Finance Committee on Nov. 6th, 2017

[The Chair, Liberal, Wayne Easter]

We went through the list earlier, Francesco. We don't need to go through that whole list again.

I don't think you want to either, Nicole.

[Nicole Giles]

I'm very happy to.

[The Chair, Liberal, Wayne Easter]

Anyway, that's it.

Number one, I do want to thank you for all your work, Neil. I know you put a lot of work into this, and others did as well. Thank you. I think we had a very thorough discussion on this point at committee, so thank you for your forthright answers. That will be it for this division.

You're still going to be here, I gather, Neil, for the next one—

[Neil Saravanamuttoo]

Yes.

[The Chair, Liberal, Wayne Easter]

—as will Nicole. That's great.

From the international development financing arrangements area, we have Ms. Giles and Mr. Saravanamuttoo.

Go ahead, please.

[Nicole Giles]

For division 3 of part 5, the short title we're using is program transfer. This item relates more specifically to the program transfer of the global agriculture and food security program's private sector window, GAFSP, and the financial mechanisms for climate change facility. This is largely an administrative transfer.

In terms of context, as has already been touched on in previous discussions, for several years the Government of Canada has been exploring how to bring in and leverage private sector financing for international development. There have been a whole series of movements involving different approaches away from purely traditional grants and contributions. This is part of the “billions to trillions” agenda.

In 2010-11 the government engaged with the World Bank's private sector window, the International Finance Corporation, in this area in terms of how to look at bringing in the private sector financing. This led to three agreements that were focused on climate change and food security.

The first is on the financial mechanisms for climate change facility, concessional finance. The second agreement is on the financial mechanisms for climate change facility, the concessional finance and technical assistance agreements, excluding the IFC Catalyst Fund. The third is on the global agriculture and food security program private sector window.

At the time, the Minister of Finance, under the Bretton Woods act, had the ability to make use of equity investments, which was required for these types of agreements. The Department of Finance at that time also had the required expertise in working with equity investments and within private sector financing windows, so the decision was made at that point that the three agreements would be administered by the Department of Finance.

With the launch last year of Canada's new feminist international assistance policy, increased focus is being put on the need to develop mainstream, innovative financing approaches, including with regard to loans and equity investments. This also requires building additional capacity and expertise on how to work in these private sector windows.

At the moment the Minister of Foreign Affairs does not have the necessary authorities to hold equity investments and is therefore unable to administer the three programs in question. As a budget 2017 measure, required legislative changes to the Minister of Foreign Affairs' authorities for the administrative transfer of the programs are being proposed as part of this budget implementation act.

The scope of the proposed legislative changes to the authorities of the Minister of Finance is limited to the transfer of these three programs only for this time. The Department of Finance and Global Affairs Canada officials are considering options with regard to how to potentially consider expanded authorities beyond these programs in order to better facilitate innovative development financing, but that's not being considered as part of this budget implementation act.

Lastly, these legislative changes will not alter, in any substantive way, Canada's relationship with the World Bank or with the IFC.

[The Chair, Liberal, Wayne Easter]

Okay.

We're open to questions.

Just to start those, how are the equity investments held? Just expand on the equity investments that you talked about, Nicole or Neil.

[Neil Saravanamuttoo]

Sure. The Government of Canada holds equity investments through multilateral development banks that have programs to do these. We're just a limited partner in those funds.

[The Chair, Liberal, Wayne Easter]

Okay, does anyone else have any other questions?

Mr. Kmiec.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I just have a quick question. You mentioned that this would enable the Minister of Foreign Affairs to hold equity through these three programs. I'm just curious. How common is it for other ministers to hold equity in other government-run programs? I would like a point of comparison here.

[Nicole Giles]

Do you mean across other countries or within the Government of Canada?

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I mean within Canada.

[Nicole Giles]

I don't know about other ministers.

[Neil Saravanamuttoo]

To be honest, we'd have to look into that and compare across the entire portfolio.

Essentially, what this program is doing is recognizing that there are times when there are different financing vehicles that are the most appropriate to achieve certain objectives. In the case of these programs, equity happens to be a component of that. That's why we were seeking authorities.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Okay. Could we maybe get that information, if it's available within the Government of Canada? It's just out of curiosity, because I always thought the Minister of Finance would hold equity on behalf of the Government of Canada. I just want to know which other ministers have to do that in order to fulfill their obligations.

