Finance Committee on May 16th, 2012

[The Chair, Conservative, James Rajotte]

That's correct.

I would really like to move on. Do we have any other questions on this division?

My understanding from the finance department is that the three officials in front of us can also address divisions 10, 11, 16, and 30. I hope we can do that, rather than go to division 3, PPP Canada, just so we can....

Ms. Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Just a clarification. I know we're in part 4. We just completed division 2. So the section on division 3, PPP Canada—

[The Chair, Conservative, James Rajotte]

My recommendation is that we go from division 2 to division 10. We'll deal with financial institutions, because it is the same officials. If we can try to deal with the same officials rather than having all officials come at the same time, I think it would just....

[Peggy Nash, NDP, Parkdale—High Park, ON]

We're just moving ahead to do division 10.

[The Chair, Conservative, James Rajotte]

We would do divisions 10, 11, 16, and 30, and then we'll come back and do divisions 3, 4, 5, and 6.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Give me that again.

[The Chair, Conservative, James Rajotte]

We'll do 10, 11, 16, and 30.

Division 10 is financial institutions. Division 11 is CMHC. Division 16 is the Currency Act, and division 30 is the Pension Benefits Standards Act.

[Peggy Nash, NDP, Parkdale—High Park, ON]

In general, if it's the case that there will be panels of officials who will deal with certain areas, it would be helpful to give us a heads-up. You seem to have a list there of who's who. It would be helpful for us in preparing to know which officials are going to be dealing with which sections.

[The Chair, Conservative, James Rajotte]

Okay. I don't have this in both official languages, but I can seek to have it translated.

Essentially, part 4 is split up into divisions with officials. My understanding, and I can be corrected by officials, is that the officials before us are addressing five sections. These are the only five sections that are sort of combined with these three officials. All other divisions are addressed by distinctly separate officials.

Is that correct, Ms. Pearse?

[Jane Pearse]

Yes, that's right.

[The Chair, Conservative, James Rajotte]

Can we start? We can look at division 10 on financial institutions.

[Jane Pearse]

Division 10 permits public sector investment pools, such as public pension funds and sovereign wealth funds, to invest in federally regulated financial institutions. All acquisition of shares in this category of investor are subject to approval by the Minister of Finance. Public sector investment pools will have to satisfy certain criteria designed to capture investors that have commercial objectives.

Permitting investments by these investment pools allows Canadian financial institutions to access new sources of stable long-term investment and to level the playing field with foreign financial institutions when raising capital.

The amendments are provided for the Trust and Loan Companies Act, the Bank Act, and the Insurance Companies Act. They're all in here.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll begin members' questions with Ms. Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

Can you explain for us how many federal and provincial government agencies are public sector investment pools?

[Jane Pearse]

Public sector investment pool is a description used to describe both foreign and domestic pools of capital that have been created by governments or agents of government. They would include, for example, the Canadian Pension Plan Investment Board. That could be considered a pool of capital. They would also include pools of capital generated by foreign governments and used as investment vehicles in those countries.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Can you tell us the rationale for restricting investments by public sector investment pools in financial institutions?

[Jane Pearse]

Do you mean the original intent of the restriction or the limitation provided for in this legislation?

[Peggy Nash, NDP, Parkdale—High Park, ON]

What was the original rationale?

[Jane Pearse]

This goes back well into the history of the Bank Act. There was originally an overarching prohibition against both foreign and domestic government involvement as owners of federally regulated financial institutions. That general prohibition has gradually been opened or loosened, or made more flexible, for certain types of investments.

There was a provision added on financial institutions that allowed financial institutions owned by a foreign government to have a wholly owned subsidiary in Canada. For example, the State Bank of India, which is owned by the Indian government, has a subsidiary in Canada. There are other examples of similar kinds of government-owned financial institutions having subsidiaries in Canada.

Likewise, there was an amendment in 2009 that would allow the Government of Canada to inject capital into Canadian federally regulated financial institutions to ensure financial stability, in the national interest of Canada.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Can you explain that a little bit? Was that through CMHC?

[Jane Pearse]

No. As part of the budget implementation act in 2009 there was a series of amendments that gave the Minister of Finance the authority to inject capital into Canadian financial institutions in the event of instability in the financial system. He had some criteria that he had to meet, and the injection was conditional on discussions between him and the Governor of the Bank of Canada and the Office of the Superintendent of Financial Institutions.

[Peggy Nash, NDP, Parkdale—High Park, ON]

This was during the economic downturn.

[Jane Pearse]

It was during the financial crisis. Other countries were injecting capital into their financial institutions and there was a view that Canada also needed the capacity, the power, the tool to inject capital if it became necessary. Those provisions have never been used, but it allowed for government involvement in financial institutions.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Are public sector investment pools restricted from investing in any other sector of the Canadian economy?

[Jane Pearse]

Generally speaking, no, although there are the Investment Canada Act rules. Generally, though, I believe that they have the ability to purchase shares and ownership stakes in other companies.