Mr. Speaker, I move that the second report of the Standing Committee on Industry presented to the House on Tuesday, October 18, 1994 be concurred in.
It is with considerable pleasure that I rise to debate this motion. The committee had a very successful time in debating various parts of the access to capital for small business. Many of the things we talked about had to do with the lending institutions, in particular the chartered banks, trust companies, credit unions and groups of that sort.
The committee came up with 22 distinct recommendations. This is what we are talking about. The recommendations that the committee came forth with are the ones that ought to be concurred in. It is a pleasure for me to say that the banks have already moved in some of those directions.
Take for example recommendation No. 3. The committee recommends that the joint Industry Canada committee in consultation with the Canadian Bankers Association draft a code of conduct. It would explain to customers in plain language the information a loan applicant must disclose. There would be a clear explanation of reasons for refusing a loan, a commitment to guide customers to alternative sources of financing, and a commitment to provide an internal complaints handling mechanism.
The Canadian Bankers Association met with the committee in the earlier part of this year. It indicated clearly to us that it had established that kind of code of conduct. At first the association said it would be very difficult if not impossible to bring about some kind of standard of behaviour as far as treating the customers and the banks were concerned.
A lot of information is available now. It has been exchanged among the various branches of the banks. In addition to that, what is called an ADR which is a dispute resolution mechanism has been brought into being. It is an alternate dispute resolution mechanism that has been brought into being.
The committee also suggested that perhaps this was not good enough. It thought that probably there ought to be an independent ombudsman established. Recommendation No. 5 reads as follows:
The committee recommends that the government establish an independent office of the bank ombudsman to investigate complaints of breach of duty or maladministration by the banks. As in the United Kingdom, the ombudsman should have the power to require banks to pay compensation to complainants for financial loss, inconvenience and stress.
The experience of the banks in Britain where this independent ombudsman has been operating for a number of years has been very salutary. It has helped small business people. It has helped various other people in the business world to deal with their
banks more successfully. It has also made the banks a little more humane in the way they deal with their customers.
When we brought this to the attention of the Canadian Bankers Association, it thought that perhaps there should not be an independent ombudsman who is outside the banking community but rather it should appoint its own ombudsman.
The Toronto-Dominion Bank has one of those people who was the leader in the Canadian chartered banking industry to do just that. It is apparently working very well.
It is interesting to note that the Canadian Imperial Bank of Commerce now has this kind of person on a full salary at the senior vice-president level. This person deals with complaints that various business people have with regard to their loans or other operations with regard to the bank.
There are other recommendations from the committee as well. We need to recognize that the committee proposes to continue monitoring small business access to capital by calling one or more banks as witnesses every quarter to review their performance in lending to small businesses. That process has begun.
The banks have indicated that indeed their performance with regard to lending money to small businesses has improved. At least they are prepared to tell the committee what exactly their operation is with regard to these activities.
We go beyond that. We have asked the superintendent of financial institutions together with Statistics Canada and the Bank of Canada to develop a new format for the collection, compilation and publication of statistics on bank lending to small business. These statistics should be based not only on the size and type of loan but also on the nature of the borrower, including gender, employment, sales, major sector of operations and municipality. These statistics should be reported quarterly.
It was very interesting to watch the reaction of the banks to this recommendation. They first said: "That is impossible. We cannot give you those kinds of numbers. We do not have those kinds of numbers. It would be a horrendous expenditure in order to give you these kinds of numbers. It cannot be done".
It is a great pleasure for me to report that in the quarterly review at the end of April the banks not only said they have the information, they are prepared to give it to the office of the superintendent of financial institutions and to the committee. That is a great move forward. It shows the kind of concurrence that we see in the industry which the committee had in mind in the first place.
It is not so much what the government does, it is what industry does which makes business run better. In the final analysis business makes this country run. Government provides the opportunity, the environment and the parameters within which business can operate more easily, more fluidly, more efficiently, more effectively and more successfully.
We need to recognize it is not government that creates employment, it is not government that makes the economy grow, it is business that makes the economy grow. In particular, it is small business that makes the economy grow. In the last five years 85 per cent of new jobs created in Canada were created by small business. Let us recognize the significance that small business has in the Canadian economy.
The committee goes on to suggest leasing should be encouraged. It urges the government to ensure that tax measures and other programs do not discriminate against this method of financing. There are situations in which the government through its income tax policy has discouraged this form of financing small business.
Often small businesses do not have the capital resources to expend huge amounts of money for the financing of capital expenditures. Very often, if they can lease the equipment, it is far more salutary and allows them to get on with their business. The money would be available for the operation, rather than having it tied up in capital expenditures or equity.
The committee goes on to recommend that the federal government establish a limited working capital guarantee for small and medium sized business exporters. Such a program should be self-financing and priced in a manner that is commensurate with the risk. Too often it seems to have been the philosophy or the modus operandi of governments that in order to help business they should give them something.
The committee does not agree that is what should happen. The government should create the environment which we talked about a moment ago and allow them to finance their businesses. If businesses need seed capital, that should be returned at a rate of interest which is commensurate with the risk involved in that particular situation.
We also need to recognize that the reference is to exporters, particularly small business exporters. Today most exports are by a very small number of businesses. I believe that approximately 100 businesses control 85 per cent of the export market. In other words, small business has not had as large a portion of the export market as it should have. If it did it would help the Canadian economy to grow. It would increase the global participation and competition of Canadian business in the world marketplace.
