In the messy days after the 2008 collapse of Lehman Brothers Inc., Finance Minister Jim Flaherty took several extraordinary steps to thwart a freeze-up of lending to otherwise healthy Canadian businesses.
A key part of that strategy was his decision to transform Export Development Canada, an agency devoted to helping companies tap foreign markets, into a domestic lender as well.
The idea was to make EDC a temporary financial partner on the home front, giving commercial banks the confidence to keep lending to struggling businesses unwittingly caught up the global financial meltdown, particularly Ontario's decimated auto sector.
By all accounts, it worked. Ottawa-based EDC has pumped $9-billion into the domestic operations of nearly 600 Canadian companies, typically in partnership with private-sector banks and insurers.
More than three years later, with memories of the crisis fading, EDC is still providing loans, guarantees and credit insurance to companies and projects that may have only a remote connection to exports.
The extraordinary has become the ordinary.
Mr. Flaherty approved EDC's expanded role for an initial two years. In 2011, he quietly extended the powers for another 12 months. On Monday, the mandate will expire unless the government prolongs it again, or makes the arrangement permanent, as business groups have urged it to do.
Manufacturers argue that while the crisis has eased, uncertainty remains, with the threat of euro-zone defaults stalking global markets.
Even now, Canadian banks remain inexplicably reticent to lend to many sectors of manufacturing, particularly for inherently risky investments in plants, products and equipment.
EDC is doing what banks apparently won't.
One of those apparent financing gaps is in the transportation sector, where Montreal-based Bombardier Inc. has become an indirect beneficiary of EDC's new broader mandate. EDC, for example, has lent money to Porter Airlines, a domestic carrier, to help it purchase several Bombardier Q400 turboprop aircraft.
WestJet Airlines Ltd., which is looking for turboprops so it can offer shorter haul flights, could similarly turn to EDC for financing if it were to opt for the Q400. And WestJet can only do that if EDC is still in the domestic game.
The lines between the domestic and global economies are increasingly blurred, argued Jay Myers, president of the Canadian Manufacturers & Exporters. So is the financing.
"EDC is filling a major role providing lending credits for Canadian banks domestically and internationally, and today it's hard to tell the difference," he said. "In industry, you're probably part of an export-oriented supply chain, even if you're selling locally."
There's also a competitive issue at stake for Bombardier. Bombardier's global competitors in the United States (Boeing), Europe (Airbus) and Brazil (Embraer) have access to government-backed financing on their domestic sales. Boeing and Airbus are battling Bombardier's ambitious foray into the 100-plus seat commercial jet market with its C Series jet.
EDC's big domestic presence fundamentally alters the playing field in the commercial lending business. It's not that it's a subsidy. But EDC's presence allows other lenders to off-load risk.
EDC is self-financing, relying on the implicit government backing to raise capital at favourable rates. And it charges market rates for its financing.
EDC views its role as "filling cracks," as chief executive officer Stephen Poloz puts it. But its mere presence may encourage Canada's notoriously risk-averse banks to be even more conservative. They might, for example, balk at lending to certain companies without EDC involvement.
As the financial crisis has eased, EDC has actually ratcheted up its domestic lending activities: $1.7-billion in 2009, $2-billion in 2010, $2.5-billion last year. Combined with insurance, bonding and other activities, EDC's support of non-export operations has reached $9-billion since 2008.
There's also a risk of growing overlap and confusion between the roles of two federal lenders: EDC and its sister domestic lender, the Business Development Bank of Canada, which delivers financing to small and medium-sized Canadian companies. Both are now apparently chasing some of the same deals.
The Canadian Bankers Association argues that EDC's domestic lending campaign has met its goals and may no longer be needed. EDC, meanwhile, wants to retain the ability to help companies throughout the export supply chain, rather than just export transactions.
It's an important debate, with compelling arguments on both sides. So far, the deliberations are happening behind closed doors, and between industry groups, without review by Parliament or its committees.
Any decision is likely to be made quietly, published in the Canada Gazette, and perhaps confirmed in the March 29 budget.