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"City of Toronto Bank" Gains Momentum

Public Banking is Back on the Table

by Geordie Gwalgen Dent

"City of Toronto Bank" Gains Momentum

Toronto - Could Toronto become the first Canadian City to introduce Municipal-government-run banking?

If Councilor Kristyn Wong-Tam has her way, yes.

Councilor Wong-Tam was first elected in 2010, representing the Toronto Centre-Rosedale area.  With a background in real estate, she quickly noticed City problems of debt and infrastructure spending.  

Debt-servicing eats up a large portion of City funding (the most is the police department), while infrastructure projects like subways are often difficult to fund through traditional private loans.  To deal with this, Wong-Tam thought outside of the box:

"What I'm proposing of an implementation and creation of public banking," she said.  "Why is it that the City of Toronto isn't using tools that are granted to private entities through the Bank of Canada charter licensing?  If Rogers and Walmart can apply for a license to become a bank, why not Toronto?  We could make profits for a City and not for a private corporation."

The creation of a public bank is not a minor policy idea.  Publicly owned banks are common in Europe and tend to provide two benefits: they often turn a profit which goes into public coffers and they allow governments to borrow money at lower interest rates than those of private capital or private banks.  Most importantly, they can grant access to loans at a time when some governments in Europe (Greece, Spain, Portugal, Ireland, Italy, etc) are having difficulty getting them.  

After her election in 2010, she quickly went to the director of policy for Mayor Rob Ford and asked about exploring options for creating a City of Toronto Bank.  She was discouraged from bringing it forward.

But the idea has been consistently re-introduced in the public discourse, most recently by a twelve-year-old making the rounds at US conferences.

Is the idea too radical for the current state of politics?  

"We already have one - The Bank of Canada," says Wong-Tam.   "Article 18 of its charter says it’s supposed to provide low income loans to governments but it has abdicated its responsibility.”

At one point and time, Ontario had a bank for just such purposes, the Province of Ontario Savings.  The bank was started in 1922 and had all it's assets sold to Desjardins Credit Union by the Provincial government in 2003.  The Provincial Minister responsible at that time was none other than Jim Flaherty.  

Flaherty is currently the Federal Minister of Finance.  At the time of the sale, he stated that Ontario was "getting out of the banking business."

In 2001, City Councilor Pam McConnell moved a motion at City Council asking the Federal Government to provide low-income loans through the Bank of Canada for the Sheppard subway system.  The Prime Minister and Bank of Canada said no.   

This need for infrastructure dollars was one of the key reasons why the issue has been brought up at the Canada Infrastructure Summit.  

According to Mike O'Donnell, a City Councilor with the City of Regina, "A couple of years ago we came up with notion that we needed orders of government together with private sector to deal with infrastructure - pipes, roads, etc.  We called this the National Infrastructure Summit."

The Summit was organized partially with the Big City Mayor’s Conference and looked at possibilities for municipal finance including the traditional tools of property taxes, provincial handouts and gas taxes. They came to the idea of public banking by looking at the US.

Public banking is more common south of the border.  "The Bank of North Dakota was created in 1919," says Wong-Tam.   According to her, that fact that the state owns their own public bank has been beneficial to state investments and also profitable, providing a 25% return on equity.  The state has 700,000 people, returning millions to the fund.

"Fourteen (US) jurisdictions have been involved in the creation of their own banks," says Wong-Tam.  "What I'm proposing is not new.  It's a well worn path that has produced good returns, with the idea moving through Arizona and Hawaii looking to create their own returns."

According to O'Donnell,  "People walked away [from the Summit] with the notion that it was good.  The next summit looks at making these ideas work, proactively.  We aim to look at the bank in North Dakota and bring people from North Dakota to the Summit and see if this is something that is doable.  We definitely see merit.  I think this will come as news to many people."

Given the Conservative nature of governments and the strength of the Private banking sector in Canada, it's easy to see that public banking could run into serious opposition.  

"Will people reject it?," asks O'Donnell. "Absolutely."

"With the Penny Tax (an additional 1% sales tax going to municipalities), for some of us it makes sense," says O'Donnell.  "When we discussed this in a simple way, the premier reacted immediately the next day saying  'We do wish to raise taxes in this province and will not be supporting that'.  We're the lowest order of government.  If we take power from someone of course that would cause concern."  

But Nick Cluley, Creator of Great Experiences (his actual title) for ING Direct, thinks the idea could gain momentum in the private sector.

When Cluley brings up the idea to people within the banking industry he says that there is, "in general, weariness.  They're interested, but not sure what to do with it."

Private banks make a lot of money loaning money to municipal government through the Municipal Bond Market.   But according to Cluley, not all banks are not completely adverse to the idea.

"It depends, there's a few different systems being proposed that would deliver projects ina localized fashioned to localized needs."  Some initiatives rely on private banks being the ultimate backer for the loans, so according to Cluley, "The discussion is that there could be a way to make it profitable." 


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