Debates of Feb. 3rd, 2012

Ralph Goodale Wascana, SK

Madam Speaker, the strength of the banking and financial system in Canada is that its legal framework is perpetually sunsetted every five years. It has to be re-enacted or it expires. Some might think this is a source of uncertainty or weakness, but the opposite is really true. By requiring Parliament to re-examine Canada's banking laws every five years, we are forced to pay attention and to keep them strong and up to date.

Bill S-5 is a product of this five-year review process. It certainly has the questions that have just been referred to by my colleague, but hopefully Parliament will be able to address those questions in a satisfactory manner in the time that remains before the bill needs to be passed. It has to be enacted before April 20, 2012, to keep our whole system intact.

In that sense, this proposed legislation is rather routine. It renews and extends Canada's basic financial laws for another five years. That is important, but beyond that, Bill S-5, quite frankly, is not very ambitious.

It does not, for example, address the chronic problem that small businesses have in getting fairness from the big banks on their debit and credit card arrangements. It does not address the problem that will soon arise from another piece of legislation that was before the House this week, and that is the bill creating the new pooled registered pension plans.

Experience in other countries has demonstrated that a key issue will be the management fees and the other charges enacted by big financial institutions to operate these new pension plans.

A report from Australia shows that its PRPP system generated handsome profits for banks and insurance companies, but the average pensioner would actually have been better off simply buying a government bond.

There is nothing in legislation from the government to ensure a level of return on PRPPs equivalent to the extraordinary performance of the Canada pension plan, or to prevent fee gouging by the banks, insurance companies and other companies that run these new plans. Bill S-5 is probably most noteworthy for what it does not do.

The last significant work on the overall framework governing our financial sector was undertaken some 15 years ago by the Task Force on the Future of the Canadian Financial Services Sector. It was chaired for Canada by an eminent Saskatchewanian, Mr. Harold MacKay. His report was a powerful piece of work. He laid out those principles and values that have given this country the strongest financial services sector in the world.

The current Prime Minister likes to travel the world bragging about the success of Canadian banks and financial institutions. He did so in his recent alpine speech to the rich and famous in Davos, Switzerland. Before he launched his attack on low and middle income future seniors, he spent some time taking credit for the strength of Canadian banks as well as for the Canada pension plan.

There is more than a little irony here; some would say hypocrisy. In the mid-1990s, when Mr. MacKay was doing his work, there was huge pressure on the Liberal government of the day to go in the opposite direction. The big banks and the political right in Canada, including the predecessors of the Conservative government, were pushing hard for what they called a more American-like system. They wanted weaker prudential standards. They wanted less regulatory oversight. They wanted big banks to merge, so the biggest five or six could become the big two or three, and they could better take on the American competition, like Lehman Brothers, for example. That was their Conservative line back then.

All that right-wing advice turned out to be really bad advice. Lehman Brothers and other U.S. banks have gone the way of the dodo bird, and Canadian banks have turned out to be the most successful and the most respected.

In opposition back in the 1990s, the current Prime Minister and his Reform-Alliance colleagues also gave very bad advice about pensions. They went on the attack against the CPP, the Canada pension plan. They called it a huge boondoggle. They called it a big, European-style socialist welfare scheme. They said it should be scrapped altogether, that Canadians should just fend for themselves with private savings. The rich, of course, would do very well under a scheme like that, and as for all the rest, well, who cares. That was the right-wing line back in the 1990s.

We can hear echoes of that sort of thing today in the current debate about old age security and the old age pension. Never mind that 75% of those who receive the old age pension have incomes below $40,000. Never mind that many are elderly widows living alone. Never mind that without the old age pension, poverty among seniors would rise by as much as one-third. “Never mind all that”, the right-wingers say, “just cut them back and let provincial welfare programs pick up the slack”.

There is only one taxpayer, federal or provincial. Cutting down the OAS would not make the human needs go away. It would just download the burden onto the provinces, like health care downloading and prison cost downloading. It is false economy. That is true today, just as it was 10 or 15 years ago, when the current Prime Minister and his colleagues attacked the CPP.

He went to Davos and bragged about how the CPP is so actuarially sound, which it is, but no thanks to him. It was refurbished for the future despite the Conservatives, not because of them. The CPP has a superlative investment and return record and the plan is assured for at least another 75 years.

