Inquiry into the Collapse of the CCB and Northland Bank (Canada) : The Commission of Inquiry into the Collapse of the CCB [Canadian Commercial Bank] and Northland Bank was established under Order in Council P.C. 2932, 29 September 1985, under Part I of the Inquiries Act (R.S.C., 1970, c.I-13) and on the recommendation of the Prime Minister. The Commission was mandated to inquire into and report on the state of affairs surrounding the cessation of operations of the Canadian Commercial Bank and the Northland Bank including: (a) an examination or all the circumstances and factors contributing to the condition of the banks and resulting in the cessation of their operations; and (b) regulatory action in dealing with these conditions and circumstances taken by the Government of Canada and its agencies, including the Bank of Canada. If the Commissioner concluded that the circumstances so required, he was to recommend any changes in the regulatory and administrative control of the banking industry in Canada. The commissioner was William Zebedee Estey. The secretary was Paul Ollivier.
The Edmonton-based Canadian Commercial Bank (CCB) failed on 1 September 1985. On the same day, the Calgary-based Northland Bank, which was insolvent, was placed under a curator. It ceased operations on 30 September and was eventually liquidated. The closure of the two banks marked the first time a Canadian chartered bank had failed since the failure of Home Bank of Canada in 1923.
The CCB, which was established in 1975, soon found itself in financial difficulty. It made several unsatisfactory loans particularly in real estate, energy and construction. In addition, its purchase of a minority interest in the Westland Bank of California proved unsound.
According to the Chief Executive Officer for the CCB, Gerald McLaughlan:
"the seeds of the destruction of the bank had been implanted in the loan portfolio prior to his succession to the office of Chief Executive Officer in early 1983. Indeed, he acknowledged that, in hindsight, the bank was doomed in 1983.... Bad loans in the early years must be classified as a prime, long-term reason for failure of this bank."
Faced with a large number of outstanding loans of doubtful value, in March 1985, the CCB was forced to ask the federal government for financial assistance. The Government of Canada, in conjunction with the Government of Alberta and six chartered banks, arranged a 55 million dollar rescue plan for the beleaguered bank. The plan did not work out because the figures supplied by the CCB for the government did not accurately reflect the amount of money it actually needed at that time. In fact, the Bank of Canada had to advance the CCB an additional .3 billion dollars between the rescue attempt and its September closure. The decision to close the CCB was inevitable after the Hitchman Report on 13 August 1985. This report, which was prepared by a group of retired bankers, revealed that the assets of the CCB were at variance from those shown in its financial statements. The report also indicated that the total loan losses of CCB could amount to around one billion dollars. The government, therefore, decided it could not give the bank any further financial assistance and allowed it to fail.
As for the Northland Bank, which was established in 1976, it was in serious financial trouble by 1982. It had lent large amounts of money to borrowers lacking the ability to repay. In part, this was due to a prolonged recession in Western Canada. A very serious loss of confidence in the Northland Bank occurred in 1985 when the rescue attempt for the CCB became publicly known. As Willard Estey, the Commissioner who inquired into the bank failures, reported:
"the CCB collapse in March 1985 shook the money markets. Northland was seen by the professional money managers as being in the same category as CCB. Deposits declined rapidly.... Without liquidity advances from the Bank of Canada to replace withdrawn deposits, the bank could not have carried on. Eventually, these advances totalled about 00 M."
In spite of misgivings about the financial soundness of the Northland Bank, it was not until August 1985, however, that the Inspector General of Banks, ordered a thorough examination of the bank's assets. Although loan losses had seriously eroded its capital base, the Northland Bank was not liquidated until October 1985 because its management believed a merger or a financial reorganization was possible.
On 30 September 1985, the same day as the Northland Bank was closed, the Government of Canada appointed a royal commission to inquire into the failure of the two Alberta-based banks and to report on regulations governing the Canadian banking system in general.
It appears that its appointment resulted from the fact that the government had difficulty in persuading the opposition to take part in a parliamentary committee on the bank failures. The opposition wanted assurances that a committee would be given access to certain confidential documents concerning the insolvent banks, but the government could not offer any such guarantees.
By 27 September, just when all parties had agreed to take part in a parliamentary committee, the government suddenly decided on a public inquiry. It also introduced legislation in the House of Commons to repay uninsured depositors (see Report of the Inquiry into the Collapse of the CCB and Northland Bank, Ottawa, Supply and Services Canada, 1986, pp. 1-18; and the Ottawa Citizen, 30 September, 1 October and 7 October 1985).
Hearings of the commission were held in Ottawa, Edmonton and Calgary from 7 October 1985 to 22 May 1986. Some of the hearings were held in-camera. There were 344 exhibits filed with the commission. During the course of the inquiry, the commission consulted with banking experts in Canada, Great Britain and the United States. RG33-140 General Inventory
![Commission of Inquiry into the Collapse of the CCB [Canadian Commercial Bank] and Northland Bank fonds](/images/folder-10.png){kind=small}
