Evidence of meeting #47 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was banks.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Jeremy Rudin  Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
Terry Campbell  President and Chief Executive Officer, Canadian Bankers Association
Frank Swedlove  President, Canadian Life and Health Insurance Association Inc.
Ursula Menke  Commissioner, Financial Consumer Agency of Canada
Philipe Sarrazin  Managing Director, Legislation and Policy Initiatives, Office of the Superintendent of Financial Institutions

4:45 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you very much for your presentation.

I want to thank all of you for your brief presentations. As the chair, I appreciate that very much.

We'll go to Mr. Chisholm for a five-minute round, please.

4:45 p.m.

NDP

Robert Chisholm NDP Dartmouth—Cole Harbour, NS

Thank you, Mr. Chairman.

Thank you to the witnesses for attending.

I'll probably be sharing my time with Mr. Mai.

I have a couple of quick questions for the Financial Consumer Agency of Canada.

Could you tell me how much input there has been from consumer advocates and how much opportunity you've had to hear from consumer advocate organizations in the country?

4:45 p.m.

Commissioner, Financial Consumer Agency of Canada

Ursula Menke

Unfortunately, I can't answer your question directly, because that consultation would have been done by the Department of Finance and not by us. We don't get involved in the consultations around legislative reform.

4:45 p.m.

NDP

Robert Chisholm NDP Dartmouth—Cole Harbour, NS

Yes.... And you haven't heard from them...?

4:45 p.m.

Commissioner, Financial Consumer Agency of Canada

Ursula Menke

I haven't heard anything specific, no.

4:45 p.m.

NDP

Robert Chisholm NDP Dartmouth—Cole Harbour, NS

I'm curious to hear if the CBA could help inform me a bit about the banking industry ombudsman system and why it seems to be falling down or not working, or why two big banks withdrew from it.

4:45 p.m.

President and Chief Executive Officer, Canadian Bankers Association

Terry Campbell

Well, it's important that the first thing to bear in mind here is that there has been basically a change of providers rather than a pulling out; there has been no pulling out of a consumer redress system. In fact, for consumers, all banks in Canada are dedicated and committed to providing a very robust consumer redress system, both internally and externally. All banking customers in Canada have access to that. That is true across the board. There are just different providers.

As the minister said—and I was listening carefully to his testimony here—the government has already announced that there are going to be regulations on codifying and putting standards in place both for internal dispute resolution and for external. We're looking forward to those regulations and participating in those kinds of consultations, because that will establish standards all can point to.

But the point is very clear that all banks are committed to providing robust and high-quality consumer redress to all the consumers they have.

4:45 p.m.

NDP

Robert Chisholm NDP Dartmouth—Cole Harbour, NS

Thank you.

Hoang.

4:50 p.m.

Conservative

The Chair Conservative James Rajotte

You have two and a half minutes.

4:50 p.m.

NDP

Hoang Mai NDP Brossard—La Prairie, QC

Thank you.

My question is addressed to Mr. Sarrazin.

Earlier, we asked the minister some questions about ministerial approval for the acquisition of foreign entities. Can you tell us how that worked before at Office of the Superintendent of Financial Institutions?

4:50 p.m.

Managing Director, Legislation and Policy Initiatives, Office of the Superintendent of Financial Institutions

Philipe Sarrazin

Thank you for the question.

As you surmised, this amendment will change the method. Currently, the decision comes from the superintendent. The review of the file begins when the financial institution submits an application, and then the review continues. Applying is a long and complex process that requires exchanging a lot of information as well as the gathering of information by the office. In short, the review of the file begins as soon as an application is submitted.

The superintendent's review is very exhaustive. It is an economic and legal review. A transaction is reviewed based on the contracts included in the file. The transaction is reviewed from an economic perspective, by considering the strength of the entity that is making the application and verifying if it has the financial strength to participate in the transaction in question. Ultimately, the people responsible for approvals at our agency make a recommendation to the superintendent, who then makes his decision.

