Public Accounts Committee on Feb. 17th, 2011

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

How can we assess…

[The Chair, Liberal, Joe Volpe]

Thank you.

Excuse me, Ms. Faille. Perhaps you can continue in the next round.

Mr. Christopherson, the floor is yours.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Chair.

Thank you all very much for your attendance today.

I'll begin by commenting on Mr. Horgan's comments about how good a report it was. I agree. It was a good report. I'm surprised, collectively, that we chose to do this. We have a short period of time. There are lots of problems out there. When something goes well, the government has all the techniques and departments and vehicles to let the world know how wonderful the AG's report was. Our job is to deal with things that are problematic, so I'm really surprised that, collectively, we all made that decision, but I'm not sure it was the best use of our time.

Having said that, it is a pretty good report, and most Canadians, by and large--I'm not even going to get into tax benefits or any of that. I'm going to stay on this report, and in the context of this report, it was a good report, and I think Canadians are pleased about how strong the banking system is as a system. The government takes a lot of credit for that, but the truth is we have to also give a fair bit of that credit to the previous government, which maintained it too. Fair is fair. Give everyone his due.

However, there are a couple of things we can talk about here. I don't have anything to go on about at great length. I may run out of questions before I run out of time, which is very unusual for me. That is because I don't know what to do with a good report. I'm used to reaching for my weapons, but in this case, we'll deal with what we have.

I have one simple question first. Madame Bourque, I was just curious, on page 3 you mentioned that your colleague Michael Horgan will be speaking to this particular recommendation, and then later on you say, “The written remarks of my colleague Gary Walker address follow-up on this recommendation....”

To what degree do you coordinate your presentations?

[Michèle Bourque]

We do, absolutely. Yes, Mr. Horgan did talk about the first recommendation on SAC, and yes, Mr. Walker did talk about the third one, which talked about the financial information committee. I would say yes, we do have coordination, and my notes are absolutely consistent with what happened.

[David Christopherson, NDP, Hamilton Centre, ON]

I wasn't questioning the veracity of what you're saying. I was intrigued. We can usually tell when somebody says, hey, what are you going to say about so and so? But to have it spelled out like this...I look at it and think maybe it would be more forthright to present one report and all of you sign onto it. Initially the idea here is that we get a perspective, a perspective, a perspective, and a perspective--from different entities--but if there is going to be that much commonality in what you are saying and it's a united defence, if you will, then in the future maybe you ought to be presenting one written presentation and say you all back it.

[Michèle Bourque]

Certainly from CDIC's point of view, we were not the number one party to the recommendation, so it affects us indirectly, and that is primarily why I pointed to the others, since we are not the lead agency having to respond to the recommendations.

[David Christopherson, NDP, Hamilton Centre, ON]

Thanks. I was just more curious than anything. We'll file that away. You never know when that will be interesting to know.

Mr. Wiersema, in the last half of your ninth report you state:

While the Department of Finance has considered our recommendation, it has however decided not to implement it. The Committee may wish to discuss this with the Department.

I suspect we do.

I will start with you, though. What is the recommendation, and why were you making it?

[John Wiersema]

Thank you, Mr. Chairman.

This also gives me the opportunity to respond to the earlier comments that were made vis-à-vis our recommendations on SAC and the terms of reference and preparing for effectiveness reviews.

The first thing I'd like to say, Mr. Chairman, is, as we indicate in the report--and I absolutely agree with Mr. Horgan--the need for flexibility in the system is essential, and that was essential to the success of managing the crisis, the financial turmoil we went through a few years ago. SAC and the various instruments absolutely need to be flexible.

Nevertheless, we think it's a good practice to have terms of reference for a committee as important as SAC, the senior advisory committee. Those terms of reference themselves will need to build in the need for that flexibility, but we think that terms of reference for SAC would be a useful addition.

Mr. Horgan is also quite correct that this isn't exactly the most significant recommendation the Office of the Auditor General has ever made. This is in the context of a glowing endorsement. I don't know, Michael, but--

[David Christopherson, NDP, Hamilton Centre, ON]

Did he use those words?

[John Wiersema]

Absolutely. It's a positive report. It is one of the most positive reports coming out of the Office of the Auditor General. The other thing I'd like to address is the issue of the effectiveness reviews of the overall regulatory framework.

Madame Faille talked about one aspect of it: bank penalty charges. There are many aspects. It's a large, complex framework. It is subject to review once every five years. The Bank Act review is coming up in April 2012. We think it would be useful for SAC and the government to have a plan to prepare information to feed into that legislative review. It would tell us what parts of the framework are working well, what parts might need to be studied, and what parts could perhaps be improved. This would be useful information for government initially, and then eventually for parliamentarians as they consider changes to the legislation.

Part of our recommendations deal with terms of references. They also talk about preparing information on the effectiveness of the framework, that is, which aspects could be studied, which aspects need additional information to determine their effectiveness. That's the reason for our recommendation.

