Finance Committee on Feb. 15th, 2007

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. St-Cyr.

Mr. Del Mastro.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

Thank you, panel, for appearing before the committee today. I have a couple of questions.

Mr. Campbell, I specifically want to go back to your point with respect to registered plans and clause 31. You mentioned that you are seeking information on some funds “that are not federally-regulated or are offered by institutions that are not federally-regulated.” Could you comment briefly on the Canadian Bankers Association position on the need for a single securities regulator in Canada?

[Terry Campbell]

I can comment briefly, but I can also probably go on for half an hour.

[Dean Del Mastro, Conservative, Peterborough, ON]

I only have five minutes, so I'll take the Coles Notes version.

[Terry Campbell]

I know, and thank you for the question.

The Coles Notes version is that we strongly support a single securities regulator, because although it has big geography, this is a very small country. We have 13 separate regulators in this area for what is in effect a single capital market. We understand completely that it is very important that there be local presence and the ability to deal locally with investors, but we feel it is very important to have a single set of rules, a single authority, for efficiency purposes. We know most of the provinces have come together to create a passport system. We think that's a first step, but it's not the last step. We think it should evolve to a single authority.

On a single authority, we're trying to convince as many of the jurisdictions as we can to come together to agree to do this. This may take some stages, but it is the right way to go in terms of its evolution. We certainly agree.

[Dean Del Mastro, Conservative, Peterborough, ON]

It would probably help Canada to attract some additional foreign capital as well, wouldn't it?

[Terry Campbell]

That would be our sense as well. It makes it more efficient.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

Ms. Mitchell, I want to go back to a point that was brought up by Mr. McKay a little while ago, specifically with regard to electronic transfer of payments and so forth. Specifically, he mentioned credit cards. There are others, such as the electronic transfer of funds, say, from banks to small businesses. They often take a couple of days to arrive in an account, subsequent to receiving payment confirmation from the bank. You have indicated that it's a complex system, but it doesn't seem to me that there is any incentive for the banks to work on this problem, since you're really making interest on the fact that you're dragging your feet on it. It sounds like it's pretty profitable for the banks, from my perspective.

[Karen Michell]

Actually, the banks don't make a profit on that money. While the money is in transit, it's in a suspense account. It's not interest bearing, but the incentive to work—

[Dean Del Mastro, Conservative, Peterborough, ON]

No, it's 19% on credit cards that stay outstanding for a couple of days longer than what they actually should.

[Karen Michell]

On credit cards themselves, credit cards in Canada are partly a credit tool, of course, but most customers actually use them as a payment option. The vast majority of customers in Canada don't actually pay any interest whatsoever because they pay off their balances in full each and every month.

Again, this is another incredibly competitive market. You have over 600 issuers of credit cards, and you have a whole range of options in terms of what kind of product you're looking for. If you do in fact carry a balance each month, there are low-rate cards and there are also other ways of getting a credit product. Lines of credit are increasing, whereas debt on credit cards is decreasing.

[Dean Del Mastro, Conservative, Peterborough, ON]

Okay, but having said that, again, it's counterintuitive that there would be an incentive for the banks to shorten the timeframe to apply payments toward credit cards if they're making interest money while they're dragging their feet. Would you agree with that?

[Karen Michell]

What I would say is that there is an incentive for the banks and all financial institutions to ensure that there is an incredibly efficient, but also safe and secure system. We need to bear that in mind.

Canada's payment system is unparalleled. It's one of the best in the world in terms of efficiency. That's why currently, when people here participate as billers in the CPA's rule H6, for example, they do say that if you pay the bill on a certain date, they will put it to your account on that date. Cheques are another good example. You get provisional credit in the vast majority of cases right away.

[Dean Del Mastro, Conservative, Peterborough, ON]

That's a really big answer to a pretty simple question, which is that without incentive, the banks may not shorten the timeframe to actually apply payments to credit cards because it is very profitable, and likewise for a small business when they're receiving payments from the banks. For the banks to drag their feet means the small business's line of credit is outstanding for an extra couple of days, which means the bank is making money on money that should rightfully be in the bank account of the small business.

I'm just suggesting that there is no incentive for the bank to speed this process up, as Mr. McKay has argued.

[Terry Campbell]

Can I comment on that point about incentive? As the minister said this morning, there are lots and lots of financial institutions. There are 70 banks and over 2,000 credit unions, caisses populaires, and trust companies. It is a highly competitive marketplace, and if you look at the spreads in Canada, they are among the lowest in the world.

The incentive, sir, is that the only way you can keep your head above water in a competitive marketplace is to try to respond. Again, you go back to responding to the needs of consumers. If you don't, you'll hear about it. If you don't, people will go elsewhere. They have those options.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Thank you, Mr. Del Mastro.

We're going to go to John McCallum, then we're going to go to Mr. Norlock, and then Ms. Bell.

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

Thank you.

I think we could all agree that this bill does useful things, but I don't think it could be described as bold and visionary for the 21st century. So far as I know, there is a fair degree of consensus on this bill.

Mine is a bit of a hypothetical question, and it's to Mr. Campbell. What have other countries been doing to make themselves more internationally competitive? And if you were to rewrite this bill or if it were to come back in a year--it won't, but if it were to--what would you do to make it better? Not about insurance; we know what you think about that, but at the international level, what have other countries been doing and what might we learn from that in terms of making our own banks more competitive internationally?

[Terry Campbell]

That's a really interesting question.

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

You only have a minute to answer.

[Terry Campbell]

I would start off my minute by saying I would say, quite frankly, sir, that other countries can learn an awful lot from the Canadian regulatory system and the Canadian industry. Look at the United States, it's highly fragmented. We've got a national system.

I would come back to the point that Mr. Del Mastro raised. Let's look at our regulatory system in Canada. We could make it more efficient.

If you look at Australia, if you look at the United Kingdom.... If you go back in time 10 years in the United Kingdom, you had nine, ten, half a dozen different authorities. They have put that together in a single financial services authority.

In the province of Quebec you had a series of regulatory bodies that came together as the AMF; ditto Australia.

I think that's one area where Canada could really improve, because the more efficient the structure of the regulatory system, the better it is for consumers, through better enforcement, lower cost, more efficiency.

That would be my 30-second answer.

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

What about international, though? Those things are not terribly international. How to be internationally competitive was my question.

[Terry Campbell]

I see. I was using international examples.

Colleagues, what do you think?

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

There's one obvious example that banks have argued for quite a number of years. Some of you at one point wanted to merge.

[Terry Campbell]

I understand that's the case.

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

And I seem to remember the case was made on grounds of international competitiveness. Now, I mention that and you don't even mention this possibility.