Procedure and House Affairs Committee on Nov. 1st, 2012

[The Chair, Conservative, Joe Preston]

Good morning, all. Thank you for attending committee this morning. It's great to have you here.

We're still in our study of Bill C-21, An Act to amend the Canada Elections Act (accountability with respect to political loans), and at the request of the committee, we've asked the Canadian Bankers Association to come here today and talk to us.

Mr. Wrobel is going to start today. Please, go ahead with your opening statement and then the members will have time for questions.

Mr. Wrobel.

[Marion Wrobel, Vice-President, Policy and Operations, Canadian Bankers Association]

Thank you, Mr. Chairman. My name is Marion Wrobel and I'm the vice-president of policy and operations at the Canadian Bankers Association. I'm joined by my colleague, Anthony Polci, the CBA's vice-president of government relations.

We're pleased to be here today at the committee's invitation, as part of your review of Bill C-21, Political Loans Accountability Act, to provide the committee with the banking industry's perspective and to answer members' questions.

The CBA works on behalf of 54 domestic banks, foreign bank subsidiaries, and foreign bank branches operating in Canada, and their 274,000 employees. The CBA advocates for effective public policies that contribute to a sound, successful banking system that benefits Canadians and Canada's economy. The association also promotes financial literacy to help Canadians make informed financial decisions, and works with banks and law enforcement to help protect customers against financial crime and to promote fraud awareness.

Canada's banking industry supports objectives to strengthen accountability and enhance confidence in the integrity of political institutions, and we recognize that the proposals contained in Bill C-21 are aimed at achieving higher standards of transparency and accountability in political financing. Canada's banks have a long history of supporting the political process by providing financing to political parties and candidates, assessing individual loan applications on their own merit. Banks will continue to assess applications for political loans in the same way as any other loans. Decisions on whether to lend funds and the appropriate terms and conditions will be based on prudent risk management considerations, including repaymentability of the potential borrower.

As you know, Canadian banks are well-managed, well-capitalized institutions operating in a competitive market and within effective and efficient federal-provincial prudential and consumer regulatory oversight. That was the case prior to the global financial crisis and it is the case today. A strong and healthy banking system is a cornerstone in helping Canadians buy homes and save for retirement, helping small businesses grow and thrive, and promoting Canada's brand internationally. Canada's banks have always employed a prudent approach when it comes to lending. This is one of the key reasons why our banks have largely avoided the problems that have plagued banks elsewhere. Such a prudent approach is vital because a healthy financial sector is important for a well-functioning economy, and Canada's banking system is widely recognized as being one of the soundest and strongest in the world.

While we cannot be certain about the practical aspects of this bill's impact in the absence of actual loan applications, under this new proposed regime, banks will continue to operate within the framework of sound prudentially focused management and a robust regulatory regime. It's within this context that we are pleased to offer the industry's perspective based on our understanding of the legislation. I should note that banks are not the only financial institutions that would be authorized under this bill to make political loans. Other financial institutions such as credit unions and caisses populaires would also be authorized to make such loans available. While the CBA can only offer the perspective of our member banks, the committee may also be interested in hearing from representatives of these financial institutions.

We would be pleased to answer questions from members of the committee. Thank you very much.

[The Chair, Conservative, Joe Preston]

Thank you very much for your opening statement.

Members, I think we'll do a seven-minute round first.

Mr. Albrecht.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Thank you, Mr. Chair. I'm not sure I'll need my entire seven minutes, Mr. Chair.

Thank you for being here today.

First of all, are you aware of any political loans criteria that exist at financial institutions? One of the concerns that our committee has had as we've begun looking at Bill C-21 involves some of the factors included in the draft of Bill C-21. Would it be difficult for banks or other institutions to provide up-front loans for a candidate who may not have the wherewithal, the collateral, to guarantee the loan?

[Marion Wrobel]

As I said in my opening remarks, banks are going to make loans and consider risks under this legislation the way they consider the risks of other kinds of loans, whether they be consumer loans or business loans. They will assess risk. They will consider how they might mitigate risk. They will determine the terms that are associated with the loan. The primary consideration will be an assessment of the ability to repay the loan. It's within that context that banks will decide whether to make the loans or not.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Could the point that the EDA, the Electoral District Association, or the political party act as a guarantor have any impact on whether or not a financial institution would consider guaranteeing that?

[Marion Wrobel]

Banks will take into account collateral. They will take into account guarantees when making the loan. Within that context, they will also have to assess the viability of the institution or the individual making the guarantee.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Again, my big concern in looking at the bill is that we have heard some criticism that this will actually make it more difficult for a candidate who doesn't have any means or collateral.

Do you feel that's a fair criticism of the bill in its current form? Do you have concerns about the bill in its current form, in terms of allowing the average Canadian to enter the House of Commons? It's called the House of Commons because common people, without means, without a lot of background, might be able to apply and run in a nomination, an election, or even in a leadership contest.

Are there factors in this bill that would make it more difficult in terms of the financing part of it?

[Anthony Polci, Vice-President, Government Relations, Canadian Bankers Association]

One of the aspects that you mentioned in your question was collateral. One of the things this bill does is it ties guarantees to the contribution limit to political parties or political candidates. I believe the intention of the bill is so that someone can't self-finance or guarantee their own loan. What's the practicality of a guarantee structure like that? Can a bank, for a loan of $25,000 or $50,000, have multiple guarantors? That's an administratively complex proposition that may prove difficult.

