Finance Committee on May 18th, 2016

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

I have two brief comments.

I think you said this a second ago, Mr. Campbell. The framework that was developed through the FSB and the G20 was really something to shift the risk or to have skin in the game for shareholders and creditors, and to ensure that—whether by equity injections from a federal government, which happened in the United States, or by creating a bad bank-good bank, maybe in Europe—what happened in Ireland and the U.K. is not repeated, that there is no risk for taxpayers. It is obviously a piece of legislation that is needed and that we need to continue forward with.

I would say that, in terms of regulation, the Canadian banks and regulators have demonstrated a certain level of prudence and overall capability that is second to none in the world. I think that has been seen overall.

History sometimes doesn't repeat itself, but having worked at a financial institution for many years, I want to say that the level of interaction among OSFI, the officials, and the banks is very good, and that is demonstrated in terms of the results. Whether it is loan losses that the banks carry, provisions, capital levels, or looking at value at risk and all the measures that are in place, Canadians should be well confident when they go to sleep at night that their financial institutions are sound and very well regulated.

[Glenn Campbell]

May I respond, Mr. Chair?

Thank you for that. I agree. I just wanted to be clear in interpreting my last statement that this puts creditors and shareholders ahead of the taxpayer. Just to be clear, there is always contingent liability on the taxpayer where we backstop, in many ways, the financial system. I think we had that conversation earlier, that this really mitigates the risk in ensuring that, before you ever contemplate the taxpayer's being involved, you have the creditors and shareholders there in advance.

Thank you.

[The Chair, Liberal, Wayne Easter]

Are there further questions for this group of witnesses?

Thank you very much, witnesses.

We will turn to division 8. This does not look like a long division, so maybe we will get through it quickly. We get 10 minutes.

Division 8 deals with the Financial Administration Act. We have Mr. Ram and Ms. David.

Ms. David is an adviser and economist with the funds management division, and Mr. Ram is director of the funds management division.

The floor is yours, Mr. Ram, and I believe you have a brief overview.

[Elisha Ram, Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance]

Thank you, Mr. Chair.

As you mentioned, we are here to speak to you about part 4, division 8, with respect to the Financial Administration Act.

These proposals are with respect to the provisions in part 4 of the bill, which I will refer to as the FAA for short. This part authorizes the Minister of Finance, with the approval of the Governor in Council, to borrow on behalf of the government, including for issuing securities and undertaking related activities.

Prior to 2007, the Minister of Finance was required to seek approval from Parliament to increase market borrowing. Amendments were made to the FAA in 2007 that removed the need for the minister to seek parliamentary approval in seeking to increase market borrowing. This division amends the FAA to restore the requirement for the Minister of Finance to seek parliamentary approval of borrowing activities, including the borrowing of agent crown corporations.

I would be pleased to take your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Ram.

Who wants to start?

You did say agencies of the government as well. Did I catch the last part?

[Elisha Ram]

Agent crown corporations, that is correct.

[The Chair, Liberal, Wayne Easter]

Who wants to start? Are there any questions?

That would really be unusual. Somebody said they had questions. That is why we have the witnesses here.

We will let you go, Mr. Sorbara.

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

Thank you, Mr. Chair.

I was wondering if you could comment on the changes within this bill and how it differs from the current process, please.

[Elisha Ram]

Certainly.

The current process essentially means that when the Minister of Finance wishes to increase market borrowing, he or she makes a submission to the Governor in Council. Once the Governor in Council approves, the minister has the authority to proceed.

What is being proposed here is that the minister, in wishing to increase borrowing, would have to come before Parliament and seek parliamentary approval for doing so.

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

In effect, you'll restore parliamentary oversight?

[Elisha Ram]

That is correct.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Champagne do you have a comment?

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

I have a question. I would like to come back to my colleague Mr. Caron's comments on this provision.

I know that this provision has existed in the past, that it was repealed by the previous government and then reinstated under the current bill. Could you tell me about the history of that provision, of the chapter or section that provides for requesting Parliament's authorization? There is a legislative history behind this, and I would like you to share it with us, for the benefit of our viewers.

[Elisha Ram]

Thank you for the question.

You're correct, Mr. Champagne, that prior to 2007 the Minister of Finance was required to come before Parliament and seek authority to increase market borrowing.

I want to make it clear that even under the pre-2007 provisions, the minister had standing authority to refinance any existing market debt. Once a dollar was borrowed, the minister could continue to refinance that dollar without seeking parliamentary authority. The minister had to come back in order to increase market borrowing.

In 2007, the act was amended, and it essentially delegated that authority to the Governor in Council. Between 2007 and the present time, if the minister wanted to increase market borrowing, the minister had to go to the Governor in Council and not to Parliament. What is being proposed here is to, in large part, restore the provision that existed prior to 2007 in terms of requiring parliamentary authority. There are a number of differences between the regime that's proposed here and the regime that existed prior to 2007.

With your indulgence, I'll quickly run through those. Prior to 2007, there were some provisions that allowed the minister to borrow in circumstances that required urgent action without coming to Parliament. We are introducing measures with a similar intent in this bill, but in a slightly different way. In particular, the minister would have standing authority in extraordinary circumstances to go to the Governor in Council rather than Parliament to seek borrowing increases.

Whenever the minister makes use of this authority, there is an onus to inform Parliament within 30 sitting days. The minister would be required to report on this extraordinary borrowing separately from regular borrowing until they are extinguished. In addition, as I've already referred to, we are including borrowing from agent crown corporations in the authority that the minister must seek from Parliament. This was not previously the case, even prior to 2007.

Finally, the amendments that were made in 2007 included some additional reporting requirements of the minister, and those remain in force.

[The Chair, Liberal, Wayne Easter]

Okay.

Mr. MacKinnon, you have the last question in this section.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you.

Thank you for joining us.

I would like to know what constitutes exceptional circumstances, in the context of this amendment.

[Elisha Ram]

Extraordinary circumstances by their nature are difficult to define, because we don't know what we don't know. We have provided a number of examples in the bill, including a natural disaster or circumstances that imperil the stability of the financial system in Canada. These are intended to communicate the gravity of the situation we are trying to decide. In other words, we mean unpredictable, large-scale types of impact that cannot be previewed and where urgent action is necessary, but the language was drafted to retain flexibility in case something was to occur that we did not anticipate.

[Steven MacKinnon, Liberal, Gatineau, QC]

As a measure of transparency, when something is approved by Parliament instead of by the Governor in Council, Canadians are better informed, by definition.

Is that right?

[Elisha Ram]

The population is being informed in either situation because of the requirements on the minister to table reports in advance of making borrowings at the beginning of each fiscal year and at the end.

Whether the borrowings were approved by Parliament or the Governor in Council, those would be reported to Canadians.

[Steven MacKinnon, Liberal, Gatineau, QC]

That still requires better planning and better communication by the minister...

[Elisha Ram]

Absolutely.

[Steven MacKinnon, Liberal, Gatineau, QC]

... since they must come to Parliament to obtain the approval.

[Elisha Ram]

Correct.

[Steven MacKinnon, Liberal, Gatineau, QC]

I have one last question.

In 2007....