BDC snows the Senate part 2

Yesterday I began an analysis of the Senate Banking, Trade and Commerce Committee’s report on the BDC 10 year review. Just trying to hit the highlights for you. Today, as promised, Part 2:

BDC requested that the government give it the ability to provide “financial tools” beyond what it is currently permitted to do. According to page 18 of the Senate Report, “BDC did not wish to provide the Committee with a list of specific services that it hopes to provide”, but provided the examples of “securitization, indirect lending, and bonding”. BDC made it clear that it did not want to provide bank accounts, RRSPs, or residential loans. Glad we got that straight!

According to the Senate Report, the Canadian Bankers Association was “concerned about the BDC’s request, noting the desired tools were not precisely defined by BDC in its appearance before the Senate Committee.”

What’s interesting about this is what wasn’t explicitly discussed: revolving lines of credit, one of the staples of private sector banking. I wonder if the CBA saw this coming down the pike.

The Senate Committee appeared unimpressed by what the private sector had to say, and recommended that the BDC be granted “the additional tools it needs to assist Canada’s SMEs.” That sounds like Carte Blanche to me.

In Appendix A of its Report, the Senate Committee kindly outlined some legal amendments that were proposed by the BDC:

“BDC may provide financial support…by:

a) making loans to, investments in, or giving guarantees or indemnities to any person;

b) acquiring, disposing, leasing or otherwise dealing with any interest in any property of any person;

c) entering into any arrangemement for the purpose of extending credit, providing undertaking to pay money or otherwise providing liquidity to any person, including through repurchase agreements and securities lending arrangements.”

I’m no lawyer, but I read and draft plenty of legal documents. Based upon these proposed Amendments, BDC would, for the first time ever, be permitted to provide revolving lines of credit (via the phrase “entering into any arrangement for the purpose of extending credit”). At least they’re coming clean on the leasing point by describing it in plain English.

I wonder if the Senate Committee understood they were recommending that the BDC be given broad new powers, that went far beyond securitization and indemnities?

Having bitten their tongue about BDC’s predatory competitive pricing and structures during 2006-2009, it will be interesting to see if the Canadian Bankers Association reacts to BDC’s unstated but clearly proposed authority to provide revolving lines of credit, and not just their traditional term loan products.

MRM