House of Commons Hansard #27 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was institutions.


Oceans Act
Routine Proceedings

3:10 p.m.

The Acting Speaker (Mr. Kilger)

The Chair is satisfied that this bill is in the same form as Bill C-98 was at the time of prorogation of the first session of the 35th Parliament.

Accordingly, pursuant to order made Monday, March 4, 1996, the bill is deemed to have been read the second time, considered by the Standing Committee on Fisheries and Oceans and reported with amendments.

Committees Of The House
Routine Proceedings

3:10 p.m.

Fundy Royal
New Brunswick


Paul Zed Parliamentary Secretary to Leader of the Government in the House of Commons

Mr. Speaker, if the House gives its consent, I move that the 13th report of the Standing Committee on Procedure and House Affairs presented earlier this day be concurred in.

(Motion agreed to.)

Routine Proceedings

3:10 p.m.


Paul Szabo Mississauga South, ON

Mr. Speaker, pursuant to Standing Order 36, I wish to present two petitions to the House.

The first petition comes from Edmonton, Alberta. The petitioners would like to draw to the attention of the House that managing the family home and caring for preschool children is an honourable profession which has not been recognized for its value to our society.

The petitioners therefore pray and call upon Parliament to pursue initiatives to eliminate tax discrimination against families who decide to provide care in the home for preschool children, the disabled, the chronically ill or the aged.

Routine Proceedings

3:10 p.m.


Paul Szabo Mississauga South, ON

The second petition, Mr. Speaker, comes from Sarnia, Ontario.

The petitioners would like to bring to the attention of the House that consumption of alcoholic beverages may cause health problems or impair one's ability. Specifically, fetal alcohol syndrome and other alcohol related birth defects are 100 per cent preventable by avoiding alcohol consumption during pregnancy.

The petitioners therefore pray and call upon Parliament to enact legislation to require health warning labels to be placed on the containers of all alcoholic beverages to caution expectant mothers and others of the risk associated with alcohol consumption.

Routine Proceedings

3:10 p.m.


Carolyn Parrish Mississauga West, ON

Mr. Speaker, pursuant to Standing Order 36, it is my pleasure to present and support a petition on behalf of two dedicated constituents, Virginia Uhran and Dianne Acri, concerning the child labour situation in Pakistan.

The petitioners call upon Parliament to enact sanctions against Pakistan by banning the importation into Canada of carpets and other products produced by child labour.

Routine Proceedings

3:10 p.m.


Jesse Flis Parkdale—High Park, ON

Mr. Speaker, it is also my privilege and duty pursuant to Standing Order 36, to place a petition in this House signed by constituents from across the greater Toronto area.

The petitioners claim that whereas Taiwan has dramatically improved its record on human rights and has held free elections in a multi-party system and has conducted its first direct presidential election on March 23, 1996, the petitioners urge and if necessary facilitate the Government of China to enter into meaningful dialogue with the Government of Taiwan at the highest levels such as through their respective foreign ministries with an eye toward decreasing tensions and resolving the issue of the future of Taiwan.

Questions On The Order Paper
Routine Proceedings

3:10 p.m.

Fundy Royal
New Brunswick


Paul Zed Parliamentary Secretary to Leader of the Government in the House of Commons

Mr. Speaker, I ask that all questions be allowed to stand.

Questions On The Order Paper
Routine Proceedings

3:10 p.m.

The Acting Speaker (Mr. Kilger)

Is it agreed?

Questions On The Order Paper
Routine Proceedings

3:10 p.m.

Some hon. members


Bank Act
Government Orders

April 17th, 1996 / 3:15 p.m.

Edmonton Northwest


Anne McLellan for the Minister of Finance

moved that Bill C-15, an act to amend, enact and repeal certain laws relating to financial institutions be read the third time and passed.

Bank Act
Government Orders

3:15 p.m.

St. Paul's


Barry Campbell Parliamentary Secretary to Minister of Finance

Mr. Speaker, I am pleased to speak on Bill C-15 at third and final reading in the House. This is the sort of workaday legislation that may lack drama but remains vitally important to Canada because it will enhance the safety and soundness of the country's world class financial system.

May I begin by reminding hon. colleagues that this legislation is the product of extensive consultation. I would like to take this opportunity to again extend the government's thanks to the many industry participants and other stakeholders that provided such constructive and insightful advice.

