House of Commons Hansard #73 of the 41st Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was financial.

Topics

House of Commons

10 a.m.

NDP

The Deputy Speaker Denise Savoie

I invite the House to take note of today's use of the wooden mace that you see on the table. The wooden mace is traditionally used when the House sits on February 3 to mark the anniversary of the fire that destroyed the original Parliament buildings on this day in 1916.

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February 3rd, 2012 / 10 a.m.

Conservative

Vic Toews Provencher, MB

moved that Bill S-5, An Act to amend the law governing financial institutions and to provide for related and consequential matters, be read the second time and referred to a committee.

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10 a.m.

Saint Boniface
Manitoba

Conservative

Shelly Glover Parliamentary Secretary to the Minister of Finance

Madam Speaker, I welcome the opportunity to open debate at second reading of Bill S-5, the financial system review act.

This proposed legislation matters to Canadians because it concerns one of the most fundamental drivers of our economy, the financial services sector.

Before I go any further I would like to note that the proposed legislation is in fact mandatory. Every five years, the government is bound to review the statutes that govern federally regulated financial institutions to maintain the safety and the soundness of the sector, while ensuring that Canada remains a global leader in financial services.

The Canadian Bankers Association has remarked that its members “believe strongly in the importance of ensuring that the legislative and regulatory framework is reviewed regularly”. As the last review was conducted in 2007, the Bank Act requires that this be completed this year.

For the information of members and Canadians watching at home, the current five year review was launched on September 20, 2010 when the Minister of Finance initiated an open public consultation process on how to improve our financial system.

Here in Canada, the financial sector plays a key role in fostering financial stability, safeguarding Canadians' savings and fuelling economic growth and productivity. Aside from the fact that these institutions offer essential services worldwide, the industry employs over 750,000 Canadians. It represents about 7% of Canada's GDP and is known for its use of information technology.

Not only are our banks the foundation of our economy, but their strength and stability are a model for the entire world. Unlike the United States, the United Kingdom and other European countries, we did not have to nationalize, bail out or buy stock in our banks. In fact, for the fourth year in a row, the World Economic Forum has stated that Canada has the soundest banks in the world. The Financial System Review Act will help to ensure that our banks remain strong and effective and that they adapt to the new realities of an evolving global marketplace.

As the Canadian Life and Health Insurance Association has noted, the act represents a welcome fine tuning of the various financial institution statutes.

To effectively describe the benefits of this proposed legislation to the House it is worth revisiting our government's response to recent financial volatility.

Beginning in 2007 and through 2008, turmoil in global markets revealed serious weakness in the international financial system. Around the world many major financial institutions failed and needed to be bailed out by governments at the expense of taxpayers, but not here in Canada. Thanks to sound regulation by our Conservative government, not one single bank failed and not a single bailout was necessary, making Canada a model for the world.

Listen for example to the words of U.K. Prime Minister David Cameron who praised our banking system on a recent visit to Canada:

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... Your economic leadership has helped the Canadian economy to weather the global storms far better than many of your international competitors.

The Irish Times also declared that Canada's “strict banking supervision was a reason why it was one of the world's strongest performers during the recession”.

The International Monetary Fund also said it “commended Canada's strong financial regulation and supervision. This has resulted in a stable and resilient banking sector, which has resisted the international financial crisis well and remains well prepared to deal with most adverse scenarios”.

A U.S. Congressional Research Service report added that “Canada's financial system in particular is garnering attention, because it seemed to be more resistant to the failures and bailouts that have marked banks in the United States and Europe”.

Even so, we have responded to the crisis with quick action to ensure the long-term stability of our financial system.

First, in budget 2008, the government ensured that the Bank of Canada had modern, appropriate tools to enhance the stability of the financial system when necessary. In fact, the Bank of Canada used these improved tools to protect our financial system, particularly by redistributing liquid assets to financial institutions, which was key to preserving the flow of credit to Canadians and businesses during the so-called credit crunch.

In budget 2009, the Conservative government also strengthened the authority of the Canada Deposit Insurance Corporation, or CDIC. This enhancement gave CDIC a broader range of tools to provide financial assistance to troubled financial institutions, thus promoting stability and protecting Canadian's deposits.

