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January 13, 2022

From: Glen Hodgson

To: Travis Toews, Alberta Minister of Finance and President of the Treasury Board

Re: Time to Review ATB Financial: Is It Still Needed as a Crown Corporation?

Date: January 13, 2022

Alberta is the only province to have a retail bank owned by taxpayers. Is this still the right purpose for ATB Financial? More regular public review of ATB’s mandate by the Alberta government would help to define today’s policy priorities, identify specific financial market gaps that could be addressed and consider whether its engagement is still required.

The Alberta Treasury Branches (ATB) were created in 1938 in a province that had been devastated by the Great Depression. The ATB was one element of the monetary reform and credit policies of the Social Credit government of Premier William Aberhart, which included forming a government-controlled credit institution to facilitate banking services in small communities – notably those where larger banks had closed during the Depression. In other words, ATB was initially created to fill a perceived market gap in retail banking in the province at that time.   

ATB has largely focused on growing access to its banking services across Alberta, but there has also been debate on whether its lending practices had been politicized. There was controversy over its lending practices in both the 1950s and again in the 1980s. Politicization of decision-making is of course a key risk for Crown corporations and a reason for robust governance frameworks and practices.

My recent C.D. Howe Institute study Finding Jewels Among the Crowns identified two core elements for good practice in Crown governance. The first is framework governance that defines the Crown corporation’s policy purpose and market positioning. The second is operational governance practices and instruments, notably the role of Crown boards and the shareholder.

ATB’s governance model was modernized in the mid-1990s when independent reviewers recommended it operate at arms-length from the government, with a board of directors and an accountability regime comparable to the private sector. At that time, ATB was expected to compete with private sector banks to fill market gaps by providing service to consumers and businesses. The institution was subsequently rebranded in 2002 as ATB Financial in an effort to build stronger brand recognition.

On the central issue of framework governance, the core policy purpose and market positioning for any Crown, including ATB Financial, is supposed to be defined by its shareholder government. However, no regular process has been established for re-examining ATB’s purpose, such as a regular formal legislative review. Instead, The ATB Financial Act was amended in 2019 to add business objectives that direct ATB to be managed like any other commercial bank, aiming for comparable financial returns. The revised legislation thus pushes ATB further away from a well-defined public policy role and objectives.

At a quick glance, Alberta’s market for retail banking services – deposit-taking, access to mortgages and basic credit for consumers and businesses, and wealth management – appears to be well served by multiple commercial banks, credit unions and wealth management firms. The rise of digital banking has added a new layer of consumer choice, competition, and innovation. Today there is no obvious retail banking market gap that needs to be filled by a taxpayer-owned bank.

Are there other possible roles for ATB in addressing financial market gaps, or is it time for privatization? One option might be to meet specific sectoral credit needs in the Alberta market. The energy sector in particular will need significant access to capital to achieve low-carbon transformation. Another potential role may be to provide access to credit for businesses of all sizes throughout the business cycle (since access to private credit tends to shrink during downturns). Business Development Bank of Canada and Export Development Canada (both Crowns owned by the Government of Canada) already play this role to some degree. ATB Financial might do the same with an Albertan focus.

As for operational governance, ATB Financial appears to be well governed in many respects. Its Annual Report provides extensive detail on internal corporate governance, with a heavy focus on the board’s composition and role, confirming ATB Financial has generally adopted good corporate governance practices.

There is one notable exception. Good practice in Crown governance suggests the Alberta government should be more directly involved in annual strategic planning. ATB’s Board should of course approve and oversee corporate business plans and operations, but there should also be formal review and public confirmation of ATB’s business direction by its shareholder, the Government of Alberta, ideally through annual approval of a Corporate Plan.

It’s been a quarter century since the last independent review of ATB’s mandate and governance. It’s time for another thorough review. Albertans and their government ought to consider: the province’s financial market conditions today; whether there are gaps to be addressed; ATB’s possible role; and how its governance practices can be further strengthened.

Glen Hodgson is a Fellow-in-Residence at the C.D. Howe Institute.

To send a comment or leave feedback, email us at blog@cdhowe.org.

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.