Madam Speaker, before I get into the debate I would like to express my appreciation for the unanimous consent given to the grouping and that all of these motions are deemed to have been put, to expeditiously advance the debate and the passage of the bill.
However, I also need to register very clearly and unequivocally that the establishment of a crown corporation like the Federal Business Development Bank or by whatever other name it might be called in the future is not consistent with Reform Party policy. We would suggest that such a crown corporation, organization or corporation not exist. Even though that is our position, we want to make the crown corporation as efficient and effective as it can be. That is the purpose of the amendments that our party is presenting to the House this afternoon.
With regard to Motions Nos. 16, 17 and 18, which refer to clauses 23, 24 and 27 of the act respectively, each of these amendments and those respective clauses refer to the capital structure of the proposed FDBD. The capital structure as covered in clause 23 suggests that it consists of a variety of instruments. The first of these are common shares with a par value of $100 each and an unlimited number of preferred shares without par value, but the paid-in capital of the bank together with any contributed surplus related to it and any proceeds referred to in paragraph 30(2)(d).
This paragraph from 30(2)(d) really has to do with hybrid capital instruments. We will talk about that in just a moment. We also need to recognize that those things that have been described as equity have to do with contributed surplus and retained earnings.
Therefore, a couple of things need to be suggested here. First, the categorization of common shares versus preferred shares needs to be distinguished. The common shares and the preferred shares will be owned by the crown which is the Government of Canada. However, as I understand it, there is a difference in how they are treated in terms of the presentation of the budget to the House of Commons.
The preferred shares, to the best of my knowledge, will not be in the budget but off budget. In other words, they are considered as an investment of the government so the people are unaware of what the disposition or exposure is of the Government of Canada in the equity of the Federal Business Development Bank.
Motion No. 16 deletes from the capital structure of the bank the category of preferred shares. This would suggest that it is better to take them out.
When we get to clause 24, if there is going to be a share capital part of the capital structure of the bank, to make it more efficient then it ought to be possible, in fact it is necessary in our opinion, that there be a variety of classes of shares and that they be created in such a way that there is a maximum of flexibility possible.
If some future government would like to do what the current government is doing, that is privatizing crown corporations like CNR, then this capital structure would be a very convenient way to make the thing go smoothly. From that point of view, it is an improvement to go to a share capital position.
Our suggestion is that there be only one class of shares which are common shares rather than preferred shares. Motion No. 17 clarifies and makes more efficient the disposition, control and management of those shares.
I would like to focus briefly on the hybrid capital instruments. Nowhere does the act define exactly what is meant by a hybrid capital instrument. This raises a whole series of questions. The
first question has to do with what is the priority claim in the event of dissolution of the bank or in the event of looking at the earnings of the bank as to who gets paid and in what order they get paid. Do they take preference to the preferred shares or do they take a secondary position or do they maybe even take a tertiary position? It is not clear.
Therefore the act is deficient in not making that clear. The act is also deficient in not clarifying exactly who will own these hybrid financial instruments.
The question really arises of who will be expected to buy these things. Are they going to be individual citizens? Is it going to be the Government of Canada?
The way the act is written, it is possible that the government could own these, that individual citizens could own these, that corporations could own these. That raises the other good question: Could some kind of persuasive power be directed towards the banks and it be requested that they supply this hybrid capital, in which case it is almost an expectation that it is just short of exercising a tax on the banks in order to supply the capital for this crown corporation? I do not think that is a desirable situation to be in.
The other situation is that if you create a hybrid capital instrument and nobody knows exactly what we are talking about, that is like creating something we are supposed to be supporting and we are not sure what it is we are supporting. One has to be very critical of that kind of provision in an act of this kind.
There is one other point that has to be raised here, and that is the actual manner in which the retained earnings and the contributed surplus is going to be handled by this bank. On one hand, the bank is told that it must manage its affairs in such a way that there is complete cost recovery in terms of the loans and the financial transactions it engages in. On the other hand, there is a provision that the capitalization of the bank contain a parliamentary appropriation.
It depends a lot now on what the mix of these equity positions is going to be. If the major portion of the capitalization of the bank is going to be a hybrid capital instrument and if that has prior claim, then indeed the bank is obligated to pay the holders of these hybrid instruments before it considers any profit to the bank or any return on investment. If the major part of that is there, that becomes a direct charge against the earnings the bank might make. Most of those earnings will come from the money it lends to various entrepreneurs.
I would respectfully suggest to the House that we adopt these three amendments to the act.