The report goes on to suggest that the government review the Small Businesses Loans Act. To the credit of the government, that is exactly what it has done. It ought to be commended for that. It has begun to concur with the recommendations of the report. If I remember correctly, the Small Businesses Loans Act ceiling was moved from $3 billion to $12 billion. The only difficulty is that in the past the government has had to write off about $100 million in bad loans. Does that mean that with a ceiling of $12 billion the bad loans will increase to four times that amount?
There have been, from the small business associations and also from the bankers, some concern that some of the provisions of the new small loans act amendments create an additional charge which may discourage some of the small businesses from taking advantage of the provisions of the small loans act as it has been amended.
Therefore we need to be very careful that when one moves to concur in these kinds of recommendations that one not move in such a way that the operation of implementing that recommendation mitigates against the purpose, intent and spirit of that recommendation.
The committee recommends further that the mandate of the Federal Business Development Bank be confirmed and refocused as a complementary lender to small and medium sized businesses and that it be authorized to use new financial instruments to fulfil its mandate.
I am sure members of the House noticed that yesterday the Minister of Industry introduced Bill C-91. The effect of that bill is to do precisely what this recommendation suggests be done. That makes a committee feel its work is very significant and has not been ignored. The government has recognized the hard work of the committee.
We need to recognize in detail exactly how the business development bank, under the new name of the business development bank of Canada, will operate. Will the operations of that bank become an extension of the Canadian federal treasury or, as the minister implied yesterday, will the capital used for loans come from private sources of one kind or another.
The new sources of capital that the Business Development Bank of Canada needs to look at is that money that exists in the private sector today and money that can be patient, particularly for new, innovative ventures. It should also include the high tech areas where the science and technology involved in those businesses is very far reaching, very expensive and does not create an immediate return. It requires a lot of seed capital for the intellectual background, the experimentation, the building of prototypes and things of that sort before it actually goes into active and profitable production.
The Federal Business Development Bank, or under the new name of the business development bank of Canada, could form and fill a particular niche in our economy.
The difficulty we need to guard against is it not becoming another crown corporation that is a drain on the taxpayer. It should be a self-sufficient, self-financing organization. To date, the operation of the Federal Business Development Bank has been a profitable venture and that needs to be continued in the future. I hope that the kinds of things that Bill C-91 envisages will indeed take place in that regard.
However, we are not done yet. This committee did a lot of very hard work. It dealt not only with the chartered banks which it said are doing a reasonably good job. It could do a lot better in some places but is that not true of all of us? We can all improve. We would like to get the banks to take their responsibilities and carry out their mandates a little bit better.
I now want to move outside the banks and into the trust and loan companies. The committee recommends that the trust and loan companies act be amended to remove the arbitrary capital requirements for the establishment of a trust company and the acquisition of full commercial lending powers. The superintendent of financial institutions should instead establish guidelines setting out conditions for the establishment of new federally chartered trust companies and for the acquisition of full commercial lending powers. Institutions meeting these guidelines would be able to operate in Canada and make commercial loans using the prudent portfolio approach.
It is precisely on the last phrase "using the prudent portfolio approach" that I wish to spend a few moments. In the last number of years we have seen the collapse of some very major financial institutions, one of which was Confederation Life, that probably everyone in the House remembers only too well.
I remember the appearance before the committee of the superintendent of financial institutions and the questions the committee members asked this individual. How was it possible that a major financial institution like this could collapse in Canada? It is very serious when such an institution collapses.
The superintendent of financial institutions has come under the scrutiny of the auditor general. On Friday of this week he was reported as saying in the Financial Post : ``The auditor general and Ottawa's financial institutions watchdog are at odds''. We have the auditor general on the one hand and the superintendent of financial institutions on the other at odds over when federal regulators should intervene to deal with troubled Canadian trust and insurance companies.
The superintendent of financial institutions has been given the responsibility by Parliament on behalf of the people of
Canada to assure the financial soundness of banking institutions, insurance companies, credit unions and various other financial institutions.
The auditor general has been given the responsibility to investigate how successfully the office of the superintendent is doing its job. The superintendent specifically says: "I and the auditor general do not agree what my job is". Who is going to do the job, the auditor general or the superintendent of financial institutions?
The article goes on to explain what some of the issues might be. For example, the auditor general portrayed OSFI as sometimes being too slow to intervene with financial companies in trouble. The superintendent of financial institutions, John Palmer, who assumed the post last September, disputed the regulatory approach and said: "Your officials appear to favour a more mechanical system in which specific regulatory intervention would be required when specific numerical thresholds are violated. In our view it is essential to preserve the role of judgment in determining how and when to intervene".
If the Superintendent of Financial Institutions is to exercise judgment without looking at the numbers, there is no question that can put us into a lot of potential difficulty. This is a good example of where an individual needs a very hard head to understand the numbers and to make sure that the balance statements, the equity position and the financial situation of financial institutions are sound.
However, he needs to show a compassion that recognizes when situations have developed, when conditions have changed. He needs to be somewhat kind and give them some time to balance the sheet again if there is an indication a change can take place and the institution can become financially solvent if he had a little patience. It should never be done without a very hard headed look at the dollars and cents and to make sure the institution is sound and that management is capable of turning the institution around.
In the last little while we have seen financial institutions which were on the brink of bankruptcy long before anything was done to call them to account.
It is to the credit of some of the other people who are coming back now and saying that the confederation life policy holders are to get back 70 cents on the dollar and that perhaps in some cases they will get back substantially more. It is absolutely tremendous that this can happen in Canada. The critical situation is that this should never have been be allowed to happen in the first place. That is why we need to concur in the recommendations this committee has brought forward.