Mr. Speaker, it is a pleasure to speak to Bill C-100, an act to amend OSFI and CDIC and related acts.
Looking back in history, some years ago we had what were then known as the four pillars of our financial industry, which were the banks, the trust companies, the insurance companies, and the brokers. At that time, the government of the day saw fit to allow the banks to break down these barriers among the four pillars of the financial industry. So the banks started to take over the trust companies and the brokerage houses. Today, as we know, the banks virtually control the other two pillars of the industry, which only leaves the insurance companies, which by and large are removed from the banks. At this point we still have a clear separation of what banks can do in the insurance industry, and insurance companies are kept out of the banking industry.
We know there is serious lobbying and serious pressure by the banking industry to get into the insurance business, which is going to take away the pillars of our financial industry that kept us four square on the ground and leave us standing on one leg. I am not exactly sure that we are going to find that standing on one leg interminably is actually going to be good for our health. It might get a little cramped and painful after a while.
I have some serious concerns about the wisdom in the long term about decisions such as allowing the conglomeration of all the financial services in this country to come into the realm of the banks. Without being derogatory to the banks, there are not that many of them left. We have a very serious concentration of power in the hands of a very small number of elite people in this country, all of whom are unknown, unelected, and responsible to no one, hardly even to their shareholders.
The banks are such a complex business that those people involved in the senior management of the banks would have great problems, I am sure, trying to explain the intricacies of their jobs to the shareholders who own their business and to the depositors who participate or create the business to the benefit of the country and to the government at large.
As I have said, I have serious concerns about the wisdom of taking the four pillars of the financial institutions and making them into one.
I know the banks have always put forth the argument that competition requires that they get bigger. When we look around the world we see some behemoths as far as the financial world is concerned. I understand the merger of the Chase Manhattan Bank and the Chemical Bank in the United States will create an organization of $300 billion in size. That is truly a behemoth under any rule we wish to use.
However, here in Canada we are a small country. If we are to agree that big is beautiful in the world of international finance, we cannot have it both ways. We can either have competition with a large number of competing companies or we can meet the desire to be large and compete on an international scale by using the same measures as the huge banks around the world. Therefore we may end up having a choice between big banks and no competition or small banks and much competition, or we may have to have an arrangement or a comprise in between.
I say that competition surely is the way to go. When we look around the world we always find that competition brings out the best in business. It brings out the best service, the best products, and the best prices. I am sure that rule applies to the financial industry every bit as much as it applies to every other industry that serves our Canadian public.
The other argument for competition is these huge banks that are being created around the world. It was earlier this year when the first surprise was sprung upon the world with the Barings Bank disappearing overnight with a $1 billion loss, all because of one rogue trader in one office who was on the opposite side of the world from the head office. The entire organization was destroyed overnight.
A couple of months ago one of the Japanese banks in New York admitted to losing $1 billion. Again it was the fault of one rogue trader, who perhaps was in collusion with others within the organization. That overnight loss was revealed to the general public.
In the last decade there was a $500 billion loss in the savings and trust loans fiasco in the United States. Now we are facing a situation in Japan, where the largest of the world banks have been based for some time, in which losses may be as high as $1 trillion. That is a tremendous vote of non-confidence in people's ability to manage institutions that big.
That is why competition is vitally important. Bigger is not necessarily better.
Bill C-101 deals primarily with two things: the Canadian Deposit Insurance Corporation and the Office of the Superintendent of Financial Institutions. I would like to talk about the CDIC.
The CDIC is sponsored by government to insure deposits within the federally regulated banking system up to $60,000. We thought it was working well for many years because there was never a claim. However, in the last few years we have seen quite a number of institutions that have been claiming on a regular basis, from the vast sums of money claimed by Confederation Life to other trust companies that have failed over the years. They have cost the Canadian taxpayer large sums of money.
It is time for us to take a new look at the situation. This bill unfortunately goes a short way by proposing rated premiums for the CDIC, which will be based on its assessment of the risk. It will vary the premiums according to the risk. The bad thing is that the CDIC intends to do this behind closed doors. That I cannot accept. If they think they are going to tell a financial institution that the risk is high and therefore the premium on the deposits is high, the
Canadian public must be made aware that there is a potential risk involved in the financial institution and be governed accordingly.
About a decade ago in my home province of Alberta we had a fiasco called Principal Trust. I know that was a provincially regulated institution, but the principle is still the same. If an institution that is being fraudulently managed wants to work behind the veil of secrecy, it can do so, making the Canadian public vulnerable to loss.
It is absolutely vital that the information be provided upfront. I cannot see any harm in that. I do not see how an institution can prevent it from becoming public knowledge.
We all know that once the bill is adopted the premium ratings will be applied. All it requires is someone at the annual meeting of the financial institution to ask what is the rating of the premium paid to the CDIC. They will either find out or management will lie to the shareholders. I hope they will not lie to the shareholders. The information should become public very quickly. I see no real reason for the information to be kept private.
Another thing regarding the CDIC, which perhaps has more of a bearing on the government than the CDIC, is the fact that if it needs money it will be given the opportunity to borrow the money on the open market rather than dipping into the consolidated revenue fund. While it may seem a fairly innocuous change, if we look more closely we see it is another way to slide borrowings off the balance sheet of the Government of Canada and on to the private sector so that they will not show up in the public accounts of Canada.