[Nicole Giles]

We can absolutely get that for you. To provide some context as well, these are authorities that many of the other ministers of foreign affairs or ministers of international development do hold in other countries so they're able to engage directly. We'll be aligning a little bit more with our other G7 partners on this.

[The Chair, Liberal, Wayne Easter]

That's it. It was a shorter discussion than the previous one.

Thank you both once again. That will complete the discussion on division 3 of part 5.

We will call up those who are here for division 4, the Canada Deposit Insurance Corporation Act.

We have Mr. Dussault, senior chief, framework policy, financial sector policy branch, and Mr. Robinson, senior adviser-economist, financial sector policy branch.

Welcome. The floor is yours.

[Manuel Dussault, Chief, Securities Policy Division, Department of Finance]

Thank you.

I have a very short presentation, and then we can turn to questions.

The proposed amendments to the CDIC Act would clarify the treatment of and protections for eligible financial contracts in a bank resolution process. They aim to ensure an appropriate balance between a robust bank resolution tool kit that prevents mass termination of a bank's financial contracts in a resolution and adequate safeguards for the rights of parties to these contracts to manage their risk.

The proposed amendments clarify that, generally, the state preventing parties to eligible contracts from terminating those contracts for reason of insolvency or deteriorated financial condition of a bank applies only for a period of two days following entry of the bank into a CDIC resolution process.

Thank you.

[The Chair, Liberal, Wayne Easter]

You're right. You were short. Thank you very much.

Are there any questions? All in, all done.

That was simple and to the point, gentlemen. Thank you very much.

Turning to division 5, Bank of Canada Act, we have Mr. Brown, director of financial stability, financial sector policy branch with the Department of Finance, and from the Bank of Canada, Mr. Graham, principal economist.

The floor is yours. Welcome, and thank you.

[Justin Brown, Director, Financial Stability, Financial Sector Policy Branch, Department of Finance]

Thanks, and good evening, everyone.

We'll provide a very brief overview and then be happy to answer any questions.

Part 5, division 5 relates to emergency lending assistance. Emergency lending assistance is a loan or advance to eligible financial institutions or financial market infrastructures at the Bank of Canada's discretion. It is designed to provide last-resort liquidity to individual financial institutions facing serious liquidity problems.

In 2015, the Bank of Canada modified its emergency lending assistance policy to include mortgages as acceptable collateral. This decision to accept mortgages as collateral significantly increased the capacity of eligible financial intuitions to draw on emergency lending assistance. It also provided the Bank of Canada with greater flexibility in the types of collateral it may choose to accept. However, under the Bank of Canada Act, the bank is legally required to lend on a secured basis, meaning it must obtain a valid first-priority security interest in any collateral pledged for emergency lending assistance. In the case of collateral backed by real properties, such as mortgages, this requires the transfer of the legal title and its registration in the land registry or title office where the mortgage is located. This process is time-consuming and effectively limits the quantity of collateral that can be pledged.

The proposed amendments seek to overcome these impediments and allow the Bank of Canada to take mortgages as collateral in meaningful quantities by allowing loans secured by real property to be pledged by assignment only, that is, transferring the rights to the mortgage without registration. The proposal also seeks to clarify existing provisions in the Canada Deposit Insurance Corporation Act, protecting the bank of Canada and the Canada Deposit Insurance Corporation's ability to exercise their rights as secured creditors on obligations secured by real property or immovables, whether on a secured or assigned basis. It's a related consequential amendment.

[The Chair, Liberal, Wayne Easter]

Thank you, gentlemen.

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

During the global financial crisis, a liquidity facility was entered into with the Bank of Canada. Does this relate to that or harken back to those days, these amendments?

[Christopher Graham, Principal Economist, Bank of Canada]

Which facility do you have in mind?

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I believe it was $150 billion or $75 billion that was entered into with the Canadian banks. It gave them more liquidity in terms of the mortgages they had at the time.

[Christopher Graham]

Emergency lending assistance is something that we haven't used since 1986, so it's not related to that.