Finance Committee on March 12th, 2009

[Terry Campbell]

Well, I think it's fair to say that banks certainly don't want to put somebody into a house where they have to foreclose. You don't want to hold those mortgages.

I think what has happened is that the standards haven't changed; what has changed across the board is the level of risk. It's not that we're changing our standards. We're having to assess that risk and take that into account as we make those loans. The bottom line remains, though, that credit is available for creditworthy customers. The issue of creditworthiness, though, is the trick of the game

[Jim Maloway, NDP, Elmwood—Transcona, MB]

I'd like to ask Ms. Menke about the types of courses and so on that she would recommend for schools. I've been wondering about this for years, as to why we wouldn't have some sort of financial course in school. I'm not sure at what grade you would start and what the content of the course would be, but do you have some ideas about that?

[Ursula Menke]

Oh, I have lots of ideas.

[Some hon. members]

Oh, oh!

[Ursula Menke]

As I said, we have one course right now that we're offering for 15- to 18-year-olds. It's very much targeted at that age group. It's approximately 18 hours. It deals with financial basics. It starts with basic concepts like wants versus needs, budgeting, and so on, covering the gamut at a level appropriate to the age.

We're in the process right now of working on a second course, which we're tentatively calling “Financial Basics”. It's geared to a slightly older demographic—those 18 and above, so it's for adults—and it will be more focused, more detailed, but it will still be a financial basics course. That's only because there are a lot of people who really don't know these things. In an ideal world, we would see it all throughout the school system. I truly believe that financial literacy is a life skill that children should be learning from a very young age.

My next step after that is to try to develop another course aimed at younger children. I'm hoping to prepare a program that covers them through the school system—I won't necessarily say from kindergarten at this stage, as I haven't been that far yet—and that can be delivered to different groups or via different age-specific programs, so that eventually the schools will produce more financially literate students coming out of the system.

[The Chair, Conservative, James Rajotte]

A very brief question only.

[Jim Maloway, NDP, Elmwood—Transcona, MB]

As part of the content, I would suggest you include in there the reality that financial advisers get compensated by funds.

[Ursula Menke]

Oh, yes.

[Jim Maloway, NDP, Elmwood—Transcona, MB]

And I don't know whether they still do this, but in past years funds used to provide free trips to advisers who sold a lot of their product.

Is that still done?

[Ursula Menke]

I don't know that side of it, but clearly financial advisers generally are sales people.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Pacetti.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

Ms. Nancy Hughes Anthony, I just want to pick up where Mr. Rajotte left off, that is, on the business credit availability program, whereby the government is going to inject about $4 billion to $5 billion in the market.

My perception of what happens is that the banks usually evaluate the creditworthiness of a customer, or a potential customer, and decide, well, this might be too risky for us. And the history has been for them to say, well, perhaps you should go to see the BDC. I get the feeling that's what's going to happen here, that you're going to be referring business to BDC/EDC, which take on additional risk. There are additional costs that go with that risk. So BDC will take them on. Then, all of a sudden, if these companies do survive, they'll come back to you guys at a lesser cost, because it does cost more money to do business with the BDC. Then the BDC will go out and provide credit to somebody else, who will have more risk attached to them. Eventually, some of these clients or companies will go bankrupt, or will falter on their loan payments, and in the end it's going to be BDC and EDC who are stuck with the bad people, whether it be in good times or bad times.

So in the bad times, you'll probably refer bad clients, or clients you don't feel you can support, and they will come over to BDC and EDC. And even in good times you'll still refer to them the clients you regard as being risky.

So I just want to understand how that's going to work from a bank perspective. Are you going to share in the risk, or is this just going to be money the government is never going to recoup?

[Nancy Hughes Anthony]

It's a good question and, obviously all the participants in this BCAP program are trying to find the balance in here.

I believe you have had BDC and EDC before this committee as well, Mr. Chair?

[The Chair, Conservative, James Rajotte]

Yes.

[Nancy Hughes Anthony]

The BDC and EDC also have their own lending standards, and the financial institutions have their lending standards. I believe we're all trying to make sure this is not a race to the bottom. This is not a competition.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Sorry to interrupt you, but BDC/EDC will be under more pressure because they've specifically been given this additional funding to lend—

[Nancy Hughes Anthony]

Yes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

—whereas the Canadian banks are not under the same pressures.

You have a return to your investors. BDC does as well, but—

[Nancy Hughes Anthony]

I was going to say I believe that BDC and EDC, from my conversations with them, feel very strongly that their shareholder is looking at their bottom line as well.

I think there's another helpful element. One is capacity. At a time like this, we have to get everybody trying to maximize what they can do. Both of them, particularly BDC, are being given additional capacity. For EDC, the additional very useful component I think is that they will be allowed to move into the domestic space—and you know that's part of the budget bill—for certain types of products and certain types of assistance, and certain types of insurance, for example, that only the EDC offers.

The variety of products I think will also help in terms of the marketplace. But I don't believe any of us think, apropos of what my colleague said, that loosening up the credit standards and pressing credit on people who are not creditworthy is the aim of this particular program. The aim is to try to marshal all of the resources and to do pari passu lending, and side-by-side lending, or lending by consortium, or things that we can do to spread the risk over all of the institutions in question. I think that's what's going to happen.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's what I wanted to make sure of, that the money is going out and it's going to be treated equally, and it's not going to be a case of the banks getting the good-quality security and then passing on all the garbage to the BDC/EDC.

[Nancy Hughes Anthony]

No. I believe the spirit of the whole thing is that we're all in the same boat together, and we're all trying to fill this gap and marshal the same resources in a prudent manner.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Pacetti.

We'll finish with Monsieur Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chairman.

Ms. Hughes Anthony, a few moments ago you said that one of the reasons why the banking system behaved better in Canada during recessionary times, in comparison with the United States, was that we had a very clear and very compact regulatory system, if we compared that system to the rather confusing rules in the United States. I'm repeating the words that you said, namely, that the rules were very difficult to understand and that there was a great deal of confusion.

You also said that you were in favour of the government's proposal to create a single securities commission. Basically, I don't understand why you are supporting this plan to change a system that has protected us, in a way, from the effects of the crisis, and has allowed Canada to do relatively well, all things considered. This plan will destabilize the regulatory regime, because there will be a period of uncertainty during which the provinces will be able to opt in or opt out. It seems to me that you are supporting an idea that will destroy something that has protected us. I just don't understand why.

Could you explain this contradiction to me?

[Nancy Hughes Anthony]

I agree with you that from a philosophical point of view, creating upheaval or going through a very difficult period of transition may not be necessary. I have the impression that the Hockin Report suggested a period of transition that would be rather logical and doable. The report also suggested a gradual approach so that the provinces can opt into the system as they want to, when they want to. Perhaps I could stress two aspects of the proposal. First of all, our current system is not effective at all. It's interesting to—

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

You said that the system was very clear and compact, and that it has served us well. I don't understand how you could suggest that it is not effective.