We also took steps to protect our mortgage market. The American sub-prime mortgage crisis, and the recession which followed, illustrate the importance of a stable and well functioning housing market.

In Canada, our system of mortgage insurance ensures that real estate remains stable. In order to protect it from the dangerous excesses experienced by other countries, our government has acted three times to adjust the mortgage guarantee framework. These adjustments included reducing the maximum amortization period to 30 years from 35 years for government-backed insured mortgages with loan-to-value ratios of more than 80%. We also reduced borrowing limits for refinancing and withdrew government insurance from home equity lines of credit.

In budget 2011, our government announced that we would give the current rules on the mortgage insurance framework a basis in legislation. This would further promote financial stability. We are actively developing this framework.

As you can see, the government has not been idle since the last financial institutions legislative review in 2006. We have renewed many key elements of our financial system and bolstered it by adding new tools to ensure its stability. It is perhaps because of these changes that, during the consultations conducted during the 2011 review, we found that only a few minor adjustments are now necessary.

Numerous detailed and thoughtful submissions were received from various stakeholders, including industry associations, financial institutions, consumer groups and individual Canadians. I am pleased to announce that the participants were satisfied with the process.

The Canadian Life and Health Insurance Association stated at the Senate committee on banking, trade and commerce, which completed its study of this bill late last year, that:

The consultation process was very positive and reflected the technical nature of this review.

From these consultations, we received a number of excellent proposals for fine-tuning, clarifying, harmonizing and modernizing the existing framework. Our government has listened and is committed to doing just that with the proposals contained in the bill before the House today.

The current framework works well. Canada's financial system continues to be recognized as one of the soundest in the world. With that in mind, I will outline the key measures contained in Bill S-5 for members and Canadians watching at home. I remind them that this is very technical in nature. I hope that they will be able to understand the measures I will outline.

The proposed legislative package includes measures that will: respond to changes in the sector; ensure access to banking services for all Canadians; level the playing field by promoting co-operation among our financial institutions; improve the efficiency of our system; and, finally, clarify the intent of existing legislation.

Among the examples, to better respond to changes in the sector, our government is improving the ability of regulators to share information efficiently with their international counterparts.

Also, to keep pace with the growing global financial sector we are increasing the widely held ownership threshold for large banks from $8 billion to $12 billion.

To ensure universal access to banking services, the legislation clarifies that all Canadians, including bank customers, are able to cash government cheques under $1,500 free of charge at any bank in Canada.

To better protect consumers, we will enhance the supervisory powers of the Financial Consumer Agency of Canada by increasing the maximum penalty for a violation of a consumer provision, consistent with penalties for other violations under financial institutions statutes. To improve efficiency, the Superintendent of Financial Institutions will have the authority to issue a certificate to assist financial institutions in documenting incorporation information.

I am especially pleased with the responsiveness of S-5's measures to promote co-operation among our financial institutions. I would like to highlight them now.

For instance, federal credit unions will vote with the co-operatives class in the governance of the Canadian Payments Association. Competition and innovation will be promoted by enabling co-operative credit associations to provide technology services to a broader market. We have heard time and time again from stakeholders about the importance of these changes to the Canadian Payments Act.

The Credit Union Central of Canada stated:

Placing the federal credit union in the cooperatives class will preserve and strengthen the credit union system representation at the CPA. It will ensure that a federal credit union will be represented by a director, who speaks for the interests of cooperative financial institutions in CPA matters. A strong advocate at the CPA is important for the credit union system's ability to advocate on behalf of credit unions and to continue to operate payments facility efficiently and cost effectively, which has a direct impact on overall credit union system competitiveness.

Furthermore, the legislation reduces red tape and lessens the administrative burden for federally regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements.

Here are some of the other technical changes included in Bill S-5 to improve the efficiency of the financial sector. Mutual funds controlled by insurance companies through investments made from segregated funds will be permitted to hold market-indexed shares in managing life insurance companies. Greater flexibility will be provided in adjusting to new terminology under the international financial reporting standards in order to continue to promote prudential objectives.

