Bill S-5 (Historical)

Financial System Review Act

An Act to amend the law governing financial institutions and to provide for related and consequential matters

This enactment amends a number of Acts governing financial institutions. It also amends legislation related to the regulation of financial institutions. Notable among the amendments are the following:
(a) amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act and the Trust and Loan Companies Act aimed at reinforcing stability and fine-tuning the consumer-protection framework; and
(b) technical amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act, the Trust and Loan Companies Act, the Bank of Canada Act, the Canada Deposit Insurance Corporation Act, the Canadian Payments Act, the Winding-up and Restructuring Act, the Office of the Superintendent of Financial Institutions Act, the Payment Clearing and Settlement Act and the Financial Consumer Agency of Canada Act.

Financial System Review Act

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Speaker, as a former banker, I can certainly agree with the hon. member that our banks are in good shape, although I may take a bit of exception to his somewhat triumphalist tone.

However, my main point is to suggest that to the extent our banks are in good shape it has everything to do with previous Liberal governments and nothing at all to do with the Conservative Party. For one thing, it was the Liberal government that resisted the trend to bank deregulation which was evident in the U.S. and the U.K. It was the Liberal government that said no to bank merges which the Conservatives favoured. And it was the Conservatives who introduced zero down payment, 40 year mortgages in 2006.

Would the member agree that while our banks are in good shape, it really has nothing to do with his party, which has been more a cause of the problem than a solution?

[James Lunney, Conservative, Nanaimo—Alberni, BC]

Mr. Speaker, the member for Markham—Unionville also has a selective memory. We do appreciate things that were done properly in banking regulation. What Canadians have not forgotten is the whole range of things that the government did not do well that got us into a lot of problems.

For example, when we went through a financial crisis under the previous administration, it managed to balance the books and was credited for doing so. However, it did so by cutting transfers to the provinces for health care and education. The Liberals promised to get rid of the GST, an unpopular tax, and somehow they forgot about that. Those are things that Canadians have not forgotten about.

[Pierre Poilievre, Conservative, Parliamentary Secretary to the Minister of Transport]

Mr. Speaker, despite the opposition commentary today, the U.S. financial and mortgage crisis was caused by massive government intervention in the mortgage and banking business. According to a 2010 World Bank report on the U.S. financial crisis, Freddie Mac and Fannie Mae, both government-sponsored enterprises, bought an estimated 47% of the toxic mortgages that ultimately led to the collapse between 1980 and 2007, and backed debt that went from $200 million to $4 trillion. If I could quote that World Bank report, it states:

In the mid-1990s, the government changed the way the Community Reinvestment Act was enforced and effectively compelled banks to initiate risky mortgages.

So it is important for us to remember when we are debating banking regulation that it was massive government intervention that led to the problems that occurred in the U.S. system.

[James Lunney, Conservative, Nanaimo—Alberni, BC]

Mr. Speaker, I thank the parliamentary secretary for that important reminder. Of course, he has been a point man in addressing many of these concerns. He rightly points out the excesses that happened in the United States, of government intervention, that contributed to the failure of institutions that people relied on and made unstable commitments to mortgages that were not sustainable and were not backed by real assets.

The changes that are being introduced in Bill S-5 are ones that would improve our system. They would make a very good system better.

[Ray Boughen, Conservative, Palliser, SK]

Mr. Speaker, I am pleased to have the chance to address the House in support of Bill S-5, the financial system review act. For the information of Canadians and members of the House, the financial system review act is a mandatory and routine piece of legislation.

To ensure the stability of the financial sector in Canada, the statutes that govern federally regulated financial institutions must be reviewed every five years, a long-standing practice that has carried over from previous governments. As I mentioned previously, it deals with federally regulated financial institutions and, for clarity, those include domestic and foreign banks, trust and loan companies, insurance companies and co-operative credit associations.

