Bill S-5 (Historical)

Financial System Review Act

An Act to amend the law governing financial institutions and to provide for related and consequential matters

This enactment amends a number of Acts governing financial institutions. It also amends legislation related to the regulation of financial institutions. Notable among the amendments are the following:
(a) amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act and the Trust and Loan Companies Act aimed at reinforcing stability and fine-tuning the consumer-protection framework; and
(b) technical amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act, the Trust and Loan Companies Act, the Bank of Canada Act, the Canada Deposit Insurance Corporation Act, the Canadian Payments Act, the Winding-up and Restructuring Act, the Office of the Superintendent of Financial Institutions Act, the Payment Clearing and Settlement Act and the Financial Consumer Agency of Canada Act.

Financial System Review Act

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Mr. Speaker, I listened intently to my colleague who spoke about the importance this will have for jobs, but the government is actually reducing jobs at Service Canada, the department that helps Canadians who find themselves unemployed at this time.

We have known for quite some time about the sunset clause, so why is it that the government took so long to send this bill to committee? Why did the government send it to the Senate as opposed to the House of Commons committee, where it should have been? There was only a three-week window of opportunity for the Senate to study this, and the Senate also said it was not enough time.

Why is the government in such a rush to pass a piece of legislation without really taking into consideration the impact it will have and without further debate on the issue?

[Costas Menegakis, Conservative, Richmond Hill, ON]

Mr. Speaker, I would like to remind the hon. member that this review is mandated by law. It is legislation that we need to do. It must be renewed by April 20, 2012 to allow the financial institutions to carry on business.

Indeed, the consultation process began in 2010. The government invited the views of all Canadians on to how to improve our financial system. Approximately 30 submissions were received from a wide range of stakeholders. The proposed bill takes into account the concerns of major interest groups, including consumer groups, stakeholders, policyholder groups and financial industry associations.

I would urge the hon. member to consider how important it is to have a strong financial system in our country. By supporting this bill—

[The Acting Speaker, Conservative, Bruce Stanton]

Order. There may be other hon. members who wish to put a question. The hon. member for Winnipeg North.

[Kevin Lamoureux, Liberal, Winnipeg North, MB]

Mr. Speaker, there has been a great deal of concern in terms of the government's management of this particular file and why it has chosen to bring in time allocation. I understand that the deadline is April 20 of this year. That is when the legislation has to have passed.

Given the member's background and what he has commented on, why is it that the government waited so long before bringing forward this legislation? In fact, with respect to many of the points the member referred to, we probably could have better legislation had the government been more co-operative in bringing forward the legislation, thereby allowing for more input and debate inside the House, as opposed to it being brought forward at the last minute.

Why did the government wait so long before it brought the legislation to the House?

[Costas Menegakis, Conservative, Richmond Hill, ON]

Mr. Speaker, I would like to thank the hon. member for the good work he does on the committee. I certainly appreciate his input.

The government wanted to allow enough time for the consultation process to take place. In fact, today we are debating the bill at second reading. Once this bill is passed, and I hope it will be passed unanimously by this House later today, it will go to committee for further study. There will be plenty of opportunity for the bill to be studied further in committee.

It is very important that we understand our role as parliamentarians. We must put partisan politics aside and support important legislation like this that keeps our financial system and our financial sector strong and stable for Canadians.

[Lynne Yelich, Conservative, Minister of State (Western Economic Diversification)]

Mr. Speaker, I would just like clarification. Some of the questions the opposition is asking I believe are outside the scope of the bill. I understand that the statutes that govern the financial sector are reviewed every five years. It appears that some of the opposition to this bill is outside the scope of the bill.

I wonder if the member would clarify that for the benefit of those listening.

[Costas Menegakis, Conservative, Richmond Hill, ON]

Mr. Speaker, the only response I can offer is that the opposition has voted down every significant piece of legislation the government has brought forward in this Parliament. This is the first time I have been elected. I am sure that is their goal and their objective. That is the only answer I can offer as to why the questions are outside the scope of what it is we are actually discussing today.

[Rob Merrifield, Conservative, Yellowhead, AB]

Mr. Speaker, it is a privilege to speak to Bill S-5, the financial system review act.

