Finance Committee on May 4th, 2010

[Daniel Paillé, Bloc, Hochelaga, QC]

But still, it is not being done for no reason, so it is thought that one day it might be useful to have these clarifications. The comparison with the American situation was made, but the situation of Canadian banks in comparison with the situation of American banks is very different. We essentially have six banks in Canada, but if one of them were to go bankrupt, would that box of tools be sufficient? Would we not have to have a much more extensive set of measures, considering the "too big to fail" aspect, given the very major role the Canadian banking system plays and how concentrated it is?

I am wondering whether these amendments are not going to open the door to the chartered banks being used as tools of the government of Canada at some point.

[Sandra Dunn]

I would just say that all governments and all authorities have realized how important it is to have a robust toolkit for resolution. Canada evaluated its toolkit last year and determined to add a few extra powers to CDIC. These amendments were certainly not made because one foresaw that the Canadian system was more vulnerable than it was a year ago. It was simply that certain stakeholders either asked for clarification in terms of how derivatives contracts were being treated or that CDIC itself had identified some amendments that would make the payout of a deposit determination more effective, more efficient, and quicker to protect deposit insurers.

With respect to the “too big to fail” issue that you've raised, this again is one tool in a toolkit that Canadian authorities have in order to deal with large banks. We have a wide variety of supervisory tools that are available in order to address the viability of large banks, but clearly it's a policy issue that all G20 governments are moving forward with.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll move on to part 17, entitled “Federal Credit Unions”.

I assume that there will be some questions here.

Monsieur Paillé.

[Daniel Paillé, Bloc, Hochelaga, QC]

These legislative changes are in fact very complex. If I understand correctly, we currently have Canadian chartered banks and provincial cooperatives, for example the Mouvement Desjardins in Quebec, which is well known, and this would be adding the possibility of having federal cooperative banks.

How many people in Canada have specifically asked for this kind of technical amendment?

[Jane Pearse, Director, Financial Institutions Division, Department of Finance]

There was a discussion 10 years ago with the Proponent Group, a group of large cooperatives that would like there to be a federal model as proposed in Bill C-9. As well, we received a request for support from the Credit Union Central of Canada, which would like there to be a federal model for cooperatives here in Canada.

[Daniel Paillé, Bloc, Hochelaga, QC]

How can we be sure that they will be regulated in a standard way? We would have three kinds of financial institutions in Canada, and each of them could have a branch on the same street corner. We could have a bank, a caisse populaire and a Canadian cooperative bank.

How can we be sure that by enacting this part of the Bank Act, the situation will not turn into a regulatory shambles or a hodgepodge of institutions? The situation could become unmanageable, in that there might be competition problems similar to what we were just talking about for the Canada Post Corporation, arising out of what kind of regulation an institution will be subject to.

We have a Canadian banking system that works very well, it should be said, and a system of cooperatives that also works very well. So why would the government of Canada interfere in this area of jurisdiction and start shuffling the cards, as we say where I come from?

[Jane Pearse]

I think there are a few answers to give.

First, all these financial institutions exist today, as you explained. But some are under federal government responsibility, while others are under provincial responsibility. Now, we are creating a model that would give cooperative institutions a choice between the federal model and the provincial model. There is really no change in this regard. It is simply a question of the type of regulation, of supervision, for each type of institution.

Second, the objective of the amendments to the Bank Act is really to establish the same style, the same type of rules for the other Canadian banks as for the cooperative institutions that exist at present. So there is really no difference between the regulatory rules that apply to cooperative institutions, as compared to the rules that apply to the banking institutions that exist now.

[Daniel Paillé, Bloc, Hochelaga, QC]

A cooperative institution is, by definition, provincial. If it wants to become a federal cooperative bank, will it have to abandon its provincial status and become exclusively federal? Can it have "dual nationality"?

[Jane Pearse]

No, a choice has to be made between federal regulation and provincial regulation. There has to be approval from the province to become a federal institution.

[Daniel Paillé, Bloc, Hochelaga, QC]

So the province will have to authorize a cooperative to abandon its provincial status and become an institution governed by the federal government. So the government is continuing to promote free choice in some of its policies, except for some well known ones. I don't want to play politics, however, other...

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

May I ask a quick question?

I notice here that to differentiate between a federal credit union and a provincial, you have to add the term “federal” or “bank”. But then that would defeat the purpose of being called a credit union if it's going to have the name “bank”.

What is the purpose of that?

[Jane Pearse]

We've had many conversations on this issue with various stakeholders. Some stakeholders feel very strongly that they do want to use the term “bank”; others feel very strongly that they do not.

The legislation has provided for flexibility. The only criterion that is in legislation right now is that if this institution wants use the name “credit union”, they have to put the name “federal” in front of it, to distinguish from a provincial credit union.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay.

[Jane Pearse]

But many credit unions don't use either “bank” or “credit union” in their names. That too is allowed.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Mr. Carrier.

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

Good afternoon. If I understand correctly, this is a new system that relates to both the cooperative sector and the bank sector. In Quebec, there is the Mouvement Desjardins. Caisses populaires are well established in Quebec. The clause in question talks about cooperatives. What will these institutions be called? Will they be called "banks", "cooperatives", or...

[Jane Pearse]

As I explained before, each institution can choose its own name. It can choose the word "bank" or the term "cooperative". One thing is clear, however. If the institution uses the word "cooperative", it has to add the word "federal" so there is a clear distinction between provincial cooperatives and federal cooperatives.

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

I think that makes things more complex. In Quebec, was the Mouvement Desjardins consulted about this aspect of the bill? The banks themselves are ultimately going to have new competition, from a cooperative. Were these two financial institutions consulted?

[Jane Pearse]

In recent years we have consulted the cooperative system concerning the development of the federal model. We have also had discussions with the Canadian Bankers Association and the Credit Union Central of Canada regarding this model and the key decisions that directly affect the question of each institution's name.

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

Is that the same kind of consultations as there were for harmonizing taxes with the government of Quebec?

[Jane Pearse]

No idea.

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

You say there were consultations, but you aren't specifying whether these two financial institutions agree on what you are proposing. After discussing it, and things can be discussed, that's fine, are you presenting them with a done deal, that they are going to have to organize themselves around?

[Jane Pearse]

I had a discussion with Desjardins, for example, and also with other cooperatives throughout Canada, and with the Credit Union Central of Canada, after Bill C-9 was introduced. In general, their reaction was positive. The Canadian Cooperative Association is happy with the federal model.

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

What is the main advantage in creating this new type of financial institution? Will they fill a gap that could not be filled by the banks or the existing cooperative movements?

[Jane Pearse]

In recent years, there are cooperatives that have become rather sizeable in their own provinces. They are, in a way, too big for their provinces, or in other words...