With the proposed amendment—I don't remember your exact question anymore, but I suppose you want to know what will change if this amendment is passed—the final decision will be in the hands of the minister. However, that does not change anything about the process I have just described. In fact, the first step will be submitting the application to the Office of the Superintendent of Financial Institutions. The office will then diligently conduct the same exhaustive study, from an economic and legal perspective. This will culminate in the recommendation submitted to the minister, who will then make the final decision.

4:50 p.m.

Conservative

The Chair Conservative James Rajotte

You have 30 seconds left.

4:50 p.m.

NDP

Hoang Mai NDP Brossard—La Prairie, QC

Can you imagine a situation in which your suggestion would not necessarily be recognized, in which the minister makes a decision other than what you propose?

4:50 p.m.

Managing Director, Legislation and Policy Initiatives, Office of the Superintendent of Financial Institutions

Philipe Sarrazin

I imagine that would always be possible. However, I will not get into hypotheticals, especially since I don't work on approvals at the Office of the Superintendent of Financial Institutions, but rather on legislation.

However, we have to look at the criteria the minister must assess. According to the proposed amendment, he can use any criteria, but he must absolutely use two, one of which is the interest of the overall financial system.

If the superintendent believes that a transaction should not go forward because the financial institution is not strong enough to enter into that transaction, for example, how could the minister find that that same transaction is in the system's interest? It is therefore unlikely that the minister would find grounds to decide otherwise.

However, this is speculation, and I will not go any further.

4:50 p.m.

Conservative

The Chair Conservative James Rajotte

Okay, thank you.

Thank you, Mr. Mai.

We'll go to Mr. Van Kesteren, please.

March 8th, 2012 / 4:50 p.m.

Conservative

Dave Van Kesteren Conservative Chatham-Kent—Essex, ON

Thank you, everybody, for appearing before us. This is a great thing that we get to do in committee. When I read some of the quotes that come out.... You've heard them, I'm sure you've heard them.

The Fitch credit rating agency said that “Canada's banks proved more resilient than many peers thanks to a conservative regulation and supervision environment”. It's the old Scottish bankers' system, I think.

The Economist says, “Canada has had an easier time than most during the recent global recession, in part because of a conservative and well-regulated banking system.”

The Irish Times says, “Canada's policy of fiscal discipline and strict banking supervision was a reason why it was one of the world's strongest performers during the recession.”

My dear mother would have told me that when there was too much praise being heaped upon me to be careful, that I was being set up for a fall. I suppose this regulatory system we are talking about today provides us with some safeguards.

I'm going to direct most of my questions to you, Mr. Campbell, at this point anyway.

When we look at improving our financial system, the global economic turmoil highlighted one area where Canada needs more coordinated oversight, and that is in the area of improved securities regulations. Your organization has been clear that the current patchwork in Canada is very inefficient. It's costly, and there's a disincentive for foreign investors, I think you said. Can you elaborate on why you believe Canada needs a single regulator and how that would improve overall stability in Canada's financial system?

4:55 p.m.

President and Chief Executive Officer, Canadian Bankers Association

Terry Campbell

Thank you very much.

First of all, I would say there's an old Spanish proverb that says that the biggest enemy of the bullfighter is not the bull, it's the applause. That's related to your comment earlier.

We all know that there was a decision of the Supreme Court in December. It was on a very specific statute that had been put forward, and that particular statute did not pass muster, but some very important principles were outlined there. One is that there is federal jurisdiction over key aspects of the securities system. That is now established, and I think that's a very positive base on which to build.

On your point, all the reasons why we would need a single regulator are still there. We have an inefficient enforcement system for individual investors. It's scattered. It's diverse. It's fragmented. A bad actor in one province can just go to the next province and carry on business. That is entirely inappropriate. We find that the process of raising capital is unnecessarily complicated. We think that businesses would be able to raise capital in a much more efficient kind of way.

One of the lessons we've learned from the financial crisis is the importance of being able to have a coherent, unified policy system that can take policy decisions quickly. We have that. We have a single unitary system on the prudential side, we have a single unitary system on the consumer side with the FCAC, but we do not have that with the securities side, and that slows down decision-making. It slows down responsiveness. One of the advantages of the system that we have now, in the areas other than securities, is that you can get the players around the table to talk about the decisions that need to be taken quickly. You cannot do that with a fragmented 13-party system.