The bill has cleared the Senate and is now in the House. Some of my colleagues on the other side are asking why now and why so fast. It is not really fast. The consultation process started in September. We had to use that process to be able to get it to this place. Then we need to get it to committee and move it through so that it can actually be implemented by April of this year. That is very simple to understand.

We have a very strong and stable financial system in Canada. In fact, we came through the financial crisis with flying colours as a country, as did our financial institutions. Why? It is because we do these regular reviews. We ensured we made changes as we moved along and that nothing would be left on the back burner. We are actually moving forward and doing something with it to accommodate Canadians and their interests in the changing world in which we live.

Bill S-5 would make a number of improvements to key areas in the Canadian economy. The financial sector is very stable, and there are reasons for that. It is stable because of these mandatory reviews we are doing. It is also very big. We must realize that 750,000 people work in the system, all in well-paying jobs. It makes up about 7% of the GDP of this country. A lot is made up of the oil sands in my province, being 6% of the GDP in this country, and yet the financial institutions are larger than that and is doing very well.

The bill is not only big but also good. Why would it not be good when we have the number one Minister of Finance in all of the world? That is something that has never happened before to Canada. In fact, we are rated number one in the world in many different areas, especially in the field of financial management. In fact, the World Economic Forum has ranked Canada as having the soundest banking system in the world. Forbes magazine has ranked Canada number one in its annual review as the best country to do business with as we move forward. Bloomberg has recently listed our five big banking institutions in Canada as the world's strongest banks, more so than in any other country in the world.

There is a competitive environment in this place and opposition members do what opposition members do, they oppose.

I have a quote here from a past Liberal finance minister, the now president of the Canadian Council of Chief Executives, John Manley, who said:

Our financial system and institutions were tested during the financial crisis and have proved sound. Canada’s banking system is now widely viewed as the most stable and efficient in the world.

That is high praise from a former opposition individual who knows the financial system very well.

Last month, an independent financial stability board appeal review praised the government's swift and effective response to the global financial crisis. We did come through it quite well. In its review, it highlighted the resilience of the financial system that we have as a model for other countries to follow. As Canadians, we should be proud of that.

We must realize that as we went through the financial crisis in Europe there were many problems with a lot of the banks there, as well as south of the border in the United States. If we compare ourselves to our number one trading partner, there was a meltdown of the financial systems. Not one of the financial institutions in Canada failed. Not one failed or required direct government support in the form of cash injections or debt guarantees during the global financial crisis. That is something that did not and does not happen by accident. It happened because there was good management of the Canadian financial systems and it is directly related to what we are doing here today with this legislation.

In fact, the report stated:

This resilience, which was achieved in spite of Canada’s relatively complex regulatory structure, highlights a number of key lessons for other jurisdictions.

What are those lessons that Canada can teach other jurisdictions? The first is to be proactive with targeted macroeconomic policies supported by adequate fiscal space and flexible exchange rates that will help absorb the external shocks.

The second is a prudent banking system management so that we do not become over-leveraged, as has happened in Europe, the United States and other banking systems and sectors. This is particularly important if we are to go through a crisis, such as what is happening around the world. We hope that we are through it now and that we will not revisit it, although what is happening around the world should make us a bit cautious, particularly the debt crisis in Europe and perhaps some overspending in the United States that could impact us in years to come.

The third thing is the comprehensive regulatory supervisory framework that effectively addresses the domestic prudent concerns including, when necessary, adopting regulatory policies that go beyond the international minimum standards.

Those are three lessons that other jurisdictions can learn from.

As the board noted, since 2008, the Conservative government has taken significant steps to make our financial system more stable and to reduce systematic risk to Canadians and to the system. In fact, the first thing we did in the 2008 budget was to modernize the authorities of the Bank of Canada to support the stability of the financial system.

We came through it in glowing fashion, as far as our financial institutions, but in budget 2009 we suggested other changes. Just in case we were to run into problems with our banking system, we wanted to ensure we were able to capitalize our banks so that they would not go into receivership. This is very important. What it really allowed for was, if there was an injection needed into our banking system to sustain it, the Canadian Deposit Insurance Corporation would have the flexibility to do that. That is actually a very wise thing. We did not need it, thankfully, and, hopefully, we never will. A bridging institution was what we needed. In banking terms it is called a bridged bank. Bill S-5 includes a number of technical refinements to ensure that the efficient implementation of those bridged bank tools are there.

