Dream of a Western Canadian bank just met reality facing regional players

John Turley-Ewart: CWB had a mission to serve those in the West. It will be better positioned to do so as part of National Bank

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When the Canadian Western Bank opened its doors in 1984, it was a bank on a mission.

In Alberta, exasperation with the big, Toronto-based banks stretched as far back as the early 1920s, but Ottawa’s National Energy Program and the early 1980s recession had raised frustrations to new levels.

Founded by Dr. Charles Allard and Eugene Pechet, what was originally known as the Bank of Alberta would be run by “common-sense people.” It would be headquartered in the West (Edmonton) where large banks “were sometimes hesitant to lend.” Management would be “nimble” and “non-bureaucratic,” and “decision-making would be local,” the founders declared. And finally, branch managers and their staff “would know local industries and get local business.”

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By design, what soon became the Canadian Western Bank (CWB) was a different kind of Canadian bank, one that embodied a dream that many in Alberta and other parts of Western Canada have long held, to have their own bank, run by local people who understood their businesses.

But forty years after it opened, this week’s proposed $5-billion merger with Quebec-based National Bank showed that even CWB, despite its success in growing to 39 branches, mostly in Alberta, couldn’t achieve that mission solely as a regional player.

In Canada, sustainable success depends on building national banking franchises that facilitate greater access to capital and better risk management.

The history of Canada’s banks is a testament to this. Between 1867 and 1925 the Bank of Montreal absorbed seven other banks, deepening its reach into the Atlantic provinces, Ontario and the West. During the same period, Scotiabank merged with five banks, helping it consolidate its position in the Atlantic provinces and establish itself in Ontario, particularly in Toronto and Ottawa. The Canadian Bank of Commerce merged with nine banks during this time, which helped the Toronto bank secure strong positions in Quebec, the Atlantic provinces as well as Western Canada. RBC was not far behind, merging with eight banks. Two banks that relied on organic growth alone, Ontario’s Bank of Toronto and the Dominion Bank, merged in 1955 and went on to build the national and successful TD Bank franchise Canadians know today.

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The struggles endured by smaller financial institutions in Western Canada reinforce the Canadian experience that motivates bankers to build national institutions. In 1985, two small, Alberta-based banks failed: the Canadian Commercial Bank and The Northland Bank. The fallout from those failures led to a Commission of Inquiry and changes to government bank inspection in Canada.

Other examples abound. The first Western Canadian Chartered Bank, the Commercial Bank of Manitoba, was headquartered in Winnipeg and started business in 1884. It had ten branches in Manitoba when it crashed in 1893. The small Bank of Vancouver started business in 1908 and finished in disaster in 1914.

Saskatchewan’s Weyburn Security Bank opened in 1910 and did a brisk business in that province until the Great Depression exposed its weaknesses. When the Canadian Bank of Commerce absorbed it in 1931 it was insolvent.

The largest Western Canadian-based bank was the Union Bank of Canada. It was founded in Quebec in 1865 but moved its headquarters to Winnipeg in 1912 and set about building hundreds of branches across the West. Oddly, some Western provincial governments were not inclined to support it. Regional concentration and poor management did not help the bank when the Canadian economy fell into a deep recession following the First World War. When Royal Bank absorbed it in 1925, it did Canadian banking a service.

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The Manitoba government learned some hard lessons after it stepped into the banking business during the First World War. It opened the Manitoba Cooperative Land Bank in 1917 and encouraged the creation of rural credit societies, small locally managed organizations that approved loans to farmers using funding from the province collected through its Land Bank (known later as the Manitoba Provincial Savings Office). By the early 1930s, the scheme had cost Manitoba taxpayers millions of dollars and was abandoned.

The CWB stands out among Western Canadian banks. It is well managed, has a solid reputation with clients, has not forgotten its mission, nor history’s lessons. The proposed merger between the CWB and National Bank follows the historical route to long-term success in Canada. Two banks, with very different regional footprints, recognizing the opportunity to build a new national franchise.

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The dream of a big Western Canadian bank isn’t dead. It has just evolved to meet Canadian banking reality.

John Turley-Ewart is a regulatory compliance consultant and Canadian Bank historian

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