Finance Committee on March 12th, 2009

[Robert Carrier, Bloc, Alfred-Pellan, QC]

So, I gather that you find it useful that there are several security commissions. Have I gathered correctly? Thank you.

[Some hon. members]

Oh, oh!

[Robert Carrier, Bloc, Alfred-Pellan, QC]

I'm going to put a quick question to Mr. Davies. In your presentation, you talked about a national campaign, but one that was conducted jointly with the Autorité des marchés financiers, your partner in Quebec. I want to know why you did this. Was it because of the language, because you only speak English in the other provinces? I'd like to hear your comments on this.

[Michèle Bourque]

For a number of years now, we have had a partnership with l'Autorité des marchés financiers for advertising campaigns.

Obviously, since our TV ads are produced in French for the Quebec market and since, at the CDIC, we protect deposits with various financial institutions in Quebec, the Autorité des marchés financiers allowed us to reach Quebeckers by using both agencies.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

No doubt you hope to continue to be able to work with the Autorité des marchés financiers.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Carrier.

I'm sorry, your time is up.

We'll go to Mr. Dechert, please.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Thank you, Mr. Chair.

Thank you to all of you for your presentations this morning.

I'd like to direct a question to Ms. Anthony.

You may have read the International Monetary Fund's report that was released on March 9. It had a number of things to say about the current state of the Canadian economy and the impact the Canadian budget is likely to have on the Canadian economy going forward. I'll just read a couple of statements and ask you for a comment.

The report said:

Canada has responded proactively to the worsening economic outlook. Fiscal stimulus incorporated in Budget 2009 will ameliorate the downturn.... The financial system is stable, and recent steps taken to expand the toolkit for financial stabilization are appropriate given the uncertain outlook.

Further it said that the mission:

...supports the large, timely, and well-targeted fiscal stimulus in Budget 2009. The stimulus package is appropriately sized, well above the fund’s benchmark of 2% of GDP, and it is also prudently based on a worse economic out-turn than private sector forecasts. With sizeable infrastructure spending and permanent tax cuts, it is weighted toward items that are most effective in stimulating demand. Its steps to boost the safety net will protect Canada’s most vulnerable, and training enhancements will facilitate reallocation of displaced workers.

Consolidating and enhancing securities regulation would further strengthen the already robust financial stability framework.

Can you comment on the IMF's report and how the budget actions of the Canadian government will impact your industry, compared to your international competitors?

[Nancy Hughes Anthony]

Absolutely. I'd be pleased to respond.

On the issue of the size or the impact of the stimulus, Mr. Dechert, I don't think it's appropriate for me to speak about how that's going to work out.

In terms of the financial sector itself, I feel quite confident that there are a number of things that have been put in place by the government over the past very difficult year, and also there are new measures in the budget that I think are very positive.

We've mentioned today the notion of increasing the cooperation and the scope of the crown financial agencies, particularly EDC and BDC--obviously very positive.

There has been one government program in place for actually a while now, the insured mortgage purchase program, which is where financial institutions, banks, and other institutions can offer securitized mortgages to CMHC, which are guaranteed CMHC mortgages, and the government provides liquidity in exchange for a fee, I might say, on commercial terms. But that has been helpful in providing liquidity to banks so that then they can turn around and provide mortgages. I think we've seen the proof of the pudding there in terms of the rates of mortgages. An offering of mortgages has been very solid and very high. All of these are good.

I think there are also programs that Mr. Nantais referred to, the one that relates to leasing--this $12 billion program. It remains to be seen; the details are being worked out on exactly that. Once again, the focus on trying to activate certain markets I think is quite positive.

Also, doing a bit of something for the small business loan program out of the Department of Industry, to rev that up, to cut the paperwork there, we'd love to see more of that happening. I think that also is a positive initiative.

The one initiative that you did refer to, the common securities regulator, I've already commented on. In terms of our regulatory structure, we're praised around the world for our regulatory structure. There is one component part missing. I think we can do better in terms of more focused securities regulation.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Terrific. Thanks very much.

The focus of our study is financial literacy. I have a question for both Ms. Anthony and Ms. Menke.

I'm going to ask Ms. Anthony what the Canadian Bankers Association would like to see the FCAC do to promote financial literacy. What can the CBA do? And vice versa, what would Ms. Menke like to see the CBA do in that regard?

[The Chair, Conservative, James Rajotte]

Just a very brief response from each of you.

