Thank you very much, Mr. Chair, and good morning.
I am joined by my colleagues from the Canadian Bankers Association—Terry Campbell, Vice-President of Policy and Darren Hannah, Director, Banking Operations. We also have for you an information package on the issues that we will be discussing this morning, and which I hope has been handed out to you.
I hope you have our information package there. I won't read the opening remarks; instead, I will just briefly give the highlights of the issues we will be discussing this morning.
To begin, I would like to highlight a few statistics about the contribution of banks to the Canadian economy. In terms of employment, banks and their subsidiaries employ a quarter of a million Canadians—this is an increase of 16% over the past 10 years.
As well, most Canadians are shareholders in Canadian banks, either directly or through the Canada Pension Plan (CPP), other pension and mutual funds. Speaking of taxes, of course, banks paid close to $9 billion to governments in Canada last year.
Banks make an important contribution to the economy, and I'm sure the members around this table realize that. The real message today is that Canadians need to continue to have confidence in their banking sector.
Reflecting on the turmoil in the global financial system, we need to remember that this turmoil did not originate in Canada. Banks in Canada have largely avoided the difficulties that banks around the world are now facing, although they are not immune, and they've had no need for direct government intervention, as we have seen in so many countries around the world. Why is that? I think most observers point to four principal reasons.
First of all, we have a national system with very well-diversified banks.
Second, our banks in Canada are among the best-capitalized in the world, and they are strengthening their capital levels with new capital being raised from investors in the marketplace. Also, they are prudent and well-managed.
I think the third reason is that our regulatory system is very strong, very robust. I know that this committee has heard from the Superintendent of Financial Institutions, Ms. Dickson. We are also regulated by the Financial Consumer Agency of Canada, and you have Ms. Menke here with you today.
I think the final reason our banks are so strong in comparison to others right now is that Canada's mortgage market is very different from that of the United States. In Canada, by far the majority of mortgage loans are prime loans. We have avoided that subprime problem. Mortgage arrears remain very low in Canada. They are close to historic lows, in fact.
Clearly, each of these attributes has served us well through very difficult times. I stress, however, that a strong and stable banking system is essential to helping Canada get through these tough economic times.
I'd like to turn briefly to the issue of credit, something we're certainly hearing a lot about from members of Parliament. Let me assure you that our banks are continuing to lend to creditworthy customers. The facts prove it, and I'm sure we will speak about that matter today.
On the consumer side, Bank of Canada figures for January show that consumer credit continues to grow. It grew 14% from January to last January. In terms of business credit, bank financing of business is up almost 11%, well in excess of the growth in financing in the marketplace, which is about 4%.
It is extremely important to note that banks represent about half of the business credit marketplace and only about a quarter of the total financing marketplace. In your information kit you have a little backgrounder called “Business Credit Availability”. A pie chart on the second page shows you that banks represent about 56% of that business financing marketplace.
There has been a serious slowdown of business credit from other sources, from sources other than banks. Some of them are non-banks. Some of them may be lenders, and we have a representative here today. Some Icelandic banks, for example, as you know, have completely left the marketplace.
Banks are trying to fill the gap left by these non-bank providers, but they can't do it all, so we were pleased to see that there are some steps to address this issue in the budget, specifically by funding increases for the Business Development Bank of Canada and for Export Development Canada as well. Those complement banks, and we're working very closely with those two agencies to make sure that credit flows to creditworthy businesses.
There is a new reality in the international credit marketplace. Certain types of credit, such as commercial paper and the securitization market, are just no longer functioning properly around the world. Those that are functioning are available at relatively higher costs, so that does affect the banks' overall cost of borrowing and certainly has an impact on the consumer.
Risk is also another factor affecting the rate of interest on loans. Unfortunately, we are in a recession, which does have an impact on both retail and business customers. As prudent lenders, banks need to adjust their pricing to reflect this new risk reality, but I stress that it is really important to remember that banks are open for business and that credit does remain available for creditworthy customers.
To conclude, Mr. Chair, Canada's banks are strong. Canadians remain confident in their banking system. This is an advantage for Canada that other countries do not have, and certainly keeping that advantage will be crucial to the recovery of Canada's economy.
Thank you very much. We'll be pleased to answer your questions.