The last similar legislative review was completed through Bill C-37 in the 39th Parliament. Prior to that, a similar review was completed in 2001 through Bill C-8 in the 37th Parliament. As with the previous five year reviews, there is a timeline for the process to be completed, as the sunset date for the financial institutions statutes is April 20, 2012. The present five year review, which has led to today's bill, commenced in September 2010 when the finance minister launched an open and public consultation process that asked all Canadians to submit their thoughts and ideas on how we could best improve Canada's financial system to make it even more stable and secure.

During the consultation process, I understand that many Canadians provided their feedback and much of that is seen in today's bill. Moreover, the public consultation process itself has been praised. For example, the Canadian Life and Health Insurance Association told the Senate banking, trade and commerce committee during its study of the bill, “The consultation process was very positive and reflected the technical nature of this review”.

The financial system review act, while largely technical, would take important steps to help guarantee that Canada's fiscal system is securely regulated and remains strong and stable for the sake of our economy. Among the bill's highlights are measures to: First, bring up to date financial institutions' legislation to support financial stability and ensure that Canada's financial institutions continue to operate in a competitive, well-regulated and secure environment; second, better protected consumers with an improved protection framework, including reinforcing the powers of the Financial Consumer Agency of Canada; and third, improve effectiveness by reducing unnecessary administrative red tape on financial institutions and adding prudently regulated flexibility.

Again, today's bill is tremendously important in supporting the continued strength of our economy, the main priority of our Conservative government and an area where we are getting results. Indeed, while there are challenges ahead, Canada's performance during the recent global downturn has been strong when compared to other industrialized countries. First and foremost, since our government introduced the economic action plan to respond to the global recession, Canada has recovered more than all of the output and all of the jobs lost during the recession. Some 610,000 more Canadians are working today than when the recession ended, resulting in the strongest rate of employment growth by far among all G7 countries.

Furthermore, about 9 out of 10 positions that have been created since July 2009 have been full time and more than three-quarters of the jobs created over this period have been in the private sector. Fortunately, Canada has fared far better than the U.S. in this regard. Indeed, Canada's unemployment rate has been lower than that of the U.S. since October 2008, a phenomenon not seen in nearly three decades.

On top of Canada's solid performance on jobs, the real gross domestic product is now significantly above pre-recession levels, the best performance among the G7 nations. It is clear that Canada has weathered the economic storm relatively well. It is also clear that this resilient performance in a climate of global uncertainty has not gone unnoticed.

Both the International Monetary Fund and the Organisation for Economic Co-operation and Development forecast that we will be among the strongest economic growth in the G7 over this year and next. Forbes magazine has ranked Canada number one in its annual review of the best countries in which to do business. Three credit agencies, Moody's, Fitch, and Standard & Poor's, have reaffirmed their top ranking for Canada. Most significant, for the fourth year in a row, the World Economic Forum rated Canada's banking system as the soundest in the world. That is something we would reinforce with today's bill.

Clearly, this is a solid performance in volatile times and it will serve this country well. Indeed, in the recent words of Scotia Bank's chief economist, Warren Jestin, “When you look at what exists in Canada, this is still the best country in the world to be in.

To truly understand the strength behind this performance, we need to consider the hard work that took place through the actions that our Conservative government took to pay down debt, lower taxes, reduce red tape, promote free trade and innovation and ensure a stable financial system.

To start with, our government paid down significant amounts of debt when times were good and kept our debt to GDP ratio well below our G7 counterparts. As a result, when trouble hit, we had the ability to respond.

The International Monetary Fund projects that Canada's net debt to GDP ratio for the last year will come in at just under 35%. A net debt to GDP ratio of under 35% is excellent considering that these rates for other G7 nations are much higher. In contrast, Germany is projected to be over 57%, the United States and the United Kingdom at over 72%, France at 81%, Italy at 100% and Japan just over 130%.

Along with this strong fiscal performance, we introduced the tax relief required to create jobs and growth in all economic conditions. In 2007, prior to the impact of the financial crisis, Canada passed a bold low tax plan that helped to brand Canada as a low tax destination for business investment. This low tax plan, along with our sound and safe financial system, plays and will continue to play a crucial role in supporting economic growth and jobs.