So all the reasons why we felt a single regulator was needed are still there. We hope that taking some of the lessons coming out of that decision in December, there is a basis for continued discussions and we hope that does proceed.

4:55 p.m.

Conservative

Dave Van Kesteren Conservative Chatham-Kent—Essex, ON

I'm going to switch gears very quickly.

We know that what really got the ball rolling was the explosion of the housing bubble in the United States. There has been talk that we have the same situation here in Canada.

4:55 p.m.

President and Chief Executive Officer, Canadian Bankers Association

Terry Campbell

Very briefly, I think the situation in the United States and the situation in Canada are dramatically different. We have dramatically different mortgage markets. We have a dramatically different approach to lending.

You know, the approach of Canada's banks is they lend money to people who will pay it back. In the United States we didn't often see that. In Europe we didn't often see that.

We had a different approach to lending. We did not have a subprime crisis here. We do not have the artificial incentive of mortgage deductibility on your income tax. If you look at the single key statistic that separates the two countries, which is mortgages in arrears, more than 90 days not paid, in Canada those are less than half of one percent. That's now, over the height of the crisis, and before the crisis. We're careful lenders. Canadians are very careful borrowers.

4:55 p.m.

Conservative

Dave Van Kesteren Conservative Chatham-Kent—Essex, ON

Keep up the good work.

4:55 p.m.

President and Chief Executive Officer, Canadian Bankers Association

Terry Campbell

Thank you very much.

4:55 p.m.

Conservative

The Chair Conservative James Rajotte

Thank you, Mr. Van Kesteren.

Mr. Brison, go ahead, please.

4:55 p.m.

Liberal

Scott Brison Liberal Kings—Hants, NS

Thank you very much.

I hope you're right, Mr. Campbell, in your assertion that Canadians are careful borrowers. I have concern. There is a growing concern about the personal debt bubble in Canada at $1.50 for every dollar value of income. It's unprecedented for Canada. It's higher than that of our previously thought to be spendthrift cousins to the south.

The Economist magazine stated, in the February 4 edition, “When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug...”, and “During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America”. But the Canadian housing prices hit new record highs by 2010. It quotes Prime Minister Harper saying, “Canada was not a part of the problem”.

The Economist goes further, stating, “Today the consensus is growing on Bay Street...that Mr. Harper may have to eat his words”. It goes further—the slowdown in emerging markets, the fact that housing prices have doubled, or have grown significantly, particularly in places like Vancouver and Toronto.

Don't you share this concern, that we have a housing bubble, which is closely related to a personal debt bubble, in many Canadian centres today?

5 p.m.

President and Chief Executive Officer, Canadian Bankers Association

Terry Campbell

There are two things I will say in response to that.

The emphasis of your point is absolutely right in the sense that none of us—and that's certainly not the case with Canadian banks—can be complacent about the levels of Canadian debt. We agree. We monitor this very carefully. We agree with the warnings from Minister Flaherty and from Governor Mark Carney. This is not something that should be taken lightly.

At the same time, it is important to put it into perspective. All the points, all the differences with the housing market, which I was just referring to in response to Mr. Van Kesteren, are very true.

When we look at the housing market in Canada.... I am not an economist. I cannot give you an economic forecast. But the preponderance of opinion I see, on Bay Street and elsewhere, is that there is some froth in the market but that it is slowly coming down. We are not talking about a bubble. We are not talking about a dramatic collapse. There is some softness that will happen. We are seeing consumer borrowing levels having risen.

And remember, today is the day the Bank of Canada released its policy decision on interest rates. It's kept them very low, historically low, almost to the point of free money. The point of doing that was to encourage people to borrow, to continue the economy going forward. The balancing act is that you have to encourage those expenditures but you have to be careful that it does not get inflated.

I would say we are seeing a slowing down of that consumer lending. There will be a softening of prices. I'm quoting here, Mr. Brison, the preponderance of opinion that I read.

5 p.m.

Liberal

Scott Brison Liberal Kings—Hants, NS

Has your organization expressed an opinion on the Volcker rule?