Mr. Horgan is the chair of SAC. Mr. Horgan is a Deputy Minister of Finance. I accept his right to say that they considered the Auditor General's recommendation and decided not to implement it. Nevertheless, I think the Office of the Auditor General's view remains that we think these are good ideas.

[David Christopherson, NDP, Hamilton Centre, ON]

Mr. Horgan.

[Michael Horgan]

With respect to the senior advisory committee, we're an advisory committee to the Minister of Finance. There are five principals on this committee. This is not a huge, complex, cumbersome organization. We deal with whatever the members of this committee feel is important for the Minister of Finance and the financial sector at any moment in time.

I wasn't Deputy Minister of Finance through most of the crisis, but the committee responds in almost real time to whatever is happening in the financial sector and does what it has to do. You could put the five people in a minivan. You also have to understand that there is more than the SAC. Our regulatory system is not as complex as those in the United States or the U.K. We have the financial institutions supervisory committee, which is legislated and chaired by the superintendent.

The Department of Finance is on that committee. The CDIC is on it. We're all there on it. I sit on the Board of Governors of the Bank of Canada. I'm a member of the board at the CDIC. The ongoing interaction between the institutions responsible for the financial sector are taking place day in and day out at low levels and at the most senior levels of the government.

We could sit down and do a terms of reference for SAC, but the terms of reference, at the end of the day, would say that in this committee we will deal with whatever the committee members think is really important for the financial system in Canada--and we will do that. We looked at it, and our judgment was that we don't need to write terms of reference to do what we think is the right thing.

[The Chair, Liberal, Joe Volpe]

Thank you, Mr. Horgan.

We're going to go to another banker now, if you don't mind.

[David Christopherson, NDP, Hamilton Centre, ON]

Yes.

[The Chair, Liberal, Joe Volpe]

Mr. Saxton.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Mr. Chair, and my thanks to the witnesses for coming here today.

As a former banker, I take particular interest in this report. Like my colleague Mr. Christopherson, I'm glad to see that it's a positive report. Unlike Mr. Christopherson, I'm also glad that we're taking the time to discuss it.

I think it's important from time to time to discuss positive reports. My first question is for Mr. Walker.

Mr. Walker, I know that recruiting and retaining staff is often a real challenge, especially when you're competing against high-paying private sector jobs. Are you concerned with the Auditor General's report, where they say that retaining qualified staff may be difficult for OSFI?

[Gary Walker]

I am concerned about that remark, because it is a valid statement. We are always concerned about our ability to attract and retain the talent we need, because it is a highly competitive industry in all its areas of specialization.

We believe that by taking the actions that we've committed to take in response to the audit, we are mitigating that risk considerably. Since the beginning of the crisis in 2007, we have increased our supervisory resources by 36%. That in itself has gone a long way to help mitigate the risk. The adjustment that we hope to make to our compensation programs will also help mitigate that risk, and we're confident that by taking the actions we've identified, we'll be okay.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

My next question is for Mr. Walker.

A few years ago it was announced that the rules and responsibilities of OSFI and CDIC would be clarified to eliminate unnecessary duplication and overlap. These changes reduced the administrative burden on the banks.

What was the nature of the overlap and duplication?

[Gary Walker]

If my memory serves me, a lot of the issues we discussed were what we might classify as background administrative services. A report was generated and submitted to the minister that suggested that we believe those administrative duplications were minimal and that we have clear and established mandates.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

My next question is for Mr. Horgan. How do our regulations manage excessive risks that banks may undertake in their activities, especially with respect to derivative products or structured products? After all, it was derivative products that got the world into this global mess in the last few years.

[Diane Lafleur]

At Finance, we set the legislative and regulatory framework, in collaboration with the financial sector agencies, but it is up to OSFI, as a prudential regulator, to do the day-to-day supervision and ensure that there are risk management practices and controls in place inside each institution to adequately manage those risks.

Now, as a related point, obviously we're very much involved in the international G-20 and Financial Stability Board work plan, which is aimed at addressing some of the core causes of the crisis, and that includes doing some work on OTC derivatives, for example. We're very involved in those, and we continue to work with our international partners to address some of the recommendations that have come out of the G-20 leaders' declarations.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

Does OSFI have anything further to add to that?

[Gary Walker]

I would agree with the statement, but we have as well been very much involved with the international deliberations and are committed to ensuring that we are implementing agreed upon recommendations here in Canada, which is in part why we have had to increase the resources, so that we can be able to deal with this new work.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

My next question is for either Finance of the Office of the Auditor General.

How does the supervision of Canada's financial institutions compare with that of our international counterparts? I think we have some good examples from the last few years.

[Michael Horgan]

Well, we subjected ourselves to international reviews through the IMF and the Financial Stability Board. We've had those reviews periodically. I think, generally speaking, we rate very well internationally. We are going through another review, which is just about to start. We've agreed to be one of the first in the next round. I think, generally speaking, Canada's system rates really quite highly internationally.

But I'd turn it to Diane, if you have comments.