Our Conservative government is under no illusions that our work is finished. Major challenges remain both here and around the world. As we know, the global economic outlook remains highly uncertain and the situation in Europe is still very fragile. The changes facing our global economy are far from over and Canada will not be immune.

Despite solid job creation since July 2009, too many Canadians remain unemployed. That is why our Conservative government's main focus will be the continued implementation of the next phase of Canada's economic action plan to support jobs and growth as we prepare for budget 2012. That includes today's bill, which would help to ensure the continued strength and security of our financial systems.

Once more, we will continue to focus on improving the well-being of Canadians by sustaining the economic recovery, eliminating the deficit and making investments that will fuel long-time growth. I strongly urge all members to support and vote in favour of this important legislation and help it progress in a timely manner to passage.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Mr. Speaker, with all due respect for my distinguished Conservative colleagues who just spoke, if I were to compare their economic reasoning I would say they are like a herd of cows watching a train go by. They are about as intelligent as that. I would not go so far as to say that they are ready to be put out to pasture, but pretty close.

How can they compare themselves to the most mediocre of the G9, the G7, to countries that have gone completely bankrupt through ultraliberalism? They should not be comparing themselves to the lesser countries, but to the best countries. Let them compare themselves to Norway, Sweden or even Germany, but not to the most mediocre countries that followed exactly the same policy they are following.

I will wrap up quickly. How can they say that their hero, George W. Bush, was anything short of a moron?

[Ray Boughen, Conservative, Palliser, SK]

Mr. Speaker, I am not sure I heard what the hon. member had to say. He was kind of going in two directions from the middle and then ended up sinking.

We are not comparing ourselves to the lowest. We are comparing ourselves to the whole spectrum. We are saying that we are number one on that spectrum, ahead of all other countries. Unless we have data and numbers to validate that, as we had in the speech, then we cannot say that.

We are saying it like it is. You may not like it but it is what it is.

[The Acting Speaker, Bruce Stanton]

I would just remind hon. members to direct their comments and questions through the Chair.

Questions and comments, the hon. member for Brossard--La Prairie.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Mr. Speaker, my colleague spoke about the fact that there was some issue with what happened in the U.S. with the banking sector. Some argue that some Canadian banks were bailed out in Canada. Obviously, it was not done directly. It was not a failure. However, the federal government, through the Canada Mortgage and Housing Corporation, offered to trade the banks up to $125 billion in mortgage debt for safety in T-bills during the height of the financial crisis.

What is my colleague's position regarding that?

[Ray Boughen, Conservative, Palliser, SK]

Mr. Speaker, it was a banking situation and the banks dealt with it in a manner that all people did not like. Nevertheless, that was the financial institutions' prerogative to deal with it as long as they fell within the regulations of the Bank Act, and they did.

Again, we may not like everything we see with banking but the banking program is in place, is regulated and is what we have to rely on.

[Lynne Yelich, Conservative, Minister of State (Western Economic Diversification)]

Mr. Speaker, there were some comments this morning about the consultation process and that there was not a sufficient response. Would the member care to expand on the consultation process that was made available for comments?

[Ray Boughen, Conservative, Palliser, SK]

Mr. Speaker, we know that the finance minister and finance in general consulted with over 30 different groups that submitted positions around the Bank Act when that was done back in 2007. From that input, the new bill is on the table here this morning. As to whether the bill was it well-consulted, it was indeed. Many groups presented their positions on it and we that here with the new bill.

[Jinny Sims, NDP, Newton—North Delta, BC]

Mr. Speaker, there is no doubt that for every Canadian across the country the health of the banking sector is critical. The banking sector plays a critical role in all our lives, whether we are buying a house or applying for a credit card. Also, many of us get paid through our banks. Many people, not just those with a lot of money, have a vested interest in ensuring our banking sector is stable.

Knowing that a five year sunset clause was included in the legislation and knowing that the deadline for that review was April 20 this year, it interesting that my colleagues across the aisle would wait this long to table such critical legislation. Not only did they wait so long, but at the same time they tabled the legislation, they moved time allocation on it. Out of one side of their mouths they are telling us that this is critical and timely legislation and we must get it through the House. Out of the other side of their mouths they are telling us that they will not have open and transparent debate, where the opposition gets to take a look at the bill and could, and probably would, make some useful amendments.