Future adjustments on the limits on transfers to shareholders from participating policy accounts will be facilitated by adding regulatory flexibility. The Canada Deposit Insurance Corporation Act will be fine-tuned to enhance the corporation’s ability to protect insured depositors and manage the resolution of a member institution. Limited testimonial immunity will be provided to the Superintendent of Financial Institutions and the Commissioner of the Financial Consumer Agency of Canada, as well as their employees and agents, to enhance operational efficiencies and protect the confidentiality of information.

Finally, the bill before us includes a number of technical changes to clarify intent. For example, the bill clarifies the order of priorities where multiple security interests, including those taken under the Bank Act and under provincial legislation, are taken on the same collateral. It clarifies that derivatives can be cleared by a clearing and settlement system. It also confirms that banks can have an asset manager who also acts as a trustee of a mutual fund trust.

Many of the financial sector solutions now being promoted and adopted around the globe are based on the Canadian system that has served us so very well. For the fourth year in a row, the World Economic Forum rated Canada's banking system as the soundest in the world and as noted, Toronto Sun columnist, Peter Worthington, observed, “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 measures proposed in the financial system review act will further strengthen our system by reinforcing stability in the financial sector, fine tuning the consumer protection framework and adjusting the regulatory framework to better adapt to new developments.

As I have mentioned, the statutes which govern federally regulated financial institutions are subject to a five-year review cycle to ensure that Canada remains a global leader in financial services. It is imperative that this legislation be renewed by April 20 to allow financial institutions to stay in business.

Today's act would provide for a framework that would benefit Canadians by ensuring that we would have a safe and secure financial system that we could rely on by maintaining the long-standing practice of ensuring reviews of the regulatory framework for financial institutions, a unique practice that sets Canada apart from almost every other country in the world.

Our Conservative government recognizes that it must constantly evaluate what regulatory changes are needed to foster competitiveness and ensure the safety and soundness of our financial system for the benefit of all Canadians, and we have done exactly that with the measures contained in the legislation.

As the Canadian Life and Health Insurance Association noted during the Senate committee stage consideration, “prompt passage of the bill will ensure the legislative stability and continuity that are so important to the financial services sector”.

I therefore urge all members in the House to give the financial system review act careful consideration. I hope that opposition members will allow us to ensure that this moves quickly and prepares Canadians for more good things to come.

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10:15 a.m.

NDP

Robert Chisholm Dartmouth—Cole Harbour, NS

Madam Speaker, I appreciate the intervention by the parliamentary secretary. She has indicated that this is an extremely important matter that will affect hundreds of thousands of Canadians and that we need to take a thorough review of exactly what the act intends to do.

Could she explain to the House why she and her government decided to introduce this through the Senate first and can we expect that the government will invoke time limits on this bill, like it has on every other important bill that we have tried to debate in the House on behalf of Canadians?

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10:15 a.m.

Conservative

Shelly Glover Saint Boniface, MB

Madam Speaker, I congratulate my colleague across the way on being newly appointed to our finance committee. I look forward to many future studies and discussions with him on the financial status of our country.

With regard to the bill, I acknowledge, as my colleague mentioned, that this will affect hundreds of thousands of Canadians. In fact, it will affect all Canadians. Financial systems affect not only the people who are working, but those who are benefiting from other forms of income. For example, it benefits our children. Therefore, it is very important that we continue to evaluate and ensure we get this right for all Canadians.

With regard to the Senate, we have some wonderful senators who work very hard to help move these kinds of very important legislation forward. The legislation has to go through both Houses before a decision can finally be implemented. We have a number of agenda items that affect the financial system and Canadians, including the pooled registered pension plan that we introduced recently and a number of other bills that are coming forward.

Since we have such a charged agenda, it is important that we also move Bill S-5 because of the sunset date. In our opinion, it is prudent to ensure we get this through as quickly as possible and use the expertise and the senators in a way that would help us do that.

I assure the member that the senators took great care in looking at the bill, as we will in the House. We have had a number of reviews already and I look forward to that member voting in favour to pass the bill in a timely manner.

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10:20 a.m.

