Evidence of meeting #59 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was change.
A recording is available from Parliament.
9 p.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Accordingly, this does not affect other CMHC activities.
9 p.m.
Chief, Financial Institutions Division, Housing Finance Review, Financial Sector Policy Branch, Department of Finance
I'm sorry, could you repeat that?
9 p.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
This does not affect other CMHC activities, just the securitization activities.
9 p.m.
Chief, Financial Institutions Division, Housing Finance Review, Financial Sector Policy Branch, Department of Finance
The amendment covers all the commercial activities, so it includes mortgage insurance, in part--well, securitization, specifically, but it has a general.... For example, the role of the superintendent is with respect to all of the commercial activities. It certainly does not touch the affordable or social housing programs offered by the CMHC.
9 p.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you. That is what I was getting at.
The other issue is the creation of a new institution registry. How much will it cost to create this registry, who will administer it and under what rules will it operate?
9 p.m.
Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance
We don't expect there to be significant costs associated with the registration for covered bonds. I believe you have CMHC as a witness, and I think it would be appropriate to ask them what their expectations are.
9 p.m.
NDP
9 p.m.
Conservative
Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC
Thank you.
I think where we're going is very important. It also seems there might be some relevance to the history in terms of how we got here.
Rather than have everyone try to gather the information from their memories in terms of the history, it would be very helpful if you could submit in writing to the committee a bit of the history from 2006 forward That would be very helpful, and I'd appreciate it. To have it in writing would be great.
Thank you.
9 p.m.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
Thank you, Mr. Chair.
I understand this division deals with CMHC securitization programs. Can you explain more in terms of what is being dealt with on that issue?
9 p.m.
Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance
Sorry, are you asking me to explain what a covered bond is, or what the amendments are designed to do?
9 p.m.
Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance
During the period of the financial crisis there was a restriction on the ability of financial institutions globally to fund in commercial markets. In particular, commercial securitization markets effectively shut down.
One type of securitization that continued to function was the covered bond market. Part of the reason is that the covered bond has a dedicated pool of assets that stands behind the bond and is collateral in the event that the issuer, the bank, for example, were to fail. The covered bond itself would continue to function because these bonds continue to generate income that would support the payout on the bond.
These amendments are creating a legislated framework in Canadian law to support the structure of that covered bond.
9:05 p.m.
NDP
Hoang Mai NDP Brossard—La Prairie, QC
Are private insurers covering those covered bonds--not CMHC, but private insurers that are backed by the government?
9:05 p.m.
Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance
The fact that we're using CMHC as the registrar does not have anything to do with its role in mortgage insurance. The assets that are going to stand behind the covered bond are, by legislation, required to be uninsured mortgages.
We're using CMHC because it has an expertise in dealing with the financial institutions that are most likely to issue these types of bonds. They have experience in the securitization market and how the structure of those types of bond programs will work. They're being used as a registrar more than as a source of insured product.
9:05 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Thank you for that clarification.
If I understand you, there's no increased risk to CMHC from these proposed changes. They're being used as a vehicle to administer the covered bonds but they don't accept any liability for any of these products.
9:05 p.m.
Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance
That's right. The covered bond is not a product that has any backing from the Government of Canada.
9:05 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
If I understand this correctly, they cannot operate here. We cannot have the covered bonds here unless there is.... Some governments don't allow them to be sold here unless there's a legislative framework. Is that correct?
9:05 p.m.
Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance
Yes. There's a slight nuance on that. Currently most of our big banks in Canada issue covered bonds, but not under a legislated framework; they issue them under a contractual framework.
Investors in some countries, mainly in Europe, restrict investments in covered bonds that are not established pursuant to a legislated model. What we're doing is creating a legislated model in order to expand the numbers of investors who may be able to consider purchasing Canadian covered bonds.
9:05 p.m.
NDP
Peggy Nash NDP Parkdale—High Park, ON
We would expect more foreign investment or foreign money in these bonds. Is there any inflationary impact in that? Is there any negative impact from encouraging that investment? Is there any cost to CMHC for the administration of the covered bonds?
9:05 p.m.
Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance
To answer the second question first, there are provisions in the amendments to allow CMHC to charge a fee to the covered bond issuers that will replace any costs that CMHC incurs in the office of the registrar.
