Evidence of meeting #13 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was banks.
A recording is available from Parliament.
10:35 a.m.
Superintendent, Office of the Superintendent of Financial Institutions Canada
Well, in a market-based economy, governments don't usually legislate rates. It's determined by the marketplace. I think some of the measures that have been discussed here, which Mr. Peters just referred to, should be helpful in that regard.
10:35 a.m.
Conservative
10:35 a.m.
Canadian Centre for Policy Alternatives
I might just add that we did have regulated rates at one point. There was a 6% ceiling by bank interest rates. Where would we have been in 1980, when we had a 22.5% prime rate? When you get interest rates set at a ceiling, nobody wants to lend the money at that rate. That's the major problem.
10:35 a.m.
Conservative
The Chair Conservative James Rajotte
Thank you.
Colleagues, I was going to break early because we had three motions, but two members have withdrawn their motions, so we only have one motion. I'm going to continue, and we should have time for one very quick round, so we'll go with Mr. Pacetti, please.
10:35 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you, Mr. Chair.
Just quickly, I want to go back again to the purpose of our meetings here. Ms. Dickson, I didn't get a chance to ask you a question, but our motion talks about the stability of the Canadian financial system, and we spoke at length about how solid our banks are. But you're also responsible for insurance companies, and we're seeing mixed messages. We're seeing that our insurance companies, the Canadian ones, are dropping in value every day, but there are also rumours that they're going to go and buy some of the American insurance companies. So which one is it? Should we be worried? Is there a concern, or should we be buying on the stock market, as the Prime Minister said about four or five months ago?
10:35 a.m.
Conservative
Mike Wallace Conservative Burlington, ON
And also President Obama, by the way. Do you remember, last week?
10:35 a.m.
Superintendent, Office of the Superintendent of Financial Institutions Canada
I think one could say that some of the insurance companies have taken some bruises. They still continue to meet all our requirements. I think all institutions now are looking at whether acquisitions should be made, because the share prices of institutions in other countries have fallen enormously and much more so than the share prices of our institutions.
Canadian institutions are becoming very big in market terms, so they are looking. But I think at the same time caution is definitely warranted. No transactions have been announced, and we will wait and see whether any are.
10:35 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
That's a pretty good answer. I'm surprised you actually answered it, but maybe something more direct. That's good.
Probably a more direct question would be this. There's talk about, for example, the Canadian banks. Everybody's saying, well, they are much more stable than their competitors around the world. Can we say the same thing about our insurance companies?
10:35 a.m.
Superintendent, Office of the Superintendent of Financial Institutions Canada
I think we can say the same thing.
10:35 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Another quick question is on our pensions. Is that the next shoe to drop? Do we have a concern where the government is going to have to come in and bail out pension plans, whether they be private or public?
We can use the example of the Caisses, but the same thing is happening with private pension plans, where there's been a big decline in value and contributions are in default, or lacking or deferred. Is that going to be the next shoe to drop, and what is our risk as a government?
10:40 a.m.
Liberal
10:40 a.m.
Voices
Oh, oh!
10:40 a.m.
Conservative
10:40 a.m.
Superintendent, Office of the Superintendent of Financial Institutions Canada
The private pension plans that we oversee are 10%; provinces oversee 90%. They are filing their reports now with us. They're due at the end of February. These are the reports as of the end of December.
They have to file reports with us indicating what their financial position is. We are now going through all those reports, so I don't yet have an assessment of exactly where they are in terms of their solvency position. I will have in about three weeks.
There have been a lot of private reports done, by Mercer and Watson Wyatt, etc., and those private reports suggest that private pension plans in Canada probably have around a 70% solvency ratio, which would mean 30% underfunded, and that's due to two things. It's due to the decline in the stock market--
10:40 a.m.
Superintendent, Office of the Superintendent of Financial Institutions Canada
Yes, those are what those plans say.
It's due to the decline in the stock market and it's due to very low interest rates.
10:40 a.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
What would the solvency rate have been twelve months prior?
10:40 a.m.
Superintendent, Office of the Superintendent of Financial Institutions Canada
It would have been closer to full funding. In our case, I think it was around 98%, so it was closer to full funding.
10:40 a.m.
Superintendent, Office of the Superintendent of Financial Institutions Canada
The government has indicated that it would look at a regulation to extend solvency funding, so instead of funding the deficit over five years, you have ten years, which will help the sponsors. I also am aware that the government is conducting consultations in general on the whole issue of pensions and whether any changes need to be made for the long term.
