Public Accounts Committee on Feb. 17th, 2011

[Jean-Claude D'Amours, Liberal, Madawaska—Restigouche, NB]

I understand that, Ms. Lafleur, but that was during the crisis. At the moment, some people tell us, the crisis is over.

If the crisis is over, how come these measures are still in place?

[Diane Lafleur]

The measures that the government took were temporary. I think that, as of now, they have all expired.

I would add that all the measures were put into place on a commercial basis. In other words, financial institutions got no advantage in terms of interest rates or costs. They paid for the support they got. The assistance was provided on a commercial basis and, at the end of the day, the taxpayer made money.

[Jean-Claude D'Amours, Liberal, Madawaska—Restigouche, NB]

How much time do I have left?

[The Chair, Liberal, Joe Volpe]

Maybe a minute.

[Jean-Claude D'Amours, Liberal, Madawaska—Restigouche, NB]

I will come back to this a little later and I will ask you some other questions.

I would like to talk about the Office of the Auditor General and the Department of Finance. Your turn for the hot seat, perhaps.

Mr. Horgan, you say that you accept the recommendations and that you congratulate the auditor general for the quality of the final report. But then you turn around and decide not to implement the recommendations in the auditor general's report.

You will not have time to answer all these questions. You can start now and we can continue later. Explain it to us. You say that everything is fine and that you accept them, but, unlike the Office of the Superintendent of Financial Institutions, you do not want to implement them.

[Michael Horgan]

Generally speaking, I think the report was a glowing endorsement by the Auditor General of the regulation of the Canadian financial sector. I don't want to put words in the mouth of the deputy auditor general. We think it has been a good report and generally a good endorsement of how the sector has operated in Canada.

It is true that there are a number of recommendations, one of which was with respect to terms of reference for the senior advisory committee. We said we would look at that and have decided at the end of the day not to implement it, not to write terms of reference for that committee. In the ultimate scheme of things, that's a relatively minor aspect of the Auditor General's report on the regulation of the financial sector and the six big banks in Canada.

The other aspect that involved the Department of Finance more directly was the financial information requirements that we are putting on the financial institutions. We agree. We've set up a subcommittee of the senior advisory committee to coordinate the information requirements we're imposing on the financial institutions so that at least we're coordinated. We know what each body involved in this process is asking of the financial institutions. We're taking a second look and asking ourselves whether, given the amount of information we're asking for, all these things are required.

[The Chair, Liberal, Joe Volpe]

Thank you, Mr. Horgan.

We've gone a little over time, and I know Mr. Wiersema wanted to address that answer. I'm wondering if you'd allow me to let you do that in a few minutes.

Madam Faille.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Thank you, Mr. Chair.

First, I would like to bring up a matter that has been brought to my attention by some of my constituents; it is about mortgage penalties in Canada.

I have done a little research and have found out that the Ombudsman for Banking Services and Investments (OBSI) opened 301 files in the quarter ending January 31, 2010, doubling the number of files dealing with mortgage penalties. In the climate of the government support to the banks during the crisis, changes were made to mortgage rates and one thing is clear: whether mortgage rates are going up or going down, the banks seem to be taking in significant amounts in mortgage penalties.

I was wondering if this has been looked at, given the many criticisms about it, and if you find the amounts unfair and too high at the moment. One suggested solution involved using interest-rate curves that are negotiated by the Bank of Canada and not by the chartered banks.

I wonder if there is a way to make changes along those lines in order to benefit consumers.

[Diane Lafleur]

Yes indeed, the government stated in Budget 2010 that it was concerned by the issue of mortgage penalties, partly because there is no industry-wide consistency. Disclosure also varies from institution to institution because different institutions use different methods. So it is quite complicated for consumers to find their way around.

So the government indicated in last year's budget that it wanted to find a better way to standardize practices and to provide consumers with better disclosure. We are presently working towards new practices that will be more beneficial for consumers. We have not finished yet, but it is something that we are actively working on.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

When do you think you will be finished?

[Diane Lafleur]

That is hard for me to say. We have been working on it for some time and we hope to finish as quickly as possible.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Could you share your action plan for the issue with committee members? I am specifically thinking about the timeframe you are working with. As you say, this was one of the important commitments. As MPs, we are being approached by chambers of commerce, by real estate brokers and by real estate boards all across Canada. I think that people are waiting to find out the direction you are heading in.

After all, people have the impression that the $200 billion in the 2009 budget for the Extraordinary Financing Framework, which was intended to provide assistance to the banks, actually made it possible for Canadian chartered banks to strengthen their positions. For example, the Royal Bank acquired financial institutions in the United States that were in difficulty. Do you have a handle on what went on when the various chartered banks got into the market for financial institutions?

Given that OSFI provides oversight, perhaps its representative could comment on this, but so could the representative from the Department of Finance.

[Diane Lafleur]

I think that you are linking two things that are really different. Essentially, the stability of the financial institutions, well before the crisis, allowed them to get through it. With some measures, in fact…

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

You are referring to the $25 billion on October 10 and the $50 billion on November 12…

[Diane Lafleur]

No, I am saying that the acquisitions that are perhaps going on at the moment were not financed by the government in any way. Those are two quite separate matters.

Having solid capitalization really is what allows an institution to expand its scope. The acquisitions we can see today are not because of government assistance in the form of liquidity on the financial markets.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Okay. That is one of the comments we often see in the media. People say that banks used the money to strengthen their positions. So you do not share that view.

[Diane Lafleur]

I do not share that view. The very strong capitalization of Canadian financial institutions allowed them to get through the economic crisis and come out on the other side in a position of much greater strength than their international competitors.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Mr. Walker, OSFI worked with the Bank of Canada on a risk assessment of the banks. A report in the media tells us that you do not want to make that information public. Why is that?

[Gary Walker]

Yes, that's true. We did make that statement. The reason is we believe that is confidential information among the members who participated in that risk assessment.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Like the United States, Great Britain and Europe, where the same exercise was carried out, you believe that it is not necessary to make the information public. Do consumers not have the right to know how Canadian banks stack up against other banks?

[Gary Walker]

First of all, the risk tolerance comparison between various jurisdictions would be difficult to make because of the different assumptions used in those exercises. But it has been the OSFI decision that, because of the balance of transparency and risk, it's--

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

I understand that you might have some reservations about publishing the information, but it gives the impression that you have something to hide.

If the financial system is as robust and solid as you say it is, why not make that information public?

[Diane Lafleur]

If I can jump into this debate, I would say that the exercises that were done in the United States and in Europe had very different goals from the stress tests that we did here in Canada and that are a tool we very often use when overseeing financial institutions.

In the case of the United States and Europe, it is very well known that some financial institutions were undercapitalized and vulnerable; they had to be recapitalized. So the stress tests were done in order to identify the shortfall in capital. Some governments were prepared to cover that shortfall once the results of the stress tests were published.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

I understand, but is there an equivalent tool that the consumer can have access to?

[Diane Lafleur]

The situation is very different because our banks are not undercapitalized. We had no shortfall in capital to make up. Doing that kind of exercise with a view to recapitalization was not appropriate in Canada. We were in nothing like the same situation.