Liberal

Ted Hsu Kingston and the Islands, ON

Madam Speaker, while I listened to the hon. parliamentary secretary, I could not help but be struck by what I would consider taking undue credit for the strength of the Canadian financial system. I am glad the legislation has some renewals on sunset clauses and technical amendments because, in the past, Conservatives urged deregulation of Canada's financial system. I believe the strength of Canada's financial system really is due to the resistance by previous Liberal governments to deregulate.

After the 2006 election, we had proof of the Conservative's desire to deregulate when the finance minister brought in 40-year mortgages with no down payment. Over the years, they realized that was a mistake because it encouraged consumers to take on too much risk. We know that the allowance of these mortgages was amended over the years. A couple of years later it was changed so that only 35 years was allowed for the period of a mortgage, requiring a down payment of 5%. Just last year they said that was maybe a little too risky. They had to back off some more and changed it to 30 years, with a 5% down payment.

The bill is worth supporting because the renewal of the sunset clauses is needed as well as some of the technical amendments, which could be tweaked. However, I want to counter what the parliamentary secretary has said in taking credit for the strength of Canada's financial system, which is recognized by the rest of the world. Having heard—

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10:20 a.m.

NDP

The Deputy Speaker Denise Savoie

I would like to give the hon. parliamentary secretary an opportunity to respond.

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10:20 a.m.

Conservative

Shelly Glover Saint Boniface, MB

Madam Speaker, unfortunately, I did not hear a question from my colleague as he ran out of time.

I will talk about some of the things that Canadians might be wondering about regarding what the hon. member and his party have said.

Our record has been very clear. Our government has taken measures time and time again to strengthen the financial system and our ability to stay in a fiscally advantaged position. The IMF and OECD have both said that Canada is a place to do business because it has such a strong and sound banking system. It is because it has a tremendous regulatory system that it allows for this kind of thing to go on.

I disagree wholeheartedly with the member's assertions about the Liberal record. In fact, I remind the member that it was the Liberals who stole $57 billion out of the EI account when it was in a surplus and put it toward their pet projects. In fact, it was our government that took a $38 billion sum and put it onto our debt so that it would save Canadians money and strengthen our system so we could weather things like the economic crisis much better than other countries. It is this government that has a record of doing good things for our fiscal system and not the government of Liberals and that colleague.

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10:25 a.m.

Conservative

Scott Armstrong Cumberland—Colchester—Musquodoboit Valley, NS

Madam Speaker, it is great to speak today and ask the member questions about Bill S-5, which I think is a tremendous bill for our country.

As the member travelled across the country during the break, conducting many consultations with people from the business and financial communities and discussing the aspects that are contained in the bill, what were the results of those consultations, what did she hear about the bill and what did Canadians have to say about the financial institutions and the way the government operates them in Canada?

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10:25 a.m.

Conservative

Shelly Glover Saint Boniface, MB

Madam Speaker, I thank my colleague for caring so much about what his constituents and Canadians are saying about prebudget consultations and about consultations on things like this bill because we do things to protect the interests of Canadians.

Canadians clearly told us during consultations that they liked the fact that this government looked ahead, that it was visionary and looked at the long-term status of our country to ensure that we were protected against threats like financial crises. That is why they really appreciated this government making changes to the mortgage in the housing industry three times to ensure we were protected, that we did not suffer the same consequences we saw in other countries.

Canadians also said that they appreciated the low tax agenda by the government and that they increasingly appreciated our push for trade. Unfortunately, they did comment that they were not happy with the $10 billion hike suggested by the NDP and its anti-trade position or the votes against their well-being that were voted upon by the Liberals.

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10:25 a.m.

Green

Elizabeth May Saanich—Gulf Islands, BC

Madam Speaker, I hate to trespass into partisan debates between the Conservatives and the Liberals, but on the banking sector, in fairness, we are very fortunate that Paul Martin turned down the banks when they wanted to go global. It is just a historical reality.

This legislation is encouraging. It is good to see a government that is willing, although it tends to be very anti-regulation, to say that more regulations are needed, particularly over the Canadian banking sector going into more foreign territories.

Could the hon. parliamentary secretary expand on whether there could be more robust consumer protections still added to the legislation when it goes to committee?

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10:25 a.m.

Conservative

Shelly Glover Saint Boniface, MB

Madam Speaker, I welcome my colleague back to the House following the Christmas break.