It is shameful and disgraceful the government would even propose such a move. If the government is to stand behind the deposits of investors, let it show in its records what it is costing taxpayers. It is shameful the government would even propose the amendment to which I am totally and absolutely opposed.
The money markets of the country are not the place in which to subsidize the losses of financial institutions that create the money markets in the first place. We could go around and around in ever increasing circles and accomplish absolutely nothing.
The government should be prepared to stand up to its obligations, have the information in front of the public, tell people what is happening and let the people decide while the government still enjoys their confidence. If they do not we know the consequences. To hide behind the barriers and the veils of secrecy cannot be tolerated in this day and age. On OSFI the veil is being drawn even more tightly than on CDIC, perhaps with even more disastrous results.
We can look at some of the items in the white paper released by the government back in February 1995 prior to the tabling of the legislation. OSFI's role is to monitor and supervise financial institutions to ensure that they are safe for the general public to invest in. The government has come up with the phrase that it is a privilege rather than a right to own a financial institution. I tend to agree with the statement that no one has the right to own a financial institution if it allows them to rip off the public and hence the Canadian taxpayer.
There are four steps that OSFI envisages if an institution were to decline financial help. In stage one, the early warning stage, the management and the board of directors of financial institutions are formally notified by OSFI of concerns and requested to take measures to rectify the situation. Perhaps it is not as strong as we would like it to be. Therefore some directives are being issued.
In stage two the financial health of the institution has continued to deteriorate in the opinion of OSFI. At that point senior OSFI officers meet with the management and board of directors of the financial institution and with the external auditor of the institution to outline concerns and discuss remedial actions. The management and board of directors are formerly notified that the institution is being placed on the regulatory watch list. That is more involvement by OSFI which perhaps at that stage is not bad. OSFI is getting more and more involved in the daily administration of the institution.
If it continues to slide it gets into stage three where the management and the board of directors and external auditor of the institution are informed of the problems. Depending on circumstances, pressures may be exerted on the management and the board of directors to restructure the institution or to seek an appropriate prospective purchaser.
That brings us to stage four. The organization is continuing to deteriorate. The government's says that pressure to rectify the situation is exerted on the management and the board of directors of the financial institution with frequent meetings with senior officers. If statutory conditions for taking control of the assets exist and if circumstances are such that there is an immediate threat to the safety of depositors and other creditors, OSFI may take control of the assets of the institution for a short period.
While the financial institution is still solvent everything in steps one, two, three and four have taken place behind closed doors, in secrecy. They have watched the institution deteriorate. They have become more and more closely involved with the management of the institution on a daily basis. It may be that their management
has caused the institution to deteriorate. While the institution is still solvent they took upon themselves the authority to seize it and manage it.
I hope this is a democratic country. If it is, that cannot be tolerated. We cannot have an agency of government getting intimately involved in the daily management of the affairs of a financial institution, participating in the decline of the financial health of the institution and seizing control of the institution prior to it becoming insolvent. That is not democratic and that has to be opposed.
I stand fully behind the idea that we have solid, sound financial institutions, but I do not stand behind the idea that the government shall get into bed behind closed doors, dictate to the management of a financial institution and seize it if it does not like the proposals coming from management. Also I do not like the idea that we have rated premiums which are supposed to be kept secret from CDIC.
It is time to rethink the entire bill and talk about such things as co-insurance. The government could perhaps ensure 90 or 95 per cent of deposits up to a certain limit. At that time investors would know they have a potential exposure. Perhaps it is small but nonetheless it is exposure. In that way they would take more of an interest in their money and more of an interest in financial institutions. It is the same as the bond rating system in place for governments, for institutions and for money markets. They are rated according to financial strength, soundness, liquidity and so on. They have a rating which people know when they put up their money. The same could quite easily apply up front, above board, in the open so Canadian depositors know how well financial institutions are being run.
As far as the supervision of institutions that are falling short is concerned, Canadians need to be assured that the government is looking over their shoulders. We saw in the Financial Post over the weekend that the managers of a brokerage house a number of years ago are off to prison because they helped themselves to several million dollars of the company's money and mismanaged the company to the point of losing quite a number of millions of dollars.
I hope that is not the type of supervision we are looking at. I hope we will be able to monitor rather than get into daily management of the organization. We will be asking them to ensure they meet the margins they require and that the risks are not being totally ignored.
As I said earlier, Japan is now looking at $1 trillion in bad debts because they all jumped on the same bandwagon and inflated real estate to such an astronomical or exorbitant price that people were getting 100-year mortgages to try to pay for the property they were buying. The banks caused the problem. They are the ones that now have to suffer the problem. The taxpayers in Japan will be left holding the bag as they did in the United States under the Resolution Trust situation.
Let us get the situation out in the open now while it is sound and while we can see it. If warts are to grow on our financial institutions, let us watch them grow rather than wait until the cancerous growth will kill us.
The government could have done much more in conjunction with financial institutions to make it an open system, an accountable system, a system that would work. Then Canadians would know what is going on and would have some faith in it.