Once in government, the incompetence of the party across the way has continued. The Conservatives increased federal spending by three times the rate of inflation. They eliminated contingency reserves and prudence factors from federal budget making and they put Canada back into deficit again, all before there was any recession, not because of the recession, but before it. Then during the recession they dug their deficit hole deeper and deeper, $50 billion or more per year, with no coherent rules or objectives. Millions of dollars were siphoned into useless pork-barrel projects like the G8 and G20 fiasco, with all its fake lakes, ornamental gazebos, and sidewalks to nowhere. The Auditor General called it unprecedented and very wrong.

Now, while earmarking billions to be squandered on bigger jails and wildly expensive fighter jets, the Prime Minister says his government can no longer afford pillars of Canadian life like universal health care and old age pensions for middle- and low-income seniors.

The fiscal pressure on the Conservatives is entirely self-concocted and they are rather happy about that. I can hear them chuckling across the way right now. They want an excuse to pull away from medicare and pensions, and they really could care less who suffers.

It is important to keep Bill S-5 in context. It will be passed before April 20 to maintain Canada's banking success. However, for so many Canadians beyond the big banks the story is not very rosy. Economic growth stalled in October; it turned negative in November. Household debt is at an all-time record high, at 153% of disposable income. Unemployment went up again last month and it worsened again just today, with another 450 jobs lost at the Electro-Motive plant in London.

Strong banks are a must, but they are certainly not all by themselves sufficient to achieve a strong, successful country overall with growing and shared prosperity for all Canadians. It is that last element that the government seems to care very little about. It does not care if growth is sustainable. It certainly does not care if it is shared.

We will continue to battle the Conservatives on that fundamental principle: prosperity. We have proven we know the formula for making the economy grow. We did that through 12 very successful years of economic prosperity in this country. We also must work together on the sharing and the sustainability of that prosperity.

Ralph Goodale Wascana, SK

Madam Speaker, the hon. gentleman's comments are in fact laughable. The Conservative Party has a very selective memory about history.

The approach that our government took with respect to EI—

The Deputy Speaker Denise Savoie

Order, please. I would like the hon. members to respect the time that the hon. member has to speak. When there is time for more questions other members can raise them. However, for now the hon. member for Wascana has the floor.

Ralph Goodale Wascana, SK

Madam Speaker, it is obvious that the truth aggravates the government across the way, but we will keep working on it nonetheless.

With respect to the financing of EI, during the period of time that the hon. gentleman referred to in his question, the structure was examined by the Auditor General of Canada. She recommended a certain approach to the management of those funds. We implemented that approach as recommended by the Auditor General of Canada. I will take her advice over the government's advice any day of the week.

As far as reinvestment in health care is concerned, the fact is I had the pleasure of negotiating the 10-year health care accord with the prime minister of the day, the Right Hon. Paul Martin, with the 10 provinces and the territories. It was agreed to unanimously. We invested $41 billion over 10 years, to which the government has not added one penny.

Kennedy Stewart Burnaby—Douglas, BC

Madam Speaker, on a number of occasions I have taken the opportunity to ask the government about a statistic that is frequently reported by the U.S. federal reserve. It regards the natural rate of unemployment.

Former prime minister Paul Martin used to quote a number of around 7% as a natural rate of unemployment. I wonder if perhaps I could get an answer from the member about what he believes the natural rate of unemployment would be. It does seem directly related to the bill we are debating.

Ralph Goodale Wascana, SK

Madam Speaker, the definition of that term depends on a number of the factors used to consider what is natural or unnatural. In the United States I believe that number is guesstimated to be in the neighbourhood of 4%. In Canada it would be somewhat higher.

Since the time that Mr. Martin was the minister of finance, 10 or 15 years ago, I suspect that the number has come down a bit below the 7% figure. The most profound influence on that calculation today is the aging of the baby boomer generation. It may well be, before the 7% moderates very much, that we will have to get past the retirement rate of the baby boomers, which is a very significant economic factor.

John Carmichael Don Valley West, ON

Madam Speaker, I am thankful for the opportunity to speak to Bill S-5, Financial System Review Act. Bill S-5 is important legislation because it provides a framework to regulate financial products and services, helping to ensure the continued safety and security of our financial system that Canadians and their families depend on every day.