Consumer protection is part of the platform within the bill and we look continually to ensure that consumers are protected. As we move forward with the bill through the House and through committee, we will be open to listening to all suggestions. We will take those suggestions into consideration and will essentially come forward with a bill that will protect the interests of consumers.

This is a good start, but, again, we will continue to evaluate as we move forward. There will continually be a review every five years. This government is committed to ensuring that we look at these things in the future to prevent anything that might be coming up the pipes that could negatively affect Canadians.

If the member has any particular suggestions, I would be happy to listen to those and pass them on.

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10:25 a.m.

NDP

Robert Chisholm Dartmouth—Cole Harbour, NS

Madam Speaker, I am pleased to have the opportunity to participate in the debate on Bill S-5. I thank the parliamentary secretary for her kind words with respect to my addition to the finance committee. I look forward to working with her and other members of that committee in the weeks and months ahead.

I want to make it clear that the official opposition will support Bill S-5 at second reading in principle. As she herself has said, it is a very technical bill. It has not received a lot of public discussion. As is the case with a bill of this nature, the devil is sometimes in the details. It will be incumbent upon us in the chamber and certainly members of the finance committee to bring witnesses forward and discuss those details to make sure there is not something untoward that causes concern. Assuming we do not find anything, we will support the bill at third reading, but we will see.

There is no question the financial services industry is a major financial force in this country. It employs hundreds of thousands of Canadian women and men and deals with trillions of dollars in assets. We also know that the banking industry is not an ordinary sector of the economy. Banks have the power to shape and influence the livelihoods of Canadians. They have the power to create currency through credit. Therefore, it is extremely important that we pay attention to the practices and procedures of these financial institutions. We only have to look at what has been happening around the world over the past couple of years to see how important that is.

While I want to go through the bill to some degree, I want to say at the outset that it makes me chuckle how the Conservatives like to take credit for the Canadian banking system that has relied on a strong regulatory and supervisory tradition and framework. Unlike our American neighbours, the Canadian government, but more importantly Canadians, have recognized how important it is that we not allow our financial institutions to run amok and do what it is they do. We therefore have been slower in deregulating our financial system.

I suggest that had there not been a minority government from 2005 onward and given what we have seen over the past number of months since the Conservatives have been in a majority situation, they may have moved before 2008 to remove some of the important regulations that saved our system in 2008. Luckily we got through that time. Even they recognize the value of maintaining regulations and supervisory control over the industry and we are continuing in that direction.

We saw with the financial meltdown that we in this country are not immune to what happens in foreign countries. It was the single largest default by a foreign financial institution which created a domino effect. It affected us and financial markets around the world.

It is important to recognize, which I know the government has failed to do on a number of occasions, that the Bank of Canada back in 2008 had to advance $75 billion through the Canada Mortgage and Housing Corporation to buy back $75 billion in mortgages from Canadian chartered banks to stem a liquidity crisis.

While the Conservatives want to try to take credit, it is important to recognize it is an established tradition that Canadians have followed. I am glad that we are going to continue along those lines for the foreseeable future.

We have a few concerns with respect to the process by which Bill S-5 reached the House. The government made a commitment in the last budget that it was going to initiate a review at that time. There is a statutory sunset clause that comes into effect on April 20 this year. The government recognized that we have to conduct this review. Unfortunately, what it did was post a request for submissions on the website. It was very quietly done, and it did not seek permission from the groups and individuals who were submitting that those presentations would be allowed to be public. Only 3 of the 30 submissions that were made have been made public and that was by those organizations themselves that posted the information on the government's website.

This idea gets to what the parliamentary secretary said in her debate. She said to Canadians who were watching that this is a very technical bill and that she would talk about very technical issues which they might not understand. That is an issue which goes to the heart of the whole question of consultation around such important matters. We need to demystify these issues. We need to present them in common language so that Canadians do understand.

One problem we are facing, which has been cited by the Governor of the Bank of Canada, Mark Carney, is that Canadians are overly indebted. Household debt has reached very problematic levels. Part of the reason we run into these situations is that we do not have a sufficiently clear and honest discussion about matters such as those contained in the bill. The questions that have been dealt with by the bill deal with consumer protection. Those are matters in which Canadians should be involved. Canadians are continuing to be gouged, in that hundreds of millions of dollars in fees and taxes are being imposed by the banks on every type of financial activity. Canadians need to play a role in discussions on the regulations that the government permits and the legislation that goes through.