On that particular aspect, that would be something that banks would have to assess. Is it something that's a viable option in order to structure a loan in that way?

Collateral, yes, is an element, but according to the terms of this bill, it is tied to the $1,200 contribution limit. That's the maximum you would be looking at for an individual.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

But because of that administrative additional load—and I know you can't forecast accurately how individual institutions would react—do you think that's a negative possibility?

[Anthony Polci]

I think it presents a problem potentially to financial institutions. It would depend on the individual loan application. There are a number of factors that go into assessing a loan, as Mr. Wrobel has commented on, so it is one element of it. That's why it's difficult, in the absence of certainty about what the application is, to say definitively one way or another.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Mr. Chair, those are all the questions I have right now.

[The Chair, Conservative, Joe Preston]

We'll go to Mr. Scott, unless anyone on this side would like to finish Mr. Albrecht's time? There are three minutes left.

Mr. Scott, seven minutes for you.

[Craig Scott, NDP, Toronto—Danforth, ON]

Are you sure I can't have 10?

[The Chair, Conservative, Joe Preston]

I think I'll be a little flexible today, Craig.

[Craig Scott, NDP, Toronto—Danforth, ON]

Thank you so much.

And thank you for coming.

I actually won't go too much further on the last line of questioning. I think it was an important question, and your answer was pretty clear. It does suggest that the multiple guarantors issue is at best open and at worst going to be a bit of a challenge. If I've mis-summarized, let me know.

One of the provisions in the bill allows for the Chief Electoral Officer to rule on whether certain exceptions apply to whether it alone becomes a deemed contribution. One of them is if the loan has been written off. Another is if there's a binding agreement to pay—it doesn't say written, but let's assume a written, binding agreement to pay.

I have two questions on these. First, do you foresee writing off loans quite soon after the expiry of the three-year period in this piece of legislation, or would you see financial institutions entering into agreements to repay as almost a continuation of the loan?

[Marion Wrobel]

The business of banking is one in which loans are made under the expectation that they will be repaid in a reasonable period of time and that they will be profitable. We expect the loan to be repaid and we expect the administrative cost to be such that the bank can make a profit. There is a binding requirement to repay. There are instances where banks make loans that are written off because they cannot be repaid, and ultimately they are not. Banks do try if there's collateral, if there's a guarantee. They will apply that to try to get the funds back. Banks always make loans on the expectation that they will be repaid.

[Anthony Polci]

The other element of this is the three-year term that's outlined in the legislation. I think the going-in position would be, as a starting point—and then after that, again, it's difficult to say in the absence of an actual example—that the term of the loan would be certainly no more than three years.

[Craig Scott, NDP, Toronto—Danforth, ON]

Right, although the provision allows for a new agreement to pay. That's one of the concerns, the potential for a semi-indefinite extension of the loan, which is not good, but at least the bank is continuing to try to get its money. At the same time, candidates or associations are going well past the period that they should have repaid, so it's a bit of a problem.

[Anthony Polci]

Part of the consideration of all of this.... On the part of the candidate, the candidate, I'm sure, does not want to have a loan longer than a certain period. There's a cycle in elections. It's a certain fixed time. I'm sure they want to dispense with the last loan before they get into the next cycle. I think both parties would enter into a loan agreement under the same understanding, because it would be debt perpetuating debt.

But to your specific point, again, it's difficult in the absence of an actual case.

[Craig Scott, NDP, Toronto—Danforth, ON]

The Chief Electoral Officer, with respect to these exceptions or these conditions he has to pass judgment on, indicated there's an absence in the bill of a requirement to provide, but he can ask for documentation, require documentation. He even suggested that he might want the “power to examine” in order to know whether something has been written off correctly, in accordance with the normal accounting practices of the bank, and that a binding agreement to pay isn't being used as just a constant way to kick something down into the future.

One would have thought this would be extraordinarily rare for the reasons that you're giving. Would you have any objections to the Chief Electoral Officer being given powers, written into the bill, to actually require documentation or to even examine?

[Marion Wrobel]

One of the things you have to remember about banks is that they are highly regulated financial institutions. We have a regulator, the Superintendent of Financial Institutions, who regularly supervises and inspects banks, and takes great care in examining the books and looking at, for example, assets that are written off.

I can't speak to whether that is needed, but you should understand that there is that oversight by the regulator.

Perhaps that requirement is redundant. I'll let Anthony answer that.

[Anthony Polci]

The only more general comment I would make is that certainly one of the intentions of the legislation is greater transparency in political financing. There's already an understanding that this is going to be done somewhat in the public domain.

The requirement for candidates to file with Elections Canada and so forth would be disclosed, regardless.

[Craig Scott, NDP, Toronto—Danforth, ON]

Right. What I hear is that “regulatorily”—if that's a word—you're already in a position to be able to help the Chief Electoral Officer. So having a requirement to actually produce documentation shouldn't be a huge extra burden.

[Marion Wrobel]

What I was suggesting was not quite that, Mr. Chair. I was suggesting that if an institution were effectively making a contribution by writing off loans, it would effectively have to answer to the superintendent. The superintendent will always consider the steps an institution has taken to make sure it recovers on its loans.