Budget 2011 also announced our government's intention to establish a legislative framework for covered bonds, which are debt instruments secured by high quality assets, such as residential mortgages. This bill would make it easier for Canadian financial institutions to assess the low cost sources of funding and help to create a robust market for covered bonds in Canada.

Let us look ahead. We have this five year review. It is very important that we do this review, mainly adding to some of the changes that we have made over the last number of years, chiefly technical. One of the changes that would actually make it a little stronger goes back to one of the changes that was made by Liberals in 2001. It would back that off so that any bank that invests in more than 10%--

[The Speaker, Conservative, Andrew Scheer]

Order please. I will stop the member there. He still has two minutes left to conclude his speech.

The House resumed consideration of the motion that Bill S-5, An Act to amend the law governing financial institutions and to provide for related and consequential matters, be read the second time and referred to a committee.

[The Speaker, Conservative, Andrew Scheer]

The hon. member for Yellowhead has two minutes left to conclude his remarks.

[Rob Merrifield, Conservative, Yellowhead, AB]

Mr. Speaker, this is important legislation that we have before us. As I only have a minute and a half, I will reiterate some of what I have said. I mentioned how important the financial system is to Canada, how well we are actually doing compared to other countries and that some of the changes are a tweaking and of a technical nature of the Financial Systems Act.

One of the issues I was talking about before the question period break was that no financial institution can invest more than 10% of its assets in another international jurisdiction. That is to make certain that the system is protected and Canadians are not overly exposed. In fact, the Canadian Bankers Association, which we would think would be a bit concerned about this kind of imposition, said that it fully supports it.

We do have a great system in Canada. It is the best in the world. We have the greatest finance minister in the world. We have been recognized by international agencies in countries around the world as having done our job and done our job well. We have low taxes, stable finances and great opportunities. I believe that our best years are yet to be realized in this country if we just continue the course.

This legislation should meet with the approval of all members of the House as we move forward. I encourage everyone to consider this bill for what it is worth and the importance of it so that it can be completed in time for the April 20 deadline.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Speaker, it is with pleasure that I rise today to speak to this legislation. The legislation does not make extraordinary changes to the Canadian banking system but I would like to speak to some of the changes that it would make.

I will be sharing my time today with the hon. member for Markham--Unionville.

The reality is that the Canadian economy is doing better than some of the other global economies with which we compete. There are three principal reasons for that. One is the fact that we do have a somewhat stronger fiscal situation than other countries, and I will speak to that in a moment. Second, we are riding a global commodity boom as a country that has a remarkable amount of natural resource wealth in oil and gas and minerals. Third is the prudential strength of our banks and our banking system.

I have heard throughout the debate today the Conservatives taking credit for all three. First, in terms of the fiscal situation, when the Conservatives were elected in 2006 they inherited the best fiscal environment of any incoming government in the history of Canada with a $13 billion surplus. The Conservatives spent through that surplus at a rate of three times the rate of inflation and put Canada into a deficit position even before the downturn of 2008.

Second, it is very hard for the Conservatives to take credit for the fact that we are benefiting as a country from an oil and gas and mining boom. The recovery, as it exists in Canada, is largely focused in a couple of provinces. Over 60% of the new jobs created in the last year were created in one province, Alberta. We know that we are hemorrhaging jobs in other parts of the country. We are seeing a bit of a Dutch disease where a commodity boom is shoving our dollar higher and is driving out and crowding out value added jobs in some of the other provinces, like Ontario, Quebec and the Maritimes. However, the Conservatives almost seem to be taking credit for the strength of the overall numbers, which would be a little like saying that they were responsible for putting the oil and gas under the ground or the potash under the ground in Saskatchewan. They cannot take credit for that, obviously, and they cannot take credit for the oil and gas under the water off Newfoundland because everyone knows that was Danny Williams.

The fact is that it gets a bit silly in the House sometimes when the Conservatives go on and on taking credit for where the Canadian economy is when they did not really have a lot to do with the decisions made or the good fortune we have as a country in terms of our natural wealth.