I would also like to thank the Standing Committee on Finance for having decided to hold hearings on the bill during the summer recess. The comments gathered by the committee constituted invaluable preliminary work prior to the clause by clause study of this major piece of legislation. We can rest assured that the bill we are going to pass will serve the best interests of consumers, financial institutions, our constituents, and the Canadian economy as a whole.

There is no question that sound, secure financial institutions are a fundamental requirement for national well-being. As I said at the start, Canada is blessed with a world class system. The financial sector is very much a part of a world of dynamic and dramatic accelerating change driven by new technology, globalization and new customer demands. All these factors culminate in heightened

competition. That is why we are moving ahead with the measures contained in Bill C-15.

This legislation is timely not because the system suffers from any critical weakness. It does not. But to make sure we maintain a dynamic, competitive financial sector and regulatory system we must respond to market trends and recent experiences without unnecessary delay. Bill C-15 will do this.

Let me emphasize that these are not patchwork, band-aid measures. They flow from a series of basic principles outlined in the white paper the government issued over a year ago. These principles include the following: first, that ownership of financial institutions is a privilege, not a right. Second, early intervention in and resolution of institutions experiencing difficulty should occur. Third, that financial institutions must operate with sufficient incentives to solve their problems in a timely manner. Fourth, there must be appropriate transparency and accountability in the system.

We have discussed the details of this legislation at some length in committee and the House. Today I simply want to remind us all of some of the more important changes that the House should approve.

First, the bill establishes an enhanced system of early intervention on behalf of troubled institutions. The legislation will allow the office of the Superintendent of Financial Institutions to take control of a troubled institution earlier than at present. It also provides greater transparency in the supervisory process by establishing guides to supervisory intervention. The intent here is clear, concrete and constructive.

Early resolution of an institution's difficulties is the best way to prevent substantial losses to depositors, policyholders or creditors and potentially to shareholders.

This legislation states clearly that if an institution is facing difficulties, owners do not have the right to continue in business until they hit the brick wall and cannot pay liabilities as they come due. Institutions will now understand that OSFI will take action if its concerns are not dealt with promptly. That is a major improvement.

This is not a punitive step. By increasing OSFI's scope for early intervention, the legislation provides a new incentive for managers and directors of troubled institutions to undertake early problem solving for themselves.

The second element I would highlight in Bill C-15 is the expanded role for the superintendent in the governance of troubled financial institutions. In this case, the superintendent will have the power to designate certain directors as affiliated and also veto the appointment of directors and senior officers in troubled financial institutions.

These additional powers reflect our appreciation of the importance of effective, independent corporate governance. They also stress that it is the boards of directors that represent the ultimate frontline for problem resolution and good management.

Before concluding I should address a criticism of the legislation levied by the official opposition related to jurisdictional issues.

The clear and certain benefits of this bill notwithstanding, the official opposition has chosen so far not to support its passage. The main criticism relates to the claim that the powers proposed for the Bank of Canada, to mitigate systemic risk in clearing and settlement systems, infringe on provincial powers over regulating security matters. This is not the case.

The opposition's problem and misunderstanding of the goal of this legislation begins with its failure to understand the nature of systemic risk itself. This is the risk that one institution's inability to settle a large value transaction could have a domino effect among other participants.

In the proposed legislation the government is acting to provide a formal oversight role for the Bank of Canada and to enhance its powers to require appropriate risk control in payment, clearing and settlement systems.

The bill provides the Governor of the Bank of Canada with the powers necessary to control systemic risk. This can be achieved by issuing directives to clearing houses, or where necessary, participants in a clearing house, requiring them to cease a particular course of conduct that results in systemic risk being inadequately controlled.

I want to emphasis that dealing with systemic risk issues is traditionally a matter for central banks, not just in Canada, but in other developed countries. If there is ever a day when the failure of a large financial institution at home or abroad threatens the stability of the financial system, it will be the central banks of industrialized countries, including the Bank of Canada, that will be called on to deal with the fallout.

I also want to note that in committee the government moved amendments to further clarify that the powers of the Bank of Canada with respect to systemic risk do not infringe on traditional areas of concern to provincial regulators about the health of individual securities firms.

Specifically, the bill now provides greater certainty that the governor may not issue directives in respect of matters directly related to the participation of securities firms or other individual participants in the clearing and settlement system. This includes the corporate governance of the participant, its relations with its customers, capital adequacy or the management of its investments.

We fully understand that these aspects of business fall under the purview of the principal regulator of the institution such as the provincial securities commissions. We have made it clear that these are not matters for the central bank. For these reasons I reject the notion that this legislation infringes on provincial jurisdiction. It does not.

