Finance Committee on March 12th, 2009

[Mike Wallace, Conservative, Burlington, ON]

Back to the banks, just quickly. We are also talking about a common securities regulator in our budget. Is the banking industry supportive of that move?

[Nancy Hughes Anthony]

Very much so. Certainly at a time like this you realize how important that is. Canada has an extremely compact group of regulators, and I believe Mr. Davies mentioned that. When it comes to a crisis situation, there is great communication between the Department of Finance and the regulators and the Bank of Canada. Then there is a seat at the table that should be somebody talking about the securities industry. At the moment we would have to pull up 13 chairs to that table to get that to happen. Yes, the industry is very supportive of that initiative.

[Mike Wallace, Conservative, Burlington, ON]

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

Mr. Maloway.

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

Thank you, Mr. Chairman.

I'd like to get a handle on how big a banking failure CDIC could potentially handle. You have $512 billion in insured deposits, but you only have $6 billion in your fund, and the recommendation is that it go to $15 billion. Do you think that is a high enough reserve to have in the fund?

[Bryan Davies]

Thank you, Mr. Maloway.

Your ratio is approximately right, but the numbers are a little bit different. The $6 billion you refer to is our line of credit to borrow. We also have a reserve of about $1.6 billion sitting in our own accounts right now. So the grand total would still be low relative to the $512 billion of total deposits covered.

To the question of adequacy, one can just look at the history of the draws on our organization. We feel we have to evaluate that regularly, and we look to our premium levels every year to see if they're adequate to help add to that $1.6 billion we already have. We're in the process of doing that right now for the coming year.

The amount of loss we would incur would depend on how we would handle the transaction should an organization fail. The standard traditional one that everyone thinks of is a straight payout: you just issue money to people. There are other ways of resolving a problem institution. We call them alternate resolution mechanisms, whereby you can arrange for the purchase of an organization by another deposit-taking institution and agree to share any future losses they might have--instruments of that nature. The insurance scheme could never hope to have all the money needed to handle every deposit should it fail.

Just to close, we do examine our amount of reserves and our lines of credit regularly and that's one of the reasons why the government in Bill C-10 has proposed that this go up to $15 billion.

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

Didn't you say, though, that you had never had an experience of a failure?

[Bryan Davies]

No. Over the years we have had that experience. We just have been very fortunate, thanks to the strong economy and the strong regulatory structures in Canada, in not having an institution fail in the last 13 years.

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

I understand that the deposit insurance corporation in the United States guarantees deposits of $250,000, whereas ours were increased to $100,000. Is there any plan for an increase up to the American levels?

[Bryan Davies]

The decision as to the extent of coverage is, of course, made by Parliament. We implement whatever is mandated to us. Parliament last reviewed the coverage in 2005, I believe, and then it was moved from $60,000 to $100,000. The United States did announce, just this past year, a so-called temporary adjustment up to $250,000, but I have to defer to the government as to whether there would be any plans to alter that in Canada.

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

In your opinion, would that be a good idea?

[Bryan Davies]

Well, I would make a couple of observations. First of all, as I said, the adjusted rate was introduced just in 2005. Another observation I'd make is that it applies to an individual deposit account. A Canadian citizen can have more than one deposit account, so if you had, for example, a deposit account with bank A and another deposit account with bank B, you would be eligible for up to $200,000 coverage, and so on. We have 80 member institutions, so conceivably you could have 80 times $100,000.

The last observation I'd make is that we get a lot of calls and inquiries to our phone lines and our website, and I can say with certainty that very few of those relate to the degree of our current coverage limit, although there are some.

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

I'd like to ask a question about executive compensation. That topic seems to be in the news a lot lately, and a lot of people have been very upset that the banks make excessive profits, according to most people in the country, and that the executives of the corporations seem to be earning excessive amounts of money as well. The issue becomes whether there is a move being made, or recommendations being made, to look at the executive salaries of people running the banks and other financial institutions.

[Bryan Davies]

Is that addressed to me or...?

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

Well, it is to whoever wants to answer the question. It's basically a matter of opinion.

[Bryan Davies]

With respect to the Canada Deposit Insurance Corporation, it's not in our mandate to examine those things.

[The Chair, Conservative, James Rajotte]

Ms. Hughes Anthony, did you want to make a comment?

[Nancy Hughes Anthony]

Yes, I would comment. You will, I'm sure, know that I would object to the word you used, “excessive”, because I think it's so important for banks to remain strong.

Clearly this issue of executive compensation has been discussed extensively by news media, etc., all around the world, particularly in the United States. I think some people potentially mistake the U.S. situation for the Canadian situation. In the Canadian situation, obviously boards of directors of the banks have been very seized with this issue recently and in the past couple of years. Every bank has a board of directors and, usually, a compensation committee. They look at competitive values of compensation and they make recommendations.

Recently you've seen some voluntary activity on the part of our CEOs, who recognize that there are difficulties with Canadians, and they have voluntarily given some of their compensation to charities. That's their choice.

In addition, we've also seen something that I think is important in terms of a worldwide trend. I don't know if Ms. Dickson spoke about it, but supervisors and regulators are saying that although they're not going to regulate the level of compensation, they are going to make sure that undue risk factors are not present in the calculation of that compensation.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Maloway.

We'll go to Mr. Pacetti, please.

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

Thank you, Mr. Chairman. Thank you to the witnesses for appearing. A very interesting panel.

I'll start off with Ms. Menke, from the Financial Consumer Agency.

You mentioned that credit cards are supposed to be a method of payment, not necessarily a method of credit. Since we're studying the credit availability and we know that credit has been tightening up, have you seen a change in attitude towards using credit cards more for credit than for payment in the last little while?

[Ursula Menke]

I don't actually have access to very useful information in that regard. What I can tell you is the information that we get tends to come directly from consumers' contacts with us. You won't be surprised to hear that the big issue that is raised with us by consumers is the rates, and that's of course an area over which I have no say whatsoever.

I cannot speak directly to the issue of whether consumers are actually using their credit cards differently. I can tell you only that as part of our education material we are encouraging them to use the credit cards as a payment method and not as a credit source.

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

Are you seeing fewer players, fewer credit cards being available out there? Are you hearing rumours that some of the companies, like American Express, are paying potential credit cardholders an amount so that they can close their accounts? Is this something that's happening?

[Ursula Menke]

I saw the same newspaper article, I guess, that you saw, about American Express in particular. Based on our information, as I say, when consumers contact us with issues, we have not at this point in time seen an increase in the levels of complaints regarding a withdrawal of credit or credit cards from consumers. So based upon the information that's directly available to us, we're not seeing—

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

But refusals of applications and things like that?

[Ursula Menke]

We are not seeing anything different.