Industry Committee on Nov. 27th, 2007

[Nancy Hughes Anthony]

The banks obviously work with their clientele. They absolutely want their clientele to be sound and competitive. We haven't seen any general impact on banks.

I don't know whether my colleague Mr. Campbell has any comments to make on that point.

[Terry Campbell]

I think Nancy is absolutely correct. Overall, Canada has a very strong economy, and job growth is very strong. Of course, you do see sectors in which there is pressure. But what we try to do, on a case-by-case basis, with individual clients and certainly with business clients, is see the best way we can work through it, see the best way we can address their financial needs. So my sense is that there's an impact in the sense that account managers and branches and so on will need to work with individual clients, but in terms of, say, a negative impact on our industry, we're not seeing that.

[Mark Yakabuski]

I would say roughly the same thing. Fortunately, the other sectors have been doing well for some years. That makes the losses more difficult to measure. However, they are still significant.

[Frank Swedlove]

It's the same for us.

[Robert Vincent, Bloc, Shefford, QC]

Earlier you mentioned payday loans. Why is that industry flourishing in this country? Why don't people go to banks to borrow money? Can't you offer that service at more affordable rates than payday lenders? Why are you not involved in this niche?

[Terry Campbell]

Pardon me, but I have to speak in English.

[Robert Vincent, Bloc, Shefford, QC]

That's not a problem.

[Terry Campbell]

This is a very good question. It is a question a lot of people have studied. The industry has studied it. We've looked at it. We've commissioned studies. There have been other parliamentary reviews.

I think one of the issues, first of all, is that banks do provide short-term credit, and this has always been a little bit of a mystery to us. The credit is there from banks. It is cheaper. It is more available. So the question then is, why do people use payday lenders?

There have been a lot of studies. I took your point earlier that there is a case of the poverty aspect, but the typical profile is a well-educated person with a job, with an average salary of $35,000, $45,000, $50,000, and if you ask them why they use that, maybe it's because the payday loan store is open at 11 o'clock at night and they need short-term cash. There are issues...people do run short. I think a large part of the answer, quite frankly, is that there is a category of the population that has real challenges managing money. The outgo is consistently more than the income.

That's not an issue necessarily of poverty. It's a question of budget management. There are other issues of payday loans linked to either addictions or gambling.

What I'm saying is there is a whole array of motivations as to why people use such institutions, and I think it's very challenging to focus in on one particular set of causes. But at the end of the day, banks do provide short-term credit.

[The Chair, Conservative, James Rajotte]

Thirty seconds.

[Robert Vincent, Bloc, Shefford, QC]

We hear it said that all the banks, credit unions and financial institutions lost a lot of money as a result of the U.S. crash in mortgages. Will the impact travel here to Canada, or will we face that wave without a problem?

[Nancy Hughes Anthony]

Unfortunately, I think we're going to feel an effect. The major Canadian banks will be releasing their results this week and next week, and I don't want to comment on that question.

As I said in response to another question, I think that Canada has really stabilized the situation, or at least I hope so. As regards losses, it remains to be seen who will lose and how much. It isn't resolved yet. In Quebec, for example, a group of banks and companies is taking part in the Montreal Accord. I hope the results are positive, but we won't know before the end of the proceedings, in a few weeks.

[The Chair, Conservative, James Rajotte]

Merci, Monsieur Vincent.

We'll go Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair. Thank you, witnesses, for appearing before us this morning.

As was stated, we had what I believe was an excellent report for manufacturing, and it was suggested that we do the same thing for banking and the insurance industry. I think that's a marvellous idea.

It became evident, and I think it's becoming evident in your testimony as well, that the two are very much linked. I would suggest--everybody knows this, though we don't often talk about it--that the banking industry and the insurance industry are really investors, and your job is to take the hard-earned money of those who make their deposits and grow them.

You've done that by picking winners and losers, and I think that's a good thing. I think we'd expect you to do that as well. Now we've broadened our horizons, and the world is changing. It has been so interesting to hear that it's so important to have free trade agreements to maintain that stability, but I guess there's a question that begs to be answered. Many of the manufacturing jobs we're losing...is it inevitable? Are we moving toward something that although it may look somewhat frightening, there are some clear skies in the distance?

To add to that, what do you suggest? I need a few more solid suggestions. What can we do as a government to make sure that your job, as investors, is easier? What can we do to continue moving in that direction so that we'll have a strong economy?