I sat here for half an hour this morning and listened to the debate on the critical nature of the need to move time allocation. Once again, I would argue that time allocation is not needed. The bill requires thoughtful consideration because it would impact many Canadians. It would impact their savings as well as the homes in which they live.

Instead of us being given a reasonable amount of time to debate the legislation, the majority in the House once again used the duct tape approach of muzzling the voice of the opposition. Let me assure my colleagues that they might be able to move time allocation in the House, but we will send a message to our communities that we were not allowed to debate the bill in the thoughtful way we would have liked.

I am a new MP so the House will have to beg my forgiveness for saying this, but I was really taken aback this morning when a speaker on the government side said that the NDP opposing time allocation was like us bringing chaos into people's lives.

I am beginning to wonder what my colleagues across the way want. Do they want the opposition to just support any legislation they bring in? I am sure they would like that, but that is not the role of the opposition. If members of the opposition have things to say, we are immediately labelled, and some language is used that I find disturbing.

I am not a supporter of chaos, either in Parliament, in my personal life or back in my community. When I want to debate a legitimate piece of legislation, it is not because I want chaos. It is because I want to give thoughtful input as the representative of my community.

The government shows a lack of respect toward members of the opposition. I should not be puzzled by that; I should expect that. The legislation had its first unveiling in the Senate. It is a bill that would impact so many Canadians. I find it really disturbing that it was first put before an unelected, unrepresentative Senate. Why? What prevented that bill from being in the House first?

It also interesting to note that despite the patronage appointments and the payola that has gone into many of the appointments to the Senate, even that house commented that it had to look at a significant piece of legislation, with many technical components, and had concerns that with three weeks it did not have enough time and that the government was trying to rush the bill through.

We have until April 12, What is the rush? If the government knew it had until April 12 as the sunset clause, why did we not start talking about this last May, or June, or October, or November or December? Instead, we are today looking at this significant piece of legislation.

Despite all of those things, the NDP welcomes the review of the financial systems review act. We should be very proud of the banking regulations that are in place. It is because of those regulations that Canada was buffered from the worst aspects of the economic meltdown.

I also think there is an irony that has to be pointed out. We have a majority in the House that is absolutely committed to deregulation. When we look at almost everything else, like the gun registry, the Wheat Board and many of the other issues that have come before the House, they have all been for deregulation. Yet when it suits the Conservatives, they wax eloquent about the existing banking regulations. However, those regulations exist because of the work of some other governments. It was the opposition that prevented my colleagues across the way from deregulating our banking system at a certain time in our history.

When I look at the need to review the area of banking and banking regulation, I am also hit by what is missing from the legislation. I am not sure if members have read some of the newspaper articles and emails. There is nothing in the bill to limit and regulate user fees charged by banks.

Recently a senior citizen came to my constituency office. I have many of them coming in these days because they are getting very disturbed. This is what the senior citizen told me. She put her money in the bank, and when the bank wanted to automate and introduce the ATM machine, she started to use that thinking it would save the bank and her money. Remember, bank profits are very high now, yet there is always a threat of new user fees or increased user fees. This senior citizen is so puzzled because she believes she has saved so much money for the bank by it not needing the personnel in place, which I think is a huge mistake, and it being so automated. However, her fees keep going up.

This was an opportunity, with this legislation, for the government to start looking at regulating user fees that banks are gouging their customers. Some banks are even beginning to introduce fees for people to get their own money out of their bank accounts. At one time, it was only if they went to a different ATM. Now one of the banks has put out the idea that there could be user fees even if customers uses their own bank's ATM machines. That makes no sense. Canadians look to us to regulate things like that.