Before continuing, by way of background, I would note for the benefit of the House that today's legislation is the result of a mandated review. In Canada financial sector legislation is subject to a full review on a five-year cycle to ensure the stability of the sector, with the latest review completed in 2007.

The current review began with a public and open consultation process in September 2010, when all Canadians were invited to share their views on how to improve and strengthen our financial system. This practice sets Canada apart from almost every other country in the world and ensures that laws and regulations by which our financial systems are governed remain the safest and most secure anywhere.

As a recent Ottawa Citizen editorial proclaimed:

—our banking and financial system is the envy of the world. While the great money edifices of countries such as the U.S., Britain and Switzerland cracked at the beginning of the recession, Canadian banks stood firm.

Listen to what Forbes magazine stated:

—Canada has avoided many of the problems that currently bedevil the U.S.—mountains of public debt, a banking system in crisis...With no bailouts, it is the soundest [financial] system in the world, marked by a steady and responsible continuation of lending and profits.

Indeed, for the fourth year in a row, the World Economic Forum recently rated Canada's banking system the best in the world. Only days ago, an independent global organization, known as the Financial Stability Board, praised Canada's financial system, calling it a model for all countries. The Financial Stability Board stated:

The strength of the economy and of the financial system at the onset of the crisis meant that no Canadian financial institution failed or required government support in the form of a capital injection or debt guarantees.

As the past few years have shown, international praise for our system is well-founded. While the global financial crisis resulted in nearly $2 trillion in losses for banks and insurance companies, Canada's banks stood solid, bolstered by sound risk management and supported by an effective regulatory and supervisory framework. In fact, Canada was the only country in the G7 that did not have to bail out its major banks with taxpayer money in the aftermath of the 2008 financial crisis.

I neglected to announce that I am splitting my time today with the member for Etobicoke—Lakeshore.

This Canadian resilience matters. A strong financial sector plays a fundamental role in supporting a strong economy, and not just in times of crisis. Families, workers, retirees and pensioners count on it for the security and growth of their deposits and investments and to maintain the standard of living that they worked hard to build. Consumers rely on it for competitive financial products to keep their mortgages and other household financing affordable. Businesses, large and small, also depend on it for access to competitive financing to allow them to invest and grow.

The financial crisis highlighted the importance of evaluating the overall size of financial institutions, their global linkages and the impact of these factors on the best interests of Canada's financial system.

The crisis also resulted in extensive changes in the regulatory framework, which continues to ensure that Canada is home to one of the safest and soundest financial sectors anywhere in the world. The financial system review act would build on these reforms and fine-tune the efficiency and effectiveness of this framework. It would improve the ability of regulators to share information efficiently with their international counterparts. This would help to fulfill our G20 commitments at a time when financial institutions increasingly operate on a global scale and would ensure effective supervision and regulation across borders.

The bill also recognizes the implications of global reform on Canadian banks. Since 2001, Canadian banks and their holdings have grown significantly. The new Basel III capital standards in 2013 will further increase capital levels. Based on projections until 2017, the threshold defining a large bank will be raised to maintain the current policy. Today's bill would increase the large bank ownership threshold from $8 billion to $12 billion.

Bill S-5 would also strengthen consumer protection for the financial sector, most notably by enhancing the supervisory powers of the Financial Consumer Agency of Canada also known as the FCAC. The agency is mandated to ensure that federally regulated financial institutions adhere to the consumer provisions of the legislation governing financial institutions and their public commitments. FCAC is also the government's lead agency on financial education and literacy and has moved forward with an array of excellent initiatives in recent years.

The agency has developed innovative tools to help Canadians plan their financial future, like a mortgage calculator that quickly determines payments as well as the potential savings which can be realized by paying early. It also publishes valuable information online to help consumers choose credit card and banking packages best suited to their own needs.

Bill S-5 also proposes to increase the maximum fine that can be levied by the agency for consumer protection violations to better protect Canadians.

Finally, the financial system review act would build on this government's ongoing actions to cut red tape by proposing to reduce the administrative burden on financial institutions and increase regulatory flexibility. This includes eliminating duplicative disclosure requirements and allowing limited testimonial immunity for federal officials to enhance operational efficiencies. These measures would contribute to a well-functioning financial system that meets the needs of Canadians and supports our future economic prosperity.

