BOOKS

Investing in failure

BREAKING THE BANKS By Arthur Johnson

PATRICIA BEST December 1 1986
BOOKS

Investing in failure

BREAKING THE BANKS By Arthur Johnson

PATRICIA BEST December 1 1986

Investing in failure

BOOKS

BREAKING THE BANKS By Arthur Johnson

(Lester & Or pen Dennys,

256 pages, $24.95)

Reading Breaking the Banks, by award-winning Toronto Globe and Mail business writer Arthur Johnson, is like watching Gone with the Wind. It is a great tale, but a stale one. It also promises more than it delivers. What is billed as a sweeping look at two spectacular failures in the Canadian banking system—the September, 1985, collapse of the Edmonton-based Canadian Commercial Bank and Calgary’s Northland Bank—is instead a well-told study of one bank, the CCB, and one man, G. Howard Eaton, its first president. Throughout, Johnson remains detached and reportorial when his subject cries out for perspective and analysis.

The book sets the scene for the financial shocks of 1985 with an evocative description of Canada’s last major bank collapse, the 1923 demise of the Ontario-based Home Bank. Sixty thou-

sand prairie farmers lost their savings, reinforcing the West’s smouldering resentment of Eastern banks. Johnson also provides a chapter on Alberta’s parochial Social Credit premier, William Aberhart, which helps explain the insular cockiness of Albertans and their readiness by the late 1970s to

support a Western bank. And Johnson ably documents the CCB’s beginnings. In 1975 a group of Western investors established an Edmonton-based bank to lend money to medium-sized businesses. Time and place were fortuitous: the bank was born at the start of Alberta’s oil boom.

But the province’s go-go prosperity

eventually triggered the CCB’S downfall. Alberta’s hotly competitive lending market forced the bank’s executives to make increasingly risky loans in order to survive. Chief among them was a web of financial deals that its president, Eaton, undertook with Leonard Rosenberg, the central figure in Ontario’s 1982 trust scandal. Unfortunately, Johnson focuses too tightly on that particular relationship and overlooks the laxness with which bank officers did business with many other clients.

When the boom went bust, the bubble burst for Eaton and his adrenalinfuelled colleagues. The bank could no longer support the weight of its bad loans. On Labor Day, 1985, Finance Minister Michael Wilson closed the doors of the CCB and the equally troubled Northland. Shortly after, Ottawa agreed to a billion-dollar bailout of the two banks’ depositors. Having covered familiar territory, Johnson reaches pat conclusions. Among them: that Ottawa’s banking inspection system, which should have reined in the CCB’s risky ventures earlier, relies too much on moral suasion—what one bureaucrat calls “the nod-and-wink” approach. Mildly, he suggests that it be overhauled—a surprisingly soft line from a reporter as tough as Johnson.

PATRICIA BEST

Alberta's hotly competitive market forced the bank's executives to make increasingly risky loans to survive