It is a concern to us that the government decided to introduce this legislation in the unelected chamber. It did not start such an important bill before the members of this House who are duly elected by Canadians. The government took another route. Some would say the bill came in through the back door. It came in through the Senate. Even some august senators said that there was not sufficient time given to them to have a proper review of it. They raised concerns about it. I also asked that question of the minister.

Members of this caucus hope that the government will not bring in closure number 14 on this bill to limit debate by elected members of the House. This is far too important. It is important that Canadians understand what is going on. We need to take every opportunity to explain what it is that is being proposed by Bill S-5, to ask questions of government, to listen to the answers, and to have a general debate about what it is contained in the bill and how it will affect Canadians. That is what we are going to do.

It has been suggested that there are a multitude of housekeeping changes. However, there are a few things within the bill that I would like to speak to directly.

We welcome the broadening of the supervisory and enforcement powers of the Financial Consumer Agency of Canada and the broadening of the jurisdictional scope of the Superintendent of Financial Institutions.

We heard this morning that the Office of the Superintendent of Financial Institutions is watching closely the practices of banks, which appear to be loosening up credit, in some instances. That it is paying attention is a good thing. It is a good thing that the banks and financial institutions are not going to go down the road of predatory lending practices, which would have an impact. We have seen they have had an impact in other countries. We would not want to see that happen here. We welcome the broadening of the jurisdictional scope of the superintendent that is contained in the bill. However, we would say there was an opportunity in the bill for the government to go further to protect Canadian citizens from the predatory monopolistic practices of the banks.

I said that we have concerns that Canadians continue to be gouged by the banks in the form of service charges, user fees, and abusive credit card rates. That is one of the reasons we need to have a fulsome debate with Canadians about issues regarding our financial institutions and borrowing and lending practices.

It is also a fact that we need to provide in the bill and in regulation further protection for consumers because they are continuing to be gouged. The former leader of the opposition, Mr. Layton, was an outspoken advocate for a reduction in the credit card interest rates and the predatory practices of the banks and financial institutions as they dealt with credit cards. That is something we believe needs to happen. It is particularly galling at a time when these extra charges on Canadians are allowing banks to recognize record profits, which last year amounted to $25.5 billion, at a time when Canadian wages are declining. It is just wrong and we need to deal with that.

The responsibility for consumer protection unfortunately is not dealt with in this legislation. It is dispersed among multiple jurisdictions, departments and agencies. Again, it raises doubts as to whether the government is truly committed to the robust protection of consumers.

The modest changes that are brought about for consumer protection in the bill have yet to be tested by consumer advocates and users. We certainly hope we have the opportunity at the finance committee to bring representatives forward to deal with these issues.

We are concerned by increasingly risky lending practices in terms of mortgages and home equity credit lines by banks and other lending institutions. That concern is well-founded. It is something we heard about today and is shared by the Office of the Superintendent of Financial Institutions. Members of this House and members of the finance committee need to pay attention to that when we are discussing this bill.

Again let me say that it was through greater regulation that Canada avoided the mortgage-induced crisis, such as the one that occurred in the United States in 2007-08. We have a strong tradition in this country of supervisory and regulatory protections over our banking system, and we need to ensure that we are vigilant going forward.

This bill is missing an important step in creating a stronger economy, the regulation of financial speculation and derivatives. Billions of dollars continue to be gambled on a regular basis, destabilizing the economy and providing no benefit to everyday citizens. The government should use this opportunity to work in concert with other governments to halt the destructive speculation in Canada and abroad. We are also concerned that under this bill, large foreign acquisitions by financial institutions would be subject to ministerial approval rather than simply the approval of the Superintendent of Financial Institutions. We think this will unnecessarily politicize important decisions. These decisions should not be made in a partisan manner because there is the potential for political influence being exerted.

