BANKS SHOULD ‘LAY OFF THE FLOOD VICTIMS’
Alberta Finance Minister Doug Horner wants banks to hold off foreclosing on flood-damaged businesses for 90 days.
That drew some friendly nods from bankers invited to Government House in Edmonton on Monday, says one official.
But as Horner acknowledged, he can’t force the banks to delay foreclosures. His plea was more in the nature of moral suasion.
It’s hard to imagine a bank foreclosing on some poor businessperson who is temporarily without revenue, staff, or even a functioning address.
Hard to fathom, that is, unless you know some good old Alberta history.
Chartered banks gleefully foreclosed on farmers during the Depression, calling in loans that were nicely designed to fail at the first sign of trouble. A lot of Alberta soil ended up being owned in Toronto.
That experience prompted the Social Credit government to form the Alberta Treasury Branches, Canada’s only provincial bank, so controversial at the time that Ottawa tried to have it declared illegal. But ATB kept many Albertans in their businesses and on their farms.
Now Horner, whose own Alberta farming family stretches back through those grim Depression years, says he’s heard worries from businesspeople about foreclosure, especially in High River.
“There was a concern expressed to us that given the decisions that are yet to be made in regards to valuations, insurance — am I insured or not — that the banks might start making decisions because they don’t know the answers, or the time (of the loan) is up,” he said.
“So we said to them (the bankers) why not just hold off on everything for 90 days, until everybody has clarity around what is insurance going to pay, what are the feds going to cover, what are we (the province) going to cover — all of these things.
“It just seemed like the right thing to ask of the financial institutions.”
Oddly enough, banks might actually have to get permission from Ottawa not to foreclose in certain circumstances.
Horner said he’d write a letter to Federal Finance Minister Jim Flaherty, asking for exemptions in such cases.
The bankers’ response, he felt, was friendly to the postponement idea.
It should be. This isn’t 1938, when the government fought hardship by creating a new bank. Today’s governments fight by handing the existing banks a great deal of business.
The province will guarantee 75 per cent of a flood victim’s business loan, up to $1 million. That virtually removes risk to the banks, although Horner says it leaves the institutions with more exposure than the Slave Lake recovery program did.
Also, the government will pay interest up to four per cent on each business loan, via direct transfers to the banks.
As many as 1,500 businesses and 400 non-profits may qualify. The total cost of the program is estimated at about $120 million, almost all of it destined to become bank revenue.
This program is probably essential for southern Alberta’s economy. It may save hundreds of small outfits that are still struggling with cleanup, replacement costs, ruined stock and desperate employees.
If the majority of those businesses were to fail, the shrinkage in Alberta’s GDP would be shocking. Horner estimates that the $120-million expense will generate, or restore, about $1 billion in economic activity.
While the program ramps up, any bankers tempted to foreclose should thank their lucky stars for the Alberta government — and lay off the flood victims.