In closing, I want to say that Canadians have come to expect a sound and stable financial system. This is one of our most enduring and sustaining economic strengths. That is why we must ensure that we sustain and evolve the appropriate mechanisms needed to manage and minimize risks. Bill C-15 honours that obligation with positive, forward looking measures.

I have no hesitation in calling on my colleagues to pass this important legislation. I hope that all members of the House will join with the members on this side of the House in doing so.

Bank Act
Government Orders

3:20 p.m.


Yvan Loubier Saint-Hyacinthe—Bagot, QC

Mr. Speaker, I am pleased to rise today at third reading to speak to Bill C-15, an act which concerns several acts regarding financial institutions and the banking sector.

This bill concerns the Bank Act, the Trust and Loan Companies Act, the Insurance Companies Act, the Cooperative Credit Association Act, the Winding-up and Restructuring Act, the Office of the Superintendent of Financial Institutions Act, the Canada Deposit Insurance Corporations Act, the Canadian Payments Association Act, and the Canadian Investment Companies Act.

This is a wide-ranging piece of legislation. This is a preview of the major changes the Liberal government is getting ready to make to the Bank Act before March 31, 1997.

It is also, first and foremost, a bill that gave us a general idea, as early as June, as my colleague from the finance committee already said, so that when we began the clause by clause study of the bill in August, we had some indication as to the government's intentions. And these indications were confirmed, a few weeks ago, when the government made its intentions known in the throne speech and the budget speech.

With this bill, the government is intruding, roughly and high-handedly, in an area which comes exclusively under the jurisdiction of Quebec, Ontario, and all other provincial governments. The area I am talking about is that of securities.

With the single clause extending the regulatory mechanisms to the securities sector and implementing a Canadian clearing system controlled by the Bank of Canada, the government is betraying the 1982 Constitution. Not only did the government patriate the Constitution against Quebec's will, but now it does not even abide by the provisions of that Constitution any more.

Quebec's jurisdiction over securities is based on section 92(13) of the Constitution Act, 1982, which grants provinces jurisdiction over property and civil law. What complements these provisions? It is the case law of the Supreme Court of Canada, which has attached the securities market to this initial area of jurisdiction, through the provinces.

So, when we look at what is presented to us, when we look at the clearly defined intentions set out a few weeks ago in the throne speech and in the budget speech regarding the total and complete intrusion of the federal government in the securities sector, we can only confirm our opposition to this provision of the bill.

It is not that the bill's objectives are bad. The bill is aimed at, among other things, reducing what are known as systemic risks in the Canadian financial system, to avoid the so-called domino effect in the financial sector that would occur, for instance, when one institution is unable to meet its commitments towards another institution. There would be a domino effect on the financial sector as a whole. Everyone, sovereignists as well as federalists, Quebecers as well as Ontarians, people from the maritimes or from western Canada, agree on that: we must put in place a system that is efficient and that reduces the likelihood of a financial crisis and of systemic risks in the financial sector.

But we must totally reject the means taken by the government. When the government, under the pretext of reducing systemic risk, creates new and costly overlap for taxpayers as a whole-new overlap that Quebecers as well as Canadians will have to pay for-because it intrudes in a sector that is already very well served by provincial institutions, there is a problem.

The Commission des valeurs mobilières du Québec and the Ontario Securities Commission are completely disregarded and, through this bill, the federal government is allowed to interfere more and more in this area under the provisions of a bill enabling the Governor of the Bank of Canada to seriously interfere in this area. At the same time, there is talk of creating a Canadian securities commission, as mentioned in the speech from the throne but not in the bill. This will not do.

How can you justify having provincial and federal institutions that overlap like that? How do you expect to give a clear signal to the financial community?

Which policy directives should financial institutions in Quebec and Canada follow? Those coming from a federal entity, as set out in Bill C-15, or those coming from organizations and institutions already well-established in the securities industry, such as the securities commission, the Quebec inspecteur général des institu-

tions financières, the Quebec government or even the Montreal stock exchange?

How do you hope to create stability in this area when, by interfering this way, although such interference is allowed under Bill C-15, you are sending out potentially conflicting signals to the same institutions? That does not make sense.

What justifies the federal government in telling the Government of Quebec and the Government of Ontario: "We have decided to cast aside the institutions you are involved in, even though you have successfully controlled the securities industry for many years. In the future, we will be in charge". The federal government has no expertise in the area of securities since, under the very terms of the Constitution Act of 1982, this is an area that falls under provincial jurisdiction.