While I talk about the fact that the banking system in Canada has a tradition of regulation and supervision that has helped us avoid the kind of problems we have seen in other jurisdictions, there is a darker side to our stronger banking system. Canadian chartered banks have dominated the domestic market for decades. Their dominance and the fact that both Liberal and Conservative governments have only paid lip service to this issue have allowed them to continue to extract abusive fees, taxing Canadian consumers. These fees have created $25 billion in profits for the banking system. They provide the banks with enough net revenue to offset eventual speculative losses on the international capital markets and from overseas ventures, and allow them to pay out generous seven-figure bonuses to their CEOs and dividends to shareholders.

In addition, Canadian banks have been benefiting for years from tax-arbitered schemes such as the dividend gross-up mechanism that has allowed them to reduce their effective tax rates by acquiring Canadian dividend-paying stocks while hedging away the economic risk of those stocks by the use of derivatives. Banks sometimes share those tax savings with non-taxable entities, such as pension funds. This amounts to an effective tax subsidy that costs Canadian taxpayers sums that could well be in the billions of dollars. In addition to the tax effects, dividend gross-up mechanisms tie up bank capital for years and trump bank lending to small businesses and entrepreneurs. This is a complex issue that deserves much more scrutiny.

The changes being brought forward by Bill S-5 are modest. They could be greater as they relate to consumer protection. There is much work to be done and we cannot be complacent. We have seen turmoil and the damage that can be done by over-speculation and risky lending by financial institutions around the world, and we need to be constantly vigilant. However, I again say to the members opposite that we need to have this conversation about lending, borrowing and spending openly with Canadians. We need to deal with the problems created by the lack of financial literacy in this country.

We recognize that the increasing indebtedness of ordinary Canadians is a serious problem. The economy continues to be flat and has not been growing to expectations. Recently, we heard announcements indicating that the job creation figures continue to be weak.

The government is moving in directions that are having a detrimental impact on Canadians. We need to have important and respectful conversations about matters as important as to how we are managing our financial system in this country.

As I said earlier, we will be supporting the bill as it moves forward from second reading to committee. I look forward as a member of that committee to engaging with witnesses and starting to deal with some of the details so we can find out exactly what is in this legislation and make sure that it is as strong as possible for Canadians.

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10:50 a.m.

Liberal

Kevin Lamoureux Winnipeg North, MB

Madam Speaker, I take exception to the government taking credit, when it introduced this legislation, for the banking industry being able to survive over the last number of years in Canada.

I want the government to recognize the fact that as the world economy was going into a downward spiral, Canada stood out on top. Other economies in the world recognized how strong and healthy Canada's financial markets were. They did that because of inspirational leaders like Paul Martin and Jean Chrétien and Liberal administrations that believed in having a regulated industry. Those individuals did more than anything the Conservative government has ever done to protect the integrity of the financial institutions we have in Canada today. The government needs to be aware of that fact.

When the Conservatives talk about financial responsibilities, they need to be aware of the fact that when they took office there was a $60 billion surplus handed to them. The Conservatives need to recognize that they are the ones who are messing up priorities, and we need only look at what they are doing to seniors in this wealthy country of Canada.

I would ask my colleague about the potential role of credit unions in this regard. Over the last five to ten years our credit unions have been expanding in places where banks have been withdrawing. They have been making it more affordable for the average consumer to do more banking, whether online or offline or going to the counter for services. I believe there is a good role for credit unions in the Canadian financial market in the future.

I wonder if the member would comment on how important our credit unions are in Canada today.

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10:50 a.m.

NDP

Robert Chisholm Dartmouth—Cole Harbour, NS

Madam Speaker, credit unions began 100 years ago in places like New Waterford, Nova Scotia. They help support working people in their communities and families. They are the backbone of this country. Credit unions continue to thrive and provide important financial services for many families in small and large communities throughout this country. They should be commended for the work they do.

I will also respond in part to the member's quibble with the Conservative government for trying to take credit for the banking system. That member wants the Liberals to have the credit for the banking system. The traditions of our banking system are well established. They were established by members of the House, by Canadians from one end of this country to the other, who worked hard to make sure that we have a viable, respected and trusted banking system in this country. We should be thanking Canadians for responsible financial management rather than trying to break our arms by patting ourselves on the back.