Finance Committee on May 18th, 2016

[Sandra Hassan]

Of course it is.

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

Can a government engage another government from another Parliament?

[Sandra Hassan]

Parliament is sovereign and can do as it pleases.

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

In other words, there is nothing unusual about a government, in a sovereign Parliament, repealing a piece of legislation that was adopted in a previous Parliament. That is completely acceptable in the practice of Canadian or British law.

[Sandra Hassan]

I can only say that it has happened over the course of history.

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

So this is a practice that we have seen in the past and that is completely acceptable under our Constitution and our legal practices. Ms. Hassan, you are confirming that every Parliament is sovereign. The practice of applying a provision repealing a piece of legislation adopted in another Parliament has already been used by the Parliament of Canada.

[Sandra Hassan]

I can confirm that we do have other examples of such repeal clauses.

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

Exactly.

So I will close by pointing out, Mr. Chair, that there is nothing unusual in repealing a piece of legislation, given the Parliament of Canada's sovereignty.

[The Chair, Liberal, Wayne Easter]

Mr. MacKinnon and then Mr. Caron.

I want to remind members, we're sticking to the budget implementation act, and we're not going to go far astray of that, or I'll cut the discussion.

Mr. MacKinnon.

[Steven MacKinnon, Liberal, Gatineau, QC]

I'll pass, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Are you done?

Mr. Caron.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

I would like to ask a question, which you probably cannot answer, but I want to do it anyway. If Parliament is sovereign and can, as my colleague Mr. Champagne said, decide to change decisions made by a previous government, could the fact that a government is exempting itself from an obligation while it is in force be considered as moral or ethical in the eyes of Canadians?

[Sandra Hassan]

I cannot answer questions concerning morals or ethics.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

That's what I thought, but I felt it would be important to ask the question.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Hassan and Mr. Recker.

We'll turn to division 5, the bank recapitalization regime bail-in.

From the Department of Finance we have, Mr. Daniel Robinson, who is senior project leader; Mr. Glenn Campbell, who is director of financial institutions; and Ms. Alexandra Dostal, who is senior chief, framework policy, financial institutions division.

Welcome, and thank you for coming.

Do you have a statement or an overview of division 5 first?

Mr. Campbell.

[Glenn Campbell, Director, Financial Institutions, Financial Sector Policy Branch, Department of Finance]

Yes, Mr. Chair. Thank you.

While I provided an introductory comment at my previous experience on Tuesday, May 10, I thought a quick recap of part 4, division 5, of Bill C-15 would be helpful.

The proposed amendments in part 4, division 5, provide a legislative framework for a bank recapitalization, or a bail-in regime. Bail-in is the power to convert certain long-term debt of a failing bank into common shares to absorb losses, recapitalize the bank, and allow it to keep operating.

As we clarified in our last discussion, all deposits are excluded. Amendments to the Canada Deposit Insurance Corporation Act would provide CDIC with the power to undertake a bail-in conversion. Implementation of the proposed bail-in regime would give authorities an additional tool to deal with the unlikely failure of a major bank in a manner that protects financial stability as well as taxpayers.

These reforms would strengthen our tool kit for managing bank failures, so that it remains consistent with international best practices and standards endorsed by the G-20 following the financial crisis. We would be pleased to address any additional questions the committee may have.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Campbell.

We'll start with with Mr. Sorbara.

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

I'm glad you re-emphasized the fact depositors will remain unaffected in the event that a bail-in mechanism takes place, or in bank talk, if capital levels become so low at a major bank there needs to be a recapitalization of that bank, if I remember the way it works.

I want to ask about systemically important banks. Could you clarify that for all of us, please?

[Glenn Campbell]

A systemically important bank is a categorization and a nomination by the Superintendent of Financial Institutions. The superintendent, under law, will have the power to nominate or declare which institutions are deemed to be systemically important. In Canada, the superintendent has already so declared that our six major banks are deemed to be sufficiently systemic in nature, so that their failure would pose harm to the Canadian economy, and therefore, they would be subject to additional supervisory requirements. In this case, under the act, they would be subject to the bail-in regime. The determination is multifold, it's made by the superintendent, and it's consistent with international practices.

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

My understanding is that they are also, because of this designation, required to hold an extra buffer of capital. It's called tier one capital. It is 1% or 1.5%.

[Glenn Campbell]

Institutions that are deemed to be systemically important basically attract a whole host of additional supervisory and regulatory oversight, which includes additional capital, constraints on risk management, and overall supervision. Really, they attract even more than just the additional capital buffer.

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

We've seen this framework put in place in the United States—it's my understanding that it has been put in place already through the Federal Reserve—and in Europe. Do you have any idea of the timeline this will follow within the legislative framework that is being developed?

[Glenn Campbell]

On the timeline going forward, we have consulted intensely with the industry about having a path forward for banks that need to be compliant and effectively introduce these new instruments to the marketplace. The banks have asked us that question. Of course, pending parliamentary approval of the legislation, we would anticipate moving forward with regulations in the fall. That would include additional consultations. We would anticipate that it would come into effect sometime in 2017, at which time banks could start issuing this new form of debt. The coming into force date would be determined in regulations.

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

Just for my recollection, will these regulations also include the category of holding additional loss capital?

[Glenn Campbell]

No, they will not. The superintendent of OSFI will be moving concurrently, under his proviso, to stipulate the amount of losses or of incapacity in each bank. We expect that in the coming months. It would be a concurrent decision on the superintendent's part.