The second aspect of Bill C-15 that we cannot support has to do with using this bill to amend the prerogatives of the Superintendent of Financial Institutions and the Winding-up Act. Bill C-15 gives more powers to the Canadian Superintendent of Financial Institutions, who, in the future, will be able to interfere directly in the business of provincially chartered institutions.

Such an extension of the prerogatives of the federal superintendent of financial institutions will result once again in costly duplication and inefficiencies in the system. On the one hand, according to the legislation and the remarks made by the minister and the parliamentary secretary, they want to introduce efficiency and reduce duplication, but on the other hand, they create duplication and inefficiencies with such a provision. Why? Because, once again, the Quebec inspector general of financial institutions as well as his Ontario counterpart are doing exactly the same work and have exactly the same responsibilities as the ones the government wants to give to the superintendent of financial institutions of Canada.

Why this duplication? Why create new structures when we should instead eliminate duplicating structures? When we ask the government to study and review duplication and overlap, we are not asking it to create some more but to eliminate what there is. Yet, with this legislation, it is creating more, with all the resulting additional costs to taxpayers and all the resulting problems in terms of signals on the securities market.

I believe Bill C-15, through this provision as well as the first one, will inevitably create instability and uncertainty on the financial markets. Contrary to what the government representatives say, I do not believe that stakeholders in the securities industry all across Canada generally want the federal government to get involved in that area, that they want it to set up a securities control commission or that they want that the federal superintendent of financial institutions to push aside the provincial officials working in this area of exclusive provincial jurisdiction in favour of federal authorities.

That is not the message I am getting from the financial sector, and more particularly from Quebecers and some Canadians in these institutions.

In the last fifteen years, I would say, provincial participantsin the securities sector have developed a great deal of expertiseand knowledge in this field. But most importantly, they have introduced a harmonizing mechanism in order to reduce systemic risks, and bring about efficiency gains in the securities sector. With the new SEDAR system, they will soon be able to reduce from eight or ten to only one the number of prospectuses required. That will make for a better allocation of funds available on this market, and a better use of financial resources on the securities market.

So why has the federal government chosen this time to introduce such a piece of legislation? Under the pretext of reducing the systemic risks that have already been reduced thanks to measures taken 10 or 15 years ago in this area, the federal government does not hesitate a minute to say: "From now on, I will oversee the securities industry and ensure that resource allocation is efficient". That is unacceptable.

You either believe in a constitution, as the Liberals tell us, or you do not. You either believe in the stability of our financial industry or you do not. You either believe in a better allocation of all the risks involved, and especially of systemic risks, or you do not care at all. And that is the impression we get from the actions of the current government.

When the only thing you do is increase the tension, the insecurity and the instability on the market, instead of reducing them, you either do not understand what is going on, and that shows how incompetent you are, or you want more powers or more visibility for the federal government. You are ready to give up efficiency in order to be more visible and that is not good. That is not what you need to do if you want to be up to the challenges awaiting you in the securities industry and the financial sector during the nineties and the year 2000.

The third reason why we cannot support Bill C-15 introduced by the government concerns the amendments to the Canada Deposit Insurance Corporation Act. Bill C-15 proposes to change the current deposit insurance system. Right now, financial institutions pay deposit insurance premiums based on the volume of deposits, but under Bill C-15, premiums will be based on the risk that a financial institution represents.

Since first seeing the provisions of Bill C-100, which is now Bill C-15, last June, we have been questioning the secretary of state responsible and the finance minister who, ultimately, is also responsible for this legislation, about the impact of this new provision. Up until now, that is almost nine months after the first bill was introduced, our questions have yet to be answered.

For example, we do not know what criteria will be used to assess the risk that a financial institution represents. These criteria will be defined in the forthcoming regulations, and the government refuses to make these regulations public. One can wonder if these criteria will respect the specific character of Quebec's financial institutions. We have questioned the secretary of state responsible and the finance minister many times on this subject, but we still have no answer. We have no answer either to a question such as what impact will a federal risk assessment as proposed in Bill C-15 have on the financial community and how will this risk assessment be interpreted by the financial markets.

On the one hand, there is talk of interference, inefficiency, waste, duplication, overlap, all costly to Canadian taxpayers, and on the other hand, when a clause is unclear and we ask for clarifications, we get no reply. What kind of government are we dealing with here?