[Nancy Hughes Anthony]

Very quickly, in your kit you'll see we have a program called “YourMoney“ or “VotreArgent”. This is designed specifically for teens, and I wish my two children had it when they were in high school. This is in cooperation with FCAC. We realize that all of our resources need to be marshalled in terms of the resources of FCAC and the network that they have and our bankers' network, in order to try to promote financial literacy at various levels. I'm actually very pleased with the level of cooperation. I certainly hope Ms. Menke is as well.

[The Chair, Conservative, James Rajotte]

Thank you.

Ms. Menke, briefly.

[Ursula Menke]

I echo Ms. Hughes Anthony's comments. We actually have a partnership right now on “YourMoney” and we provide links to each other's websites. The reality is there is more that we probably can do. We will definitely be exploring next steps. We talk about that on a regular basis.

I think it's quite frankly in everybody's interest to increase the financial literacy of Canadians in general. We're looking for partnerships wherever we can find them, and the CBA has been a very good partner.

[The Chair, Conservative, James Rajotte]

Thank you for that.

We'll go now to Ms. Hall Findlay, please.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair, and thank you, everybody, for being here this morning.

I have a DBRS question and an ABCP question.

I first want to ask Mr. Nantais a question that isn't specifically related to credit but does relate to government programs and incentives to help the automotive industry. A couple of years ago the government proposed an eco-rebate program. Were you supportive of that program at the time?

[Mark Nantais]

Actually we were not consulted on the program. When the program was implemented it was very detrimental to the industry overall. The eco-rebate side of it has now been rescinded, of course. But while that was in place, it certainly favoured certain vehicles, certain manufacturers over others. It was a program that picked winners and losers, and it certainly did not, in our view, accomplish its environmental goals.

[Martha Hall Findlay, Liberal, Willowdale, ON]

All right.

I have a parallel question. Did you support a more substantive scrappage program, for example, at the time last year?

[Mark Nantais]

For a long time we've supported a properly structured scrappage program. Of course, now we've got an example of one that has been very successful; it's the one in Germany that I've referenced. It's successful because it does not pick winners and losers. It's successful because it is very simple. You basically trade in a 10-year-old or older vehicle to qualify for the incentive to apply towards a new vehicle. It's very simple and very successful.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you very much.

I guess I do have the time to ask my question. It's maybe not for any one particular institution, so I'll leave it open. Perhaps anybody can answer this.

Throughout all of the discussion of the ABCP issue--and the challenges, of course, faced by large organizations, but also by consumers who lost money or even with the restructuring have now had to wait a significant amount of time to recoup--over and over it seemed to go back to the credit rating that was given to the paper. My question is, what have been the consequences to DBRS in all of this? We continue to hear of challenges with the close relationship between the credit rating agencies and the issuers of the securities. Can you comment first on the consequences to DBRS in this and recommendations or concerns you may continue to have?

Ms. Hughes Anthony.

[Nancy Hughes Anthony]

I don't think I should comment on DBRS itself. Once again, the lesson learned on credit rating agencies is that I think many would say there was an overreliance on the credit rating reports, and that turmoil has definitely highlighted this kind of overreliance.

That has been an issue that has been seized by many in the international regulatory forum. There is an International Organization of Securities Commissions known as IOSCO. They have revised their code of conduct fundamentals for these kinds of agencies. We also believe that the code should be monitored very effectively in Canada. The question is, who should do it? Should it be our securities regulators? It's an open question. Who should it be?

In addition, the whole G-20 exercise, the Financial Stability Forum.... There's a chapter in there on credit rating agencies. I think it is a worldwide situation where the accountability needs to be enhanced, and the whole question of conflict of interest has obviously been raised in that context. I think we'll see some changes there.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Ms. Menke, from a consumer perspective, I'm not sure of your involvement with that particular issue, but do you have any comment?

[Ursula Menke]

As a general matter, I would say that the issue, from a consumer's perspective, is not specific to rating agencies. In fact, rating agencies would be of relatively little interest.

There are market conduct rules. Most of those market conduct rules are actually within provincial jurisdiction, under the securities regulators. We have one piece of that ourselves, with respect to certain investment-type products that are distributed by the institutions I regulate.

The key component there is really to focus on the sales. It's the “know your client” kind of rule. That is what would be applicable. I wouldn't see that the rating agencies per se would have a direct impact on consumers, except through the “know your client” rule. That is a very different focus, I would say, from the question you're asking.

[Martha Hall Findlay, Liberal, Willowdale, ON]

For consumers dealing with large organizations, especially financial organizations, in the “know your client” concept you assume a certain level of understanding, and many of them were completely taken in by the credit rating agencies involved.

I'm not sure if that even demands an answer.

[Ursula Menke]

I can't comment.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Hall Findlay.

We'll go to Monsieur Bernier.