Today's legislation is important because it concerns one of the key foundations of the global economy. Canada's financial sector plays a pivotal role in fostering financial stability in safeguarding the savings of Canadians and in fuelling the economic growth that is essential to our standard of living.

We also recognize that Canada's financial sector is a critical component of the Canadian economy, employing over three-quarters of a million Canadians in well-paying jobs. What is more, the sector represents about 7% of Canada's GDP.

As the Canadian Life and Health Insurance Association declared during the Senate's consideration of this important legislation, “prompt passage of the bill will ensure the legislative stability and continuity that are so important to the financial services sector”. Updates to the financial legislative framework will continue to ensure that Canada's financial institutions operate in a competitive, efficient and stable environment and will help Canada maintain its well-earned reputation as a global leader in financial services.

Anne-Marie Day Charlesbourg—Haute-Saint-Charles, QC

Mr. Speaker, we know that our financial system weathered the last crisis, at least people here did not lose their homes, as was the case south of the border. We also know that our savings are secure and even protected. It is great that families can count on a banking system that protects small investors. For example, we know that if a bank is in trouble, the CDIC protects our investments up to $50,000. That is great.

We on this side of the House—and I am directing the question to the hon. member—are wondering why not take this further. In our election platform, the NDP calls for a limit on credit cards. Why not include that sort of thing in order to help families even more?

John Carmichael Don Valley West, ON

Mr. Speaker, at the root of today's discussion and debate is the foundational principle that Canada's banking system and financial institutions are the strongest in the world, as recognized by those I identified in my presentation.

Earlier today in debate the parliamentary secretary was asked whether there would be an opportunity when the bill got committee for members to bring recommendations on consumer protection and to deal with issues such as credit cards and the like. She responded at that time that that was the case and she encouraged open debate and discussion on ways we might strengthen what is already a very good system.

Michelle Rempel Parliamentary Secretary to the Minister of the Environment

Mr. Speaker, I am pleased to hear my colleague talk about the bill because it recognizes the fact that Canada does have one of the soundest banking systems in the world. This has been recognized by the World Economic Forum for four years in a row.

What we often hear from our colleagues opposite is that they want to raise taxes on job-creating companies. Our government has implemented a low tax plan to create jobs and economic growth, but also to ensure that we have a sound financial system. I am hoping my colleague opposite could tell us a bit more about how the bill enhances the work our government has done to ensure a sound financial system.

John Carmichael Don Valley West, ON

Mr. Speaker, foundational to everything we do as a government is job creation and economic growth. At the root of that is certainly our financial system, one of the strongest in the world, as we heard today, and it will continue to be.

With this debate we expect to take the bill forward for fine tuning and take what is already a very strong financial system, with good governance and good regulations, and make it even stronger.

Bernard Trottier Etobicoke—Lakeshore, ON

Mr. Speaker, thank you for the opportunity to contribute at second reading of Bill S-5, the Financial System Review Act.

This bill is important because it seeks to regulate one of the most important sectors in the country: financial services.

Today's act is significant because it regulates one of the most important sectors of the Canadian economy, financial services. In fact, this sector is a key foundation our economy depends on. It is also a cornerstone of the economy of the city I represent in Parliament, Toronto.

The act would also help ensure that Canada's financial system remains strong and secure, a system that has been made a model for countries all over the world in a period of global economic turmoil. In fact, for four consecutive years Canadian banks have been ranked the soundest in the world by the independent World Economic Forum. This has been further acknowledged by other independent observers, both in Canada and internationally.

Here is what a few are saying. Noted Toronto Sun columnist Peter Worthington has said:

Canada's banking system is now widely recognized as arguably the world's best. No Canadians fear for their deposits as many Americans do.

The influential Economist magazine has proclaimed:

CANADA has had an easier time than most during the recent global recession, in part because of a conservative and well-regulated banking system.

Finally, U.K. Prime Minister, David Cameron, has praised our system in this very House:

In the last few years, Canada has got every major decision right. Look at the facts. Not a single Canadian bank fell or faltered during the global banking crisis. Canada got to grips with its deficit and was running surpluses and paying down the debt before the recession, fixing the roof while the sun was still shining. Your economic leadership has helped the Canadian economy to weather the global storms far better than many of your international competitors.