[Mark Yakabuski]

I just want to make a small correction or addition to that. Property and casualty insurers are not investors. Our role in the financial markets is different from that of banks and life insurance and health insurance companies, in the sense that we are not wealth managers; we are risk managers and risk poolers. That's our vocation in the markets, to share with you the risk, to help you manage that risk, and that's what we use our dollars for. So it's a bit of a different vocation.

I would want to say with respect to the manufacturing sector that smart companies are always going to be there. The relationships they establish with their insurers, with their banks and so on, will help sustain them in that vocation.

I had the pleasure, for example, of talking to David Foot at the University of Toronto, a great demographer. If you look at the demographic pyramid of China today, China has an aging population. They're going to be facing the challenges that you and I are talking about today in 10 to 15 years. China is not going to be the lowest-cost producer in 10 years. That's going to change the shape of the world dramatically.

So many of the trends we are seeing today are not necessarily the ones that we will see going in the future, which is why we need to make sure we have a solid manufacturing core in Canada.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Could the banking section and the insurance industry also comment on that?

[Frank Swedlove]

Yes. Obviously we need to ensure that we can be as efficient and effective as possible. I think some of the things we've talked about today are extremely important to ensure that, including an effective tax regime and ensuring that we have the proper training and education in place, but also of course there's the issue of regulatory overlap and burden.

We're an industry where every province and every territory has a regulatory responsibility. All our members have to be licensed in each of those jurisdictions. So it's vital that we have an effective regulatory system so we can provide the services to Canadians on both the life insurance and the wealth management side. In the absence of that, costs increase and pension costs for individuals increase, and we're not able to provide the same investment opportunities for Canadians. So we need to have an efficient and effective regulatory system in this country.

[Nancy Hughes Anthony]

I don't want to repeat what my colleagues have said here, but I go back to that point about partnership. Of course, we think Canadian manufacturers can compete with others around the world; they must. Can their bankers help them in situations? Of course, they can, and particularly as our industries and our banks together become more national and international scope.

But I don't think there's any silver bullet that says this particular company is going to be more competitive than the next. It's that mix of things, and at the risk of repeating again, it's the risk of the entire business climate. Is it easy to do business in Canada? Are the tax rates competitive? Can you get the job done? Have you got the labour? That's what we all should be striving to make sure is a reality.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Van Kesteren.

We'll go to Mr. Eyking.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

My question is about an article in the newspaper today, in which the finance minister stated that we should be looking at the pension plans being used to invest in the infrastructure of this country. I don't know who's best to answer that question.

On the outside, it sounds quite enticing, and it may be the right thing to do, but the fear would be in the long term that business people, Canadians in general, would be paying to use the infrastructure that for so long we've been used to paying through our taxes to have installed. What are your comments on this move or this initiative that could mean the average citizen or companies would be footing the bill to use the infrastructure in the future in this country?

[Mark Yakabuski]

I referenced that article in my original remarks, because I think we have no choice as a country but to look at additional public-private partnerships to rebuild the infrastructure we have.

The percentage of our gross domestic product that has been invested in infrastructure has plummeted since the 1960s. The reality is we have pools of capital that are prepared to invest in these projects and we are not allowing them to do so. At the same time, I don't believe the tolerance of Canadians is such that they believe all of that burden should be borne by the taxpayer.

When we look at the degree of the infrastructure deficit, just for water and sewage systems in this country, that's now estimated at about $31 billion, and that's only to rebuild water and sewage infrastructure to the existing level of performance. What we indeed need, as I mentioned in my remarks, in advance of climate change and the severe weather we're going to get, is we need to rebuild systems at a much better level than they have been. So that's going to cost more than $31 billion.

As I say, I think the trick is to get innovative partnerships between the private sector and the public sectors, the provinces and the municipalities and the federal government, if possible, working together to get the job done.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

There's no doubt that we need investment in infrastructure. I don't think anybody is debating that. It's the issue of government policy: should we be lowering taxes, like GST, and starving our coffers, and then turning around and having a user fee on our consumers and businesses of this country?

[Mark Yakabuski]

Well, the fact of the matter is that a lot of other countries are looking at this. This is what our infrastructure investment looks like over the past 30 years. It's been plummetting at a fast rate. I think we have to simply recognize the inevitable, which is that more money needs to be invested quickly in restoring our infrastructure. I don't believe anyone is going to go out there and advocate that there be a sharp increase in taxes at any level of government in order to make that happen. So I think we need to work innovatively at public-private partnerships.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Do you have any projections on what it would cost to use those services? These pension plans are going to expect a fairly decent return on their investment.

[Mark Yakabuski]

As they legitimately should; it's the money of their pensioners.

[The Chair, Conservative, James Rajotte]

You have a minute and a half, Mr. Eyking.