Government Operations Committee on Oct. 31st, 2016

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

We're looking at it, but—

[The Chair, Conservative, Tom Lukiwski]

Thank you, Ms. Mendès.

Mr. Weir, please, for three minutes.

[Erin Weir, NDP, Regina—Lewvan, SK]

Mr. Hannah, you described the Canadian banking sector as very competitive. I think conventional economic theory would tell us that competition tends to pull down profits, yet the Canadian banking sector is exceptionally profitable year after year. I wonder how you'd explain that.

[Darren Hannah]

I would explain it because we have strong banks and we have good management, but what we also have is very competitive pricing. I'll give you an example on accounts—

[Erin Weir, NDP, Regina—Lewvan, SK]

For these five or six institutions, each one is exceptionally well managed year after year, decade after decade. Is that your explanation of Canadian bank profits?

[Darren Hannah]

I can tell you that Canadian banks made it through the financial crisis without the need of a government bailout and in fact increased business over that time. Almost no other developed country can say that, so are Canadian banks better managed than those in other countries? I think the proof says yes.

[Erin Weir, NDP, Regina—Lewvan, SK]

I think part of the reason that Canadian banks survived the financial crisis is that they're an oligopoly. That might be a source of strength in resisting the financial crisis, but it's not the same thing as saying they're competitive in serving consumers.

[Darren Hannah]

The structure of the Canadian banking sector, actually, as I noted in my opening remarks, has more large banks in its geography than what you'll see in most of Europe likewise.

You can look at who Canadian banks compete with, in addition to competing vigorously with each other. There are, as I said, 40 in the marketplace that provide individual products and services. They compete very vigorously and get very vigorous competition from other deposit-taking institutions, from credit unions, the caisses populaires, and trust companies all across the country. It's a highly competitive market, with a lot of players.

[Erin Weir, NDP, Regina—Lewvan, SK]

There are obviously federal restrictions on foreign ownership of banks. I think there are arguably some very good public policy reasons for that. Would you see banking as a protected sector in the Canadian economy?

[Darren Hannah]

We have a number of foreign banks in this country, and a number of very large and successful ones. HSBC has a very large presence here.

[Erin Weir, NDP, Regina—Lewvan, SK]

But American banks can't just come in and open branches wherever they want and fully compete with Canadian banks.

[Darren Hannah]

As long as they have a retail licence, they can come and open branches if they want, and some of them have opened branches here.

[Erin Weir, NDP, Regina—Lewvan, SK]

You don't think the foreign ownership restrictions for Canadian banks are of any real effect in terms of competition? You don't think they limit competition in any way?

[Darren Hannah]

I think we have a highly competitive sector, and I think we've had a lot of foreign banks enter Canada very successfully and do very well.

[Erin Weir, NDP, Regina—Lewvan, SK]

Okay. You don't see the limits on foreign competition as putting banking in a different category than other industries in terms of competition.

[Darren Hannah]

No. I want to take issue with the premise of your question. Foreign banks can and do enter the Canadian marketplace.

[The Chair, Conservative, Tom Lukiwski]

Thank you.

Colleagues, before we go into our next round, I want to get a sense of whether we have a full complement of questioners.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Yes.

[The Chair, Conservative, Tom Lukiwski]

Okay. At some point in time, if we have a spare moment, I would like to go over the schedule for the rest of the week for about five minutes in camera with the committee.

That said, Madam Ratansi, you're up for another seven minutes.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you all for coming. It's a pity we do not have the Kiwibank guys or other postal banking people.

We have been travelling across Canada, and you talked about 99% of the people having a bank account. When we look at the reality in the remote and rural areas, I've just had some statistics from the Canadian Centre for Policy Alternatives. For example, 84% of the communities in Newfoundland do not have either a bank or a credit union. When we went to Bathurst, New Brunswick, there was a community, Chipman. The mayor was saying the bank was closing, and if the bank closes, then the businesses actually do not want to take the trouble to go 40 kilometres away. We're trying to resolve an issue where we're asking how we help, how we work synergistically to ensure that we have a robust rural population and a robust urban population. What if postal banking were to come in and be a form of fringe financial services? Those people are saying that's what they want. The people who sell the mukluks do not have access to banks. If they want to do a deposit or take money out, what would be advantageous to the banks to participate with them? They have the infrastructure, they have the logistical network, and they have the last mile ability. All they need is probably a thinking banker. Would that work?

[Darren Hannah]

It's hard to generalize, because relationships can look different and it depends on what one is talking about. Relationships can be scoped out large or scoped out small. Are partnerships available, and do they happen? Periodically they will, but they are evaluated on a case-by-case basis and they're usually done on a commercial basis, so it's hard for me to say with certainty whether something would work or not. It would really depend on the circumstances at the time and in the locations.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

I'm taking different communities and then averaging it out, but 45% of Canadians don't have access to any banking, and the fringe services—the report says the fringe financial services, payday loans, money grams, etc.—are sometimes not available either. I'm looking to banks to be socially responsible. You know the best example one can look at is the Tata group. It has huge corporate social responsibility. Can we look at corporate social responsibility? If you don't have an answer just now, it doesn't matter. Could you just throw back some suggestions to us as to what would work, in your assessment? How can we take the whole logistical network, all the assets Canada Post has at the moment, and instead of dismantling it and throwing it away, capitalize on it? How can we leverage it? You guys are good at leveraging.

[Darren Hannah]

I'll take what you said. I don't have an answer right now. It is not simple. I don't know what the answer would be. I do wonder if the answer lies somewhere outside of financial services. It's something I'd ask the committee to look at, to consider whether or not there are alternatives in other areas, where physical presence and physical delivery are key. But I don't really have a strong answer for you right now in the context of your specific question.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Okay, it's not a problem.

Mr. Irwin, do you know if pawnbrokers and cash-for-gold people are regulated?

[Tony Irwin]

Pawnbrokers, I believe, do need a business licence, but I don't believe there are robust regulations like those that exist for our industry.