Evidence of meeting #22 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was bank.
A recording is available from Parliament.
Liberal
The Chair Liberal Wayne Easter
Let me interrupt you to seek unanimous consent that we continue until the countdown is about—the bells have started—10 minutes away from the vote. Is there consent?
Liberal
Liberal
Steven MacKinnon Liberal Gatineau, QC
I'm almost done, Mr. Chair.
So the CDIC is in charge of the redress process. If a pension fund or another systemically important financial institution were exposed in such a way, that would be done transparently by a public insurance corporation like the CDIC.
Director, Financial Institutions, Financial Sector Policy Branch, Department of Finance
I'll go back to clarify my last remark.
CDIC would be responsible for the redress process, as well as the overall management of that institution. There are also provisions for a third party assessor. It's not only the corporation itself, there would be a third party, and clearly a number of tools are available to CDIC through that juncture about what is the future of that entity. Is it some other form of ownership control, a reorganization? All the tools would be on the table and the powers would be available to them.
Liberal
Steven MacKinnon Liberal Gatineau, QC
I have one last question.
When did all the work that has led to this bill begin? How far back does it go?
Director, Financial Institutions, Financial Sector Policy Branch, Department of Finance
My team has been working on it for several years at Finance Canada together with our various supervisory agencies. The genesis of this work goes back to the G20 and the financial stability board and their work post financial crisis.
A lot of the work that has been done over the past years was on the prevention side, so bringing in all the new standards, capital, all the regimes. This is the trailing piece that, assuming we can't prevent it, let's make sure there's a smooth landing. This is really six or seven years in the making. A lot of work went into this not only in Canada but around the world.
Liberal
Chris Bittle Liberal St. Catharines, ON
Thank you, Mr. Chair, for letting a stranger ask a question or two.
It's a question on behalf of my colleague, Mr. Ouellette, with respect to clause 129 that amends subsection 30(1) of the act. The question is, why is the language permissive? Why is it “may” instead of “shall” send a report?”
Director, Financial Institutions, Financial Sector Policy Branch, Department of Finance
Actually, this is not an amendment. It's a provision that is actually in the current act that is not being amended, but we're happy to follow up to give you clarity on the “may” versus “shall.” Every time I ask that of my lawyers, I always get a lecture.
Liberal
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Actually, I'm just looking at the French one.
The French hasn't changed. I guess it might be a translation thing that you are trying to....
Liberal
Liberal
François-Philippe Champagne Liberal Saint-Maurice—Champlain, QC
Always.
Just in the line, there was a conforming change between French and English as we were looking at that, so it might just be an issue that some Department of Justice lawyers have suggested a conforming change between the two languages.
That might just be the answer.
Liberal
The Chair Liberal Wayne Easter
In any event, the witnesses will get back to us on the question, Mr. Bittle
Do you have another question?
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
I will be brief. Once again, I am asking this question mostly for our viewers or those following the committee's work.
There are three options when a systemically important bank is experiencing serious difficulties.
The first option is to let it go bankrupt, with the consequences that follow. There are economic consequences, but there are also consequences for investors, especially those not protected by the Canada Deposit Insurance Corporation.
The second option is a bailout, a recapitalization with government funding, so as to avoid economic consequences.
The third option proposed is internal recapitalization.
Are there any other options? Are those really the only three that are recognized internationally?
Director, Financial Institutions, Financial Sector Policy Branch, Department of Finance
Yes, to a certain extent all prudential or supervisory authorities have very similar options when it comes to a private institution that reaches a point of non-viability. Of course, the circumstance under which that happened drives the outcome of what choice is taken: is it idiosyncratic, one institution, is it multiple, is it something outside your borders? The scenario can really be different and likewise the size of the institution.
In this case for those institutions deemed systemic, insolvency is not an option because they are systemic. The premise here for bank customers is that they would not see an effect; their deposit accounts, their deposits, the bank would be there, they would not be affected. This is really about somebody else taking control of that institution to ensure it continues to serve Canadians and the Canadian economy.
Yes, there would be choices that are made either to bail-in or even other options about using other tools available to support that institution. It's really not a few, there's a suite of options, but in the case of a systemic institution this is designed to avoid a protracted insolvency that would not be in the best interests of the Canadian economy.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
In one case basically it would be all Canadians suffering through the economic shock, or in a different instance it would be all taxpayers through the government. In this instance the bail-in actually aims at only having those who have contracted some form of long-term debt security with the bank, and they should actually have been aware of the risk of actually doing this. So the risk is limited to them.
Director, Financial Institutions, Financial Sector Policy Branch, Department of Finance
I think you've nailed it in that sense. It's really about putting creditors as well as shareholders in the sequence of response ahead of the taxpayer in that scenario.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
I have one last quick question.
I think Mr. MacKinnon wasn't sure about the question that he asked, so I might be repeating him. I'm sorry about that.
It is ensured that those who have a TFSA, an RRSP or an RRIF with a banking institution are not at risk, as investors are not at risk either.
Director, Financial Institutions, Financial Sector Policy Branch, Department of Finance
If I may, let me differentiate. If you were a customer of an institution and you had deposits or mutual fund RRSPs, from a portfolio point of view, none of your client's interfacing with the bank should be disrupted. It should not be disrupted. Your client's interface with that institution should be maintained: their accounts, their provisions, loans, mortgages, car loans, should continue seamlessly. However, if they own an instrument that it in itself is exposed to this, or the general economy, that's not to say that the value will not fluctuate with whatever is happening to the institution or to the bank.
That's how those two scenarios differentiate.
Liberal