Dr. Frank Atkins, an econometrician and professor of Economics at the University of Calgary, spoke at a Frontier Centre event this week on the topic: “Alberta Treasury Branches – Still Relevant?” Here is a summary of Dr. Atkins’ message and some of the dialogue that followed. I invite you to view Dr. Atkin’s complete analysis published in the FCPP Policy Series.
The Alberta Treasury Branch was established by the Government of Alberta under Premier William Aberhart in 1938. The initial purpose of ATB was first and foremost to serve rural areas where no chartered bank or credit union existed. ATB was created because of the frustration among Albertans towards the central banks and in an effort to provide homegrown financing to small businesses in rural Alberta.
Since its creation, ATB has always competed with an advantage. For a long time, ATB did not pay deposit insurance and they did not pay income tax. Because ATB is supported by the provincial government, the government intervenes and ensures that ATB will remain in operation, despite numerous instances of ATB falling into negative equity. When the government guarantees ATB, this means that there are no effective capital controls, the institution assumes more risk than it can absorb, and we the taxpayers, who are shareholders in ATB, absorb these risks without receiving any return.
Dr. Atkins attests that this is a poor business model. He explained that ATB accumulated large deficits in its first twelve years, then picked up until 1982, until then falling into negative equity until 1999. In 1997, ATB became a provincial crown corporation and from 2005 to 2009, ATB opened 18 new branches. Of these eighteen new branches, ten were opened in Calgary, five were opened in Edmonton, and only three were opened in rural areas of the province. Dr. Atkins also noted that of the 152 places where ATB has branches all but twelve have a chartered bank, credit union, or both. Despite ATB moving away from its initial and historical purpose to serve Albertans without ordinary access to a financial institution, ATB continues to operate, often being bailed out by the Government of Alberta, at the expense of Albertan taxpayers.
Now, ATB does pay income tax and have some controls, but these regulations are lax and sometimes even irrelevant because the government can adjust the regulations unnaturally and whenever they see fit. This relationship between the Government of Alberta and ATB ensures that ATB can consistently report that capital control requirements are being met, when in actuality, they are merely being adjusted to give the appearance of being met.
The problem of ATB, Dr. Atkins explained, is that there is no risk involved for the institution which means that there is no incentive to operate with financial prudence and responsibility.
Dr. Atkins advocates for the privatization of ATB stressing that its existence is simply a bad public policy. He supposes that if ATB were to assume authentic financial risk and not be guaranteed by the government, then it would be a different story. However, this would be merely a duplication of the private sector, he argues.
One attendee at the event suggested that ATB no longer serves its historical purpose because of the increase in internet banking which makes banking services quite accessible to all Albertans.
Another raised the question of the basis of political support for ATB asking what the benefit is for the Government of Alberta to maintain it. Atkins hypothesized that the government figures that since people use ATB, people must like it. Of course, these people are voters. Particularly, the government is concerned about losing voters from rural communities.
Someone proposed that ATB could provide services where other banks and credit unions do not. It was determined that this would result in ATB becoming dramatically smaller. The number of job losses that would result makes this option highly unlikely politically.
Another challenge to privatizing the crown corporation is that it is unionized. This adds to the lack of political will to directly sell the ATB.
Further discussion involved consideration of the challenges of the eventual privatization of ATB. It was noted that there would be a need to radically restructure it and that eliminating the provincial guarantee would be a serious challenge for any buyer to which one exclaimed, “Perfect job for a banker! That’s what they do.”