Say an independent Alberta becomes a reality. Aside from all the constitutional questions, not to mention questions around treaty rights, passports, and trade, it’s unclear what it would mean for day-to-day banking and the millions in the province who own a home.
The Alberta Prosperity Project, which has advocated for the province to secede from Canada, has addressed what they say would likely happen.
“Mortgages, HELOCs, loans, and lines of credit are private contracts. Just as car payments are not erased when you move to a different country, mortgages are not voided by independence,” read a previously archived version of the group’s website FAQ page.
The group’s website also said Canada’s big banks would seek authorization to operate in a free Alberta, making it in theory a seamless transition.
But analysts say there are a lot of unknowns, and the process would likely be complicated.
CBC News reached out to the big six banks: CIBC, BMO, Scotiabank, National Bank, TD and RBC. None provided comment.
The Canadian Bankers Association, which speaks for over 60 domestic and foreign banks, said it was unable to comment as its policy is not to speculate.
So, what would happen?
“I think [mortgages will] look exactly the same the day after independence as the day before,” said Keith Wilson, a lawyer and advocate for separation, who has filed a request with Elections Alberta to campaign as a third-party advertiser called Alberta’s Next Step.
Wilson pointed to chartered banks already offering cross-border mortgage services in the U.S., for example.
Post-separation, Alberta would need to legislate that Canadian banks can operate, and that mortgage contracts signed by Albertans remain legally binding, said James Thompson, associate finance professor at the University of Waterloo.
The new country would also likely need to set up its own central bank, he said, as well as some version of the Office of the Superintendent of Financial Institutions. OFSI regulates banks, and also governs the stress test applied to borrowers to ensure they can keep up with mortgage payments if rates increase or if their financial situation takes a turn.
Then there is the Canada Mortgage and Housing Corporation, a federal Crown corporation. CMHC, among other things, acts as a backstop, insuring mortgages when the borrower puts down less than 20 per cent.
“So for new mortgages originated after separation, if that should happen, Alberta would either need to negotiate continued CMHC access or build a provincial equivalent from scratch,” said Jeff Adamson, co-founder of the Canadian fintech company Neo Financial, headquartered in Calgary.
“Neither one of those is quick, and neither is really guaranteed.”
Wilson says, in the aftermath of separation, there would be some sort of Alberta Continuity Act that would maintain federal laws for sectors like banking, until such time that Alberta could enact its own legislation.
And he says the question of whether Alberta establishes its own central bank will be addressed in an upcoming white paper on separation he is involved in preparing. Monetary experts are contributing to it, he said.
An Alberta version of CMHC shouldn’t be a problem, he said.
“Alberta, as an independent country, has more than sufficient institutional competency to set up an Alberta Housing and Mortgage Corporation, to transition the CMHC guaranteed mortgages from Ottawa to Edmonton,” Wilson said.
“This is not even close to rocket science.”
Speaker and economist Todd Hirsch says scenarios would also vary depending on what currency would be used, and if Alberta were to create its own.
“If we do have a separate currency, that is a whole other ball of wax,” Hirsch said.
Banks would not be set up to deal with it, and figuring out how to do so would take time, he said. He does believe deposits in a Canadian bank would remain safe.
Wilson says what currency an independent Alberta uses is also to be decided. One option, he said, would be to adopt the American dollar, which he noted many countries around the world already do.
Uncertainty undesirable
It also might not be guaranteed that major banks would operate in a free Alberta, said Moshe Lander, an economics professor at Concordia University, and an Alberta resident.
“Would they even think that it’s a market worth trying to penetrate?” said Lander. “The big banks might say it’s not worth it.”
That is amplified, he said, if Alberta were to establish its own central bank that sets interest rates.
In that scenario, Lander said the price of oil — and all the volatility that can come with it — would likely have an outsized influence on the provincial economy.
And that would be directly reflected in interest rates set by a hypothetical Bank of Alberta.
“The banks might say: ‘I don’t want this in my life. I don’t need a variable rate mortgage that’s yo-yoing up and down based on something that’s not even within Alberta’s control,’” Lander said.
If in another scenario the bank followed the interest rate policy set out by the U.S. Federal Reserve, that would leave Albertans at the mercy of a system they have no say in, said Hirsch.
Could Alberta actually leave Canada? The province could be headed to a referendum vote on the topic this year if a petition launched by separatists is successful. Here are the facts.
One thing economists agree on? Banks don’t care much for uncertainty.
Lander notes that banks will prove more reluctant toward a potential borrower in their 80s, just as they would hesitate with a young person fresh out of school with unclear job prospects.
In both cases, the question is whether or not they could actually make good on their mortgage agreement. Similarly, he said, there would be uncertainty about a fledgling country still finding its economic footing in the world.
“It’s entirely possible that the Canadian banks might say, ‘You know what? We’re not going to renew your mortgage because we don’t know what the future of your province is and we can’t properly price the risk that’s involved in providing you with a mortgage,'” Lander said.
“So they might just cancel you all together.”
What about the housing market?
Adding another wrench of uncertainty to the mix? Just how many Albertans would stay in an independent Alberta, given poll after poll has suggested a solid two-thirds don’t want secession to happen.
“We saw what happened in the province of Quebec,” Hirsch said, referring to when talk of separation there prompted some residents and businesses to flee elsewhere.
“A separate Alberta, we could anticipate many people actually wanting to leave Alberta. That would put a lot of houses onto the market, that would tend to depress housing prices.”
That could mean an increase in underwater mortgages for those who stick around, where they owe more on the house than its current market value.
And that situation would not inspire banks to lend out more money, Hirsch said.
But Wilson says he is not concerned about an outflux of Albertans.
“I think what’s more likely to happen is the number of people who want to move to Alberta, because look at where the jobs are right now in the country, and that’s even with the constraints that Ottawa imposes on our economy,” Wilson said.
Need for clarity
As the debate around separation swirls on and October approaches, some analysts say what is needed most now is clarity.
“I think those who are in favour of separatism, they need to be clear and upfront with people,” said Hirsch.
Neo Financial’s Adamson said it’s not about “who’s wrong, who’s right” in the debate. Facts just need to be laid out on the table.
“I think that Albertans have a right to having this information, having a discussion, without it being emotionally or politically charged,” said Adamson.
“Like, these are practical questions that I think heading into a vote, people should really have straight answers to.”
Wilson says the white paper outlining policies for an independent Alberta will be released by late July.