The third area where the Conservatives have been doing this throughout the day is when they take credit for the prudential strength of the Canadian banks. It was, of course, in the nineties when Paul Martin, as finance minister, and Jean Chrétien, as prime minister, fought the global trend of deregulation of the financial services sector. At that time, people in the Reform Party were critical of the Liberal government and said that we were missing out on the global trend of deregulation and that--

[The Speaker, Conservative, Andrew Scheer]

Order, please. Someone has left a phone behind again and it seems to be ringing. It seems to have stopped now. If members hear a phone going off again they can bring it up to the front and we will hold it for whomever it belongs to.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Speaker, the reality is that, in opposition, the Reform Party fought vigorously against the decision of the Chrétien government to maintain strong regulations around Canadian banks, the very regulations that kept Canadian banks from following the global trend and off the cliff like the lemmings in Europe, in the U.K. and in the U.S.

What did the Conservatives do in government in terms of the prudential management of banks? One of the first things the Minister of Finance did in 2006 in his first budget was to bring in 40 year mortgages with no down payments. This created the loosest approach to mortgage lending in the history of Canada.

Furthermore, in 2007, the Conservatives went further. Under the Liberal government, Canadians needed mortgage insurance if the down payment on their mortgage was less than 25%. In 2007, the Conservatives changed that and lowered the threshold to 20%.

Those were just some of the changes they made to create looser mortgages, looser regulations, which led to, among other things, what many economists are now referring to in Canada as a housing bubble, certainly a personal debt bubble. We have the highest level of personal debt in Canada today, which is $1.53 of personal debt for every dollar of annual income. That is the highest in our history and it is higher than that of our neighbours to the south in the U.S.

The February 4 edition of The Economist magazine states:

When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug about the purported prudence of their financial and property markets.

It went further and cited the Prime Minister at that time boasting in 2010. It then states:

Today the consensus is growing on Bay Street... that [the Canadian Prime Minister] may have to eat his words.

The Economist then said that Canada's housing prices had doubled since 2002. This has coincided with a massive growth in our personal debt levels. We see a great increase in speculation in the housing markets, particularly in some hot markets, such as Toronto and Vancouver, among others, and we see this growth having occurred, in part, in a response to the deliberate decisions by the Minister of Finance to loosen up debt and mortgage regulations back around 2006 and 2007.

The government must be held to account for those decisions, which actually helped create what we hope is not a housing bubble that ends badly but is certainly a personal debt bubble that needs to be managed.

It is important to realize that the Conservative government cannot take credit for the prudential decisions made by the previous Liberal government, and that the current government must be held to account for some of the foolhardy decisions it made as a government to loosen banking regulations and to loosen mortgage rules early in its term.

I want to note a couple of other things about Bill S-5 because some of the changes would have an impact on Canada's incredibly strong banking sector and its role in the world. One change is requiring the minister, in order to approve foreign acquisitions by a Canadian entity, under certain circumstances, for instance if the foreign entity being acquired has equity of at least $2 billion and if the acquisition of the entity would increase the size of the Canadian entity by at least 10%.

Under those circumstances and conditions in this legislation, it would mean that the Bank Act would require the minister to approve the acquisitions of these foreign financial institutions by Canadian banks. That is a change. The previous rules simply required that the Superintendent of Financial Institutions, OSFI, would approve those within the public service, within the bureaucracy.

Recent deals that would have triggered this mechanism of ministerial approval would have been the Manulife John Hancock deal, the TD Commerce Bancorp deal, the BMO Marshall & Ilsley deal and Sun Life. There are other large acquisitions that have occurred in the last couple of years: Scotia Bank bought Banco Colpatria, Colombia's fifth largest bank, and it also bought the Royal Bank of Scotland's Colombia assets as well 20% of the Bank of Guangzhou.

I want to raise as a concern, that the government consider the politicization of these foreign investments by our Canadian banks and the potential risk to the capacity that we have in doing so. The fact is we now have some of the largest banks in the world that are world leaders in terms of governance and success. With the capacity to significantly increase Canada's influence in the world in terms of a very important financial services sector, this politicization could lead to some highly political and potentially bad decisions in the future which would limit the role of Canadian banks in the world.

I raise that as a concern and I look forward to questions from my colleagues.