Finance Committee on March 26th, 2009

[Ted Mallett]

Yes.

Thank you for the question.

A demand for loans is certainly very important for ensuring that the economy can bounce back as effectively as possible. The measures that we tend to agree to mostly are really making sure that there's good information in the marketplace, making sure that lenders have appropriate knowledge of what sector performance is. One of the problems we have been tracking is that....

The availability of credit is a huge concern for our members. We are noticing that existing banking relationships are being supported. We haven't found, to date, a large case of where financial institutions have decided just to cut off financing to large swaths of the economy. We did notice that in 1990. We believe that's what made the 1990 recession worse than it should have been. Lots of healthy companies were being cut off at the knees by financial institutions: “You're a restaurant; you're in the forestry business; you're in the auto sector--we're going to cut your line of credit in half.”

We have not seen that. To a large degree, we're starting to get a number of questions about that from some of our members. It's something that we really have to watch in the next couple of months.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Menzies, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

Thank you, gentlemen, for coming.

I stand by my suggestion that it is good to bring financial experts after or with the Parliamentary Budget Officer. I stand by that. I think it is very helpful to get a broad brush from you folks, who are dealing with it every day.

Once again, thank you for coming, and thank you to Mr. McCallum for agreeing to my great suggestion.

I wanted to follow up on where I was going with Mr. Page yesterday, but some of my colleagues have brought up the non-bank asset-backed commercial paper. We saw some of the worst outcomes of the lack of what I would suggest is common securities regulation in this country at the caisses in Quebec. Yet Quebec seems to be the major push-back--albeit my home province of Alberta is still struggling with the issue.

Can I have your comments, very quickly? I think you're probably all on the record on this. I'm not going to ask you to suggest whether or not the asset-backed commercial paper debacle would have been prevented, but is there a potential that a common securities regulator may help prevent something such as this in the future?

That's to whoever wants to answer.

It looks like all four of you are ready to answer.

[Voices]

Oh, oh!

[Ted Menzies, Conservative, Macleod, AB]

Go ahead, Mr. Poschmann.

[Finn Poschmann]

I'll take that one, thank you, if I may, Mr. Chairman.

A common securities regulator would be very helpful for the securities-issuing business and for its clients, because you have better clarity of regulation, better clarity of enforcement mechanisms, and better international cooperation, which is important to free trade in securities, which is I think is an appropriate goal for policy.

However, the notion that a single regulator or a national regulator would necessarily ward off types of trouble such as we saw in the ABCP market, I think, is probably attaching a few hopes too many to the program. Similar failures happened in other markets where there were single regulators. The U.K. has a financial services authority that is an über-regulator, and I would not hold out the U.K. marketplace as an example of success for regulation of financial services in the past two years.

I point out also that with respect to ABC in particular, you had failures on the part of the issuers to understand what they were issuing; you had failures on the part of distributors to understand what they were distributing; you had failures on the part of the overseers to understand what they were regulating; and you had failures on the part of buyers to understand what it was they were buying. So there were plenty of things going on there, in that market, that didn't function very well.

One of the key issues, I think, is that those managerial incentives, those risk management incentives, do need addressing, but I wouldn't like to see them being addressed using a top-down mode from a Canadian regulator or a federal regulator.

[Ted Menzies, Conservative, Macleod, AB]

Does anybody else want to comment on that?

[Don Drummond]

I'm happy at the drop of a hat to give a sales pitch for a single securities regulator, but I don't want to pretend that it would have stopped that problem.

[Ted Menzies, Conservative, Macleod, AB]

No, and that's not what I'm asking.

[Don Drummond]

I do applaud the approach proposed in the Hockin document. I must admit--I'll be transparent--I have baggage. One of my jobs in the late 1990s was to try to get a common securities regulator. Obviously--it goes without saying--I failed miserably. We're still at it. But at the end of that endeavour, I came to the conclusion that we should get Ontario and a couple of other provinces, and then just do it with the parties that are willing.

Look at Quebec and the harmonized GST. It's not a part of the official tax base, and it's virtually the same. Quebec is not in the personal income tax collection agreement, and its base is virtually the same. I think we've also been fussed around about the necessity of getting everybody in. If we have a critical mass, I think we'll get what we need out of it. And I think the Hockin report put us on the right path towards that.

[The Chair, Conservative, James Rajotte]

Okay, there's about 30 seconds, if someone else wants to comment.

Mr. Hodgson.

[Glen Hodgson]

We've been on the record for a long time calling for a single regulator. I think Finn has made the case: it's all about efficiency--improving efficiency, information flow--but it wouldn't have solved the problem. It wouldn't have prevented the problem from happening, unless they suddenly had better foresight than everybody else in the world.

[Ted Menzies, Conservative, Macleod, AB]

Am I out of time?

[The Chair, Conservative, James Rajotte]

You have 10 seconds, if you need a quick yes or no.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, sir. I agree with the common securities regulator.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Menzies.

Mr. Pacetti, please.

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

Thank you, Mr. Chair.

Thank you to the witnesses. It's always interesting to have a panel of economists before us.

One of the troubling items I'd like to bring up is something I'm seeing of late, which is the deficit. It's acceptable that governments go into deficit all of a sudden, but we're throwing around billions like they're millions. The government, just a couple of months ago, forecast a $64 billion deficit in the next two years. We had Mr. Page yesterday, who put it at $73 billion.

Mr. Drummond, I think you're at--what?--$82 billion now. Is that correct?

[Don Drummond]

Yes.

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

Is there a reason you're at $82 billion and the Parliamentary Budget Officer is at $73 billion?

[Don Drummond]

This question has come up a lot of times. Can I just take one minute and maybe explain how the government and the Parliamentary Budget Officer do this? I think there's some confusion around that.

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

That's what I'm asking you.

[Don Drummond]

Yes, but I think I just said that the government, of course, starts off by taking the average of the private sector forecast. To their credit, on January 27 they didn't believe the private sector forecast, and they actually lowered the forecast for the key factors of a nominal GDP. The Parliamentary Budget Officer is updating that by the revised average of the private sector forecast. And there's a huge range within that. As we indicated, we're at the bottom of the range. Glen, by coincidence, is at the top of that range.

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

I understand that, but is it based on growth?

[Don Drummond]

I came up with the $83 billion number by taking everything in the budget as a given and substituting in my economic assumptions for the budget economic assumptions. I didn't redo anything else. It's just purely my more pessimistic take on the economy.

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

Okay.

And Mr. Hodgson, how did you get your number?