On a broader scale, the financial services sector plays a significant part in the daily lives of Canadians, from a child making his or her first deposit in a bank account to a young family taking on a mortgage to buy their first house. Businesses in my riding of Etobicoke--Lakeshore rely on the liquidity of Canada's banking system to finance their day to day operations and their expansion plans.

Beyond relying on the financial services industry for everyday products and services, its businesses are an important economic driver. As my colleague mentioned earlier, it employs over 750,000 Canadians in well-paying jobs. Moreover, the sector represents about 7% of Canada's overall GDP.

Finally, Canada's banks are playing an increasingly large role on the world stage via their expansion in the United States, Central and South America, and in other emerging markets.

Accordingly, there is no doubt about the importance of ensuring that the legislative governance of this critical sector is effective and current.

Accordingly, today's act supports the ongoing stability of Canada's financial sector, fine-tunes consumer protection provisions and adjusts the regulatory framework to better reflect new economic developments.

Specifically, today's act includes measures to update legislation to promote financial stability and ensure that Canada's financial institutions continue to operate in a competitive, efficient and stable environment; adjust the consumer protection framework, including enhancing the supervisory powers of the Financial Consumer Agency of Canada; and improve efficiency by reducing the administrative burden on financial institutions and by adding regulatory flexibility.

Furthermore, the act will improve the ability of regulators to share information efficiently with their international counterparts; change the priority status of segregated fund policies in insolvency situations to facilitate timely transfer; clarify that Canadians, including bank customers, are able to cash government cheques under $1,500 free of charge at any bank in Canada; promote competition and innovation by enabling co-operative credit associations to provide technology services to a broader market; and reduce the administrative burden for federally regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements.

I will quickly expand on a few of these points.

Effective and competitive financial institutions are essential for creating an environment favouring savings and investments in Canada and for improving our standard of living.

The regular review of the financial sector statutes allows the government to amend the framework as necessary so that financial sector legislation and regulations continue to be effective and efficient. Indeed, today's act is mandatory legislation. The government has a long established practice of reviewing the statutes governing federally regulated financial institutions every five years to maintain the safety and soundness of the sector for Canadians.

For the information of the House, the latest legislative review and subsequent legislation were completed in the 39th Parliament through Bill C-37. The present five-year review began in September 2010 when the finance minister launched an open consultation process with Canadians on how to improve our financial system. The financial system review act addresses a number of key areas that were identified in the review and consultation process to achieve increased legislative and regulatory efficiency.

Currently, financial institution statutes have a built-in sunset clause that causes them to lapse five years after they come into force. The proposed common sense amendments in Bill S-5 modify the statutes to lengthen the automatic extension period of the sunset date, triggered by the dissolution of Parliament, from three months to six months. This will allow greater flexibility and more security for consumers and Canadian institutions.

We all know that consumers have the ability to manage their finances. In properly managing financial affairs, we know that knowledge is critical. That is why the government is moving forward to implement the recommendations of the task force on financial literacy aimed at improving financial literacy for all Canadians.

At the same time, the government is responding to concerns about the terms and conditions associated with network branded pre-paid cards by developing measures to enhance the consumer protection framework.

Changes in today's legislation fine-tune the consumer protection framework and enhances the supervisory power of the Financial Consumer Agency of Canada by confirming that all Canadians are able to cash government cheques in amounts of less than $1,500 free of charge at any bank in Canada; and increasing the maximum penalty for violation of a consumer provision, consistent with penalties for other violations under financial institution statutes. These are all important measures that will protect consumers when dealing with financial institutions.

As members know, the rate of change in the financial services sector has only increased in recent years. Another objective of today's act is to allow financial institutions to respond to change by allowing them to better adapt to new developments in the industry. In other words, financial institutions must be able to effectively respond to developing trends such as globalization, convergence, consolidation and technological innovation.

To summarize, the measures proposed in the financial system review act would reinforce stability in the financial sector, fine-tune the consumer protection framework and adjust the regulatory framework to new developments.

Renewing Canadian financial institution legislation on a regular basis has resulted in a robust and effective financial system that is aligned with and more responsive to developments in the financial markets and the broader economy. Today's act provides framework that would benefit all participants in the financial services sector, financial institutions as well as all Canadians. It maintains the longstanding practice of ensuring regular reviews of the regulatory framework for financial institutions, a unique practice that sets Canada apart from almost every other country in the world.

Therefore, I urge all members to support the proposed financial system review act.