if they don't the rebate will not be there? Are you comfortable with doing that?

[Marion Wrobel]

First of all, Mr. Chair, remember that when banks make loans—let's say they're making business loans—they are effectively making a judgment about the viability of the business. Sometimes they have security, sometimes they have a business plan, and sometimes they have a track record they can look at, but they are making some kind of an assessment about the risk associated with that, and that is an assessment about the success of the business.

The same kind of techniques will be brought to bear here. Banks currently do make political loans. They are making risk assessments in some way, and they will continue to do so. What changes under this bill are some of the parameters, the things that can be considered in making the loan. But in terms of just analyzing risk, assessing risk, mitigating risk—those are all tools that banks already have at their disposal.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Very good, because it does require a bit of a crystal ball sometimes.

What about the other side? The collateral we just talked about is an example. Obviously the credit history of the person is an important factor in whether you will make a loan. If the person who comes to you is somebody who doesn't have a credit history, a very young person, somebody who has not really had the occasion to borrow very much previously, but they are perhaps even a very public candidate in a particular election, you're going to look at credit history, and in some cases you're going to say, “Well, we don't have sufficient credit history on which to make a decision and therefore we will turn down the loan.” Are you ready for that part of it? That could be very political as well.

[Anthony Polci]

At the end of the day, the bank is not lending to the individual, so the personal credit history is not the relevant feature; it's their ability to have a campaign that is, as I said, a viable campaign. You're not collecting from the individual; you're collecting from the campaign in terms of repayment of the loan. It is that entity that matters. You have to assess, can they fundraise? Is the rebate part of the equation?

So the personal credit history, the way Bill C-21 is structured, is not a part of that assessment.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

The perfect storm is a 20-year-old who is going to be in an election; they don't have a credit history, and it's questionable whether they're going to get that 10%. You're ready for that situation?

[Marion Wrobel]

I would say, Mr. Chair, that again, if you look at the business and the household context, the analogy.... Banks do lend at times to individuals in businesses who don't have much of a credit history. That poses a risk. To offset that risk, they have to do other things, so they will ask, for example, for guarantees, they will seek collateral, that sort of thing. Every risk has another element that can offset it.

The member is right, Mr. Chair. That makes it a riskier endeavour. That does not mean that a bank or another financial institution will not lend under that situation, but it will have to mitigate the risk in some other way.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you very much.

[The Chair, Conservative, Joe Preston]

Thank you, Mr. Garneau.

Mr. Lukiwski, you have four minutes, please.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

Thank you both for being here.

I'm going to divert a little bit from the actual elements of Bill C-21. I don't know how germane my questions will be to the examination of Bill C-21, but I am going to ask the questions anyway.

I would like to hear from you, as an industry, as to what you feel your obligations may be to assist and participate in the democratic process. I want to give you a specific example. Back in the late nineties, there was a political party—I'm not talking about candidates now, but a political party—in Saskatchewan. It was called the Saskatchewan Party. I was very involved with it at the time. Now, of course, it's the current government of Saskatchewan. At the time, it was fledgling. It had just started. About a year and a half after the party was formed, there was a general provincial election. I was one of those who was tasked with negotiating with financial institutions to try to secure a bank loan. Of course, there are slightly different determinants in provincial elections as opposed to federal elections in terms of rebates. You need 15% of the popular vote, both as a candidate and as a party, to get any kind of a rebate. Nonetheless, we didn't really have much of a political history to assure the banks that we would in fact be able to get over and above 15% of the popular vote and then trigger a rebate.

We were able to secure a loan. One of the determinants was that the banker in question said that he believed, and his bank believed—I won't give you the name of the bank—there was an obligation on their behalf to participate in the democratic process. It really was part of their decision-making process to assist in the political process. Having said that, I don't think they would consider it if there was a million dollar loan request from the Rhinoceros Party of Saskatchewan. But given the fact that this was a fairly legitimate political entity, that factored in to their determination of whether or not the loan should be granted.

Is that common in the industry, both at the candidate level and at the political party level, or does it have any bearing whatsoever?

[Marion Wrobel]

That's how hard that question is.

[Anthony Polci]

A more general statement in response—I would say banks take their responsibilities quite seriously. How banks conduct themselves in political financing, whether it's under the regime proposed in Bill C-21 or in provincial financing regimes, is ultimately a bank decision, an individual institution decision. We have a competitive marketplace. They are competitors with one another. They will take a number of factors into consideration in their approach.

In terms of the public duty aspect—if that's the question—the political process can be widely defined in terms of the participants. You use an example of a couple of parties. There's a good, proper understanding of the main parties that are involved in the political process and their viability and their staying power, if you will. If there's a suggestion perhaps that banks should be providing loans under any circumstances to any political party, there ultimately becomes a conflict with the prudential regulation because banks do lend to get the money back. We are regulated by the Office of the Superintendent of Financial Institutions. The lending that is undertaken by banks is lending that Mr. Wrobel has referred to. It is undertaken consistently to assess and manage risk, and to ensure repayment. That ultimately has to be the final decision.

That's probably the perspective that banks come at this from. For that public duty aspect, you have to look at how broad this can become in terms of an equation.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

That's probably four minutes.

[The Chair, Conservative, Joe Preston]

It was exactly, thank you.

Madame Turmel.

[Nycole Turmel, NDP, Hull—Aylmer, QC]

Thank you, Mr. Chairman.

Thank you for being here. Your presence is really helpful to us in our study of this bill.

I would like to go back to a point you discussed with Mr. Garneau, which was the risks implicit in any campaign. You say that this activity is in fact our business and that you must consider it from that perspective. How then do you determine whether a campaign is viable or not? What criteria do you use? Do you depend on the polls? As we know, the NDP was not even in the cards when the last election was called.

The second part of my question has to do with collateral. Will that be added to the criteria? We know that political parties will not receive funding from the government in the next election. Will you take that into account in your assessments?

[Marion Wrobel]

In answer to the question, Mr. Chair, every institution works under a broad risk management framework that's set by the Superintendent of Financial Institutions, but how they actually do that internally is up to the institution.

I keep making analogies to business and households. There are a variety of different sectors of the economy, some for which it's very easy to assess risks, some for which it's more difficult. In some instances, we have new and emerging industries and sectors where there's very little history. Banks and other financial institutions have to assess risk within that context.

If they are unsure of the risks, they tend to require collateral and other forms of guarantee. Do events occur that are unexpected? Yes. Do institutions learn from events that occurred that were unexpected? Yes.

In answer to the question, in the same way that banks do not want to lend to individuals, businesses, or campaigns where they will lose money, similarly they do not want to avoid lending to individuals, businesses, or campaigns that would be viable and that would be profitable.

They try to make sure their risk assessment is accurate so that on the one hand they do not lose funds, but on the other hand they still make a profit.

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

How much time do we have, Mr. Chair?

[The Chair, Conservative, Joe Preston]

Two minutes.

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

I will follow up on that. One concern is that we're discussing this partly in a vacuum, by talking about how we can't really know how it works until it works. If I'm not mistaken, there is some experience at the provincial level, in provincial campaigns.

Do you have anything you can share with us with respect, for example, to the experience of political lending in Ontario? Is there anything we should know that suggests it's viable or not viable?

[Anthony Polci]

I've heard in discussion, certainly, in the committee's deliberations to date, about comparisons with the Ontario regime. And there are some similarities, but there are also some differences. For example, the guarantee limit does not exist in Ontario, so an individual can guarantee a loan up to.... I don't think there's a maximum set.

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

It's a big difference.