The other concern I have is the interest rates on credit cards. It is time the government put regulations in place that are tighter and more closely regulated to ensure banks do not charge the kinds of rates they are. People who put their money in banks are lucky to get 1% interest. With that money, the banks get to play with it and make money on it. On the other hand, if people use their credit cards, which are banking credit cards, banks charge interest rates from 12% up to 22%. If that is not gouging, I do not know what is. As far as I am concerned, a critical component that is missing in this is tackling the area of user fees for citizens who are being hurt by them. We also have to look at the rates banks charge for people who use those credit cards.

I know some people will say that people should not use credit cards. However, in today's reality some people live from paycheque to paycheque. They often end up having to spend on their credit card, hoping they can pay part of it back if they get some money coming in within the following month. I am talking about just a few people. A lot of people survive like that and not because they go out to buy some big fancy toys or go on big holidays. They are trying to make ends meet from month to month.

I would be the first one to argue that if we are getting into luxury items, then we are looking at choices. I am talking about credit cards people are using because they have no other choice. They need that flexibility to survive. Because of that, I feel the scope of this bill is really limited and needs to be widened.

I was also interested in finding out what kind of consultation occurred. I heard that 30 groups were consulted. For a country the size of Canada, only 30 groups were consulted, and 27 of those were anonymous. What kind of consultation is that? Was this consultation open and transparent?

One thing I do not like about anonymous submissions, or whatever, is people get to say whatever they want and they are never held accountable. I have a primary rule that if I get something that is not signed, I put it aside. The government has had consultations with three groups, three groups for a country the size of Canada on an issue as important as banking.

The other area we do not often talk about is the co-operative banks in our communities and how we need to support them and find ways to do that. The co-operative banks in my area do an amazing job of giving back to the community in many different ways. I am a bit saddened that this is not being addressed in the bill.

Once again, Bill S-5 is being used by the government as a prop to hold up the banks. It is being rushed through the House. From what I have read, the profits of banks has increased incredibly. It has not really gone down. We should take a look at the consumer debt, which is at a record level of 151% of disposable income. I want every one of us in the House to take a second to comprehend that. Consumer debt is at record levels of 151%, which is so high.

It is because this debt level is so high that we are becoming increasingly concerned about some risky mortgage lending practices and home equity credit lines by banks and other lending institutions.

Currently, if I go through websites or look at some of the mail that comes through my door, it is clear that a person can actually get his or her house financed fairly easily for up to 90%. That is an advantage for some, but in the long term it is also the basis for potential instability. Right now our interest rates are fairly reasonable and low, as many would say, but if they were to go up by even half of 1%, that would put many of these people in jeopardy.

To avoid the kind of housing slump that happened in the United States, surely we should be taking the time with this legislation to put protections in place. When we take a look at our regulations, we absolutely must take our time.

Mr. Speaker, how much longer do I have?

[The Acting Speaker, Bruce Stanton]

There are three and a half minutes remaining.

[Jinny Sims, NDP, Newton—North Delta, BC]

Mr. Speaker, I am appealing to my colleagues across the way. Not often is there much love in this House, but this is Valentine's Day, so I am pleading with them to let us take the time to fix this legislation in a way that would give Canadians more security and assurances about their financial houses, so they can keep their places straight and so that seniors, for example, who come into my office and are being gouged through credit cards or user fees will not have all of those complaints. Remember the banks involved are the same ones that get incredible tax breaks from us as well.

Mr. Speaker, it is Valentine's Day, so with the indulgence of everyone in the House, I will wish the constituents in my riding a wonderful day with their loved ones, their families, their friends and their neighbours.

I would also like to say that I am thinking a lot about my three wonderful grandchildren, Jacob, Jessica and Emily, and that I wish them a happy Valentine's Day. I wish I were there to eat the cupcakes they have made, because when they phoned me this morning, they told me they had made me a cupcake. It is going in the freezer for when I go home, and I will enjoy it at that time.

As I was saying earlier, there are a number of problems with this piece of legislation, including in the process or way it is being rushed through this House with unseemly haste, and substantively with some problems with it. I believe this is our opportunity as parliamentarians to address issues like the very high interest rates and to have some regulations around those, and to address issues around user fees and issues around foreign takeover of some Canadian assets.

With that in mind, Mr. Speaker, I want to thank you.