Thank you for this opportunity to meet with your committee this afternoon to discuss the chapter, “Regulating and Supervising Large Banks” from our fall 2010 report.
As you indicated, joining me at the table are Nancy Cheng and Richard Domingue, who were responsible for this audit.
We conducted this audit following a period when the Canadian financial sector had to cope with significant pressures in domestic and international markets. Our audit objective was to determine whether the Department of Finance, the Office of the Superintendent of Financial Institutions Canada, and the Canada Deposit Insurance Corporation had appropriate processes in place to regulate and supervise Canada's large six banks.
The audit focused on the large banks because they are essential to providing stability to the Canadian financial system.
The audit examined four main areas: first, how the federal organizations share information; second, how they regulate the six largest banks; third, how they supervise these banks; and finally, how they request information from banks.
The audit found that, compared with many other countries, Canadian banks fared well during the recent global financial crisis. Canada's approach to regulating and supervising banks proved robust and effective. No Canadian banks failed.
The objective of regulating banks is to achieve a stable and efficient financial system. Around the world, regulations and best practices are rapidly evolving. The regulatory framework for banks needs to be kept up to date to reflect emerging domestic and international developments. We found that the federal organizations monitor emerging trends. For example, the Department of Finance Canada tracks domestic and international issues, and OSFI actively monitors and analyzes economic and market data. Information and emerging issues are regularly exchanged among the federal organizations. These exchanges were clearly a factor that helped Canada during the crisis.
We found that OSFI is implementing a requirement under the 2007 cabinet directive on streamlining regulation to incorporate effectiveness reviews into its rule-making process. However, while the Department of Finance performs some ad hoc reviews of the effectiveness of the bank regulations, significant parts of the regulatory framework are not subject to periodic reviews of their effectiveness. These reviews could support the review of the Bank Act, which takes place every five years, and help the government determine whether successive regulatory changes are working without unintended consequences.
The objective of supervising banks is to assess their safety and soundness and to intervene when necessary. We found that the Office of the Superintendent of Financial Institutions adequately supervises the six largest Canadian banks and that it is well regarded by the banks it supervises. We also found that the growing volume and complexity of its work is increasing the demand on its human resources. In this context, compensation practices and training need to be updated to ensure that it is in a better position to attract and retain qualified staff.
Reports and statistics from the regulated banks are required in order for the regulators and supervisors to perform their duties. Each large bank now submits a very large amount of statistics and information. Both the federal organizations and the banks have a common interest in collecting relevant data in a cost-effective manner. Therefore, information requests need to be periodically reviewed to determine if the data collected is relevant, accurate, and sufficient.
The Department of Finance and OSFI have agreed with our recommendations. We have reviewed the action plan, which I understand has been tabled with this committee today. OSFI's action plan, if successfully implemented, should address our recommendations. While the Department of Finance has considered our recommendation, it has decided, however, not to implement it. The committee may wish to discuss this further with the department.
Mr. Chair, this concludes my opening remarks.
We would be pleased to answer the committee's questions. Thank you.