In short, this bill is another illustration, first and foremost, of the centralist dynamic inherent in the constitutional status quo. Bill C-15, particularly in its creation of Canada-wide clearing and settlement systems, encroaches on areas already covered by the Commission québécoise des valeurs mobilières and the Inspecteur général des institutions financières du Québec. This leads not only to an overlap that is costly to the taxpayer, but also to administrative inefficiencies, because financial institutions in Quebec, as in Ontario and the other provinces, will be subject to dual controls.

Second, Bill C-15 constitutes unacceptable interference in the securities area. The various governments of Quebec have always vigorously defended the prerogatives of Quebec concerning securities.

If I may, I would like to quote from a letter dated February 16, 1994, and addressed to the then President of Queen's Privy Council for Canada, Minister of Intergovernmental Affairs and Minister responsible for Public Service Renewal by former Quebec premier Daniel Johnson. Its subject is securities, for even that long ago the federal government had indicated its great interest in securities.

The letter starts as follows: "Mr. Minister, as I indicated in my letter of February 15 on the entire process of improving the efficiency of the Canadian federation, this letter more specifically concerns your proposal regarding the regulation of securities".

Mr. Johnson goes on to say: "Allow me first to remind you that the Quebec government never advocated-never advocated-an increased federal role in the securities sector, which is a matter of exclusive provincial jurisdiction. On the contrary, it has consistently expressed its opposition to federal initiatives in this regard".

These are not the words of the current premier of Quebec, of either Mr. Bouchard or Mr. Parizeau. They are the words of Daniel Johnson, written from one federalist to another.

He goes on: "In her five-year report to the National Assembly last December, the Quebec Minister of Finance, reiterated the concerns about the federal regulation of securities that would result from this legislation expressed by a number of other provinces at the time of the recent reform of federal legislation on financial institutions. She said-and we are talking about a current federal minister-that federal regulation would be inappropriate in constitutional terms and from the standpoint of efficiency. It would lead to duplication of rules of supervision and inevitably to a heavier administrative and financial burden for issuers, investors and intermediaries". End of the letter from Daniel Johnson to the current President of the Queen's Privy Council for Canada.

When you are reduced to quoting letters from federalists- It seems to me that the analysis presented by a federalist to another federalist should be understood. It seems just an excuse to say: "We know, you are a sovereignist. You want Quebec to be sovereign. You refuse all interference. You fight against all interference". Yes, it is our job to do so, and I think Quebecers are proud of that. But when one comes out with implacable arguments, the same as those used by great federalists such as Daniel Johnson, it seems to me that somehow the Liberal government should realize that there is a certain consensus in Quebec. Moreover, I think they are starting to get the picture as far as the homeland and the linguistic community are concerned. They should also understand that there is also a strong consensus to jealously protect Quebec's prerogatives concerning securities.

I also think that it should be easy to understand, when the president of the Montreal exchange himself tells us he does not agree either with the idea of federal interference in securities. As well, when we questioned the Minister of Finance, after the speech from the throne, and all the more so after the budget speech, in which he mentioned the federal government's intention, now openly admitted, to interfere in matters of securities, he told us the Quebec business community, major stakeholders in Quebec were unanimous on the need for federal interference in the securities market. After hearing several stakeholders, and the Montreal exchange's president for one, we have to conclude that the Minister of Finance has no idea what he is saying in this regard.

Let me quote Mr. Lacoste, the Montreal exchange's president, when he appeared, on February 20, before the Senate Standing Committee on Banking and Commerce.

Concerning a better harmonization among provinces and greater efficiency in the stock exchange, Mr. Lacoste said, and I quote:

"Yes, there must be better co-ordination, but better co-ordination must still allow for regional disparities. I always use the example that if we had a national or a single commission in Canada in the 1980s, there would not have been a QSSP type of program. There would not have been labour sponsored funds in Quebec. Now they exist, so there is a need to preserve that. However, I agree there must be better co-ordination".

Clearly, with such significant arguments, Mr. Lacoste, the president of the Montreal exchange, has just told the federal government in polite but firm terms to stay home. He has just told the federal government to mind its own business, not to interfere with the securities business.

I believe that when the president of the Montreal exchange says such a thing, adding that if it were not for the fact that the 1982 Constitution gave the Quebec government exclusive jurisdiction with regard to securities, we would not have had workers' funds such as the Fonds de solidarité des travailleurs et travailleuses de la FTQ, because there would have been a coast to coast policy, and major lobbies and decisions would have been increasingly concentrated in the Toronto area, he is contradicting in a big way what the finance minister has been saying so far.

There is definitely no consensus in Quebec to the effect that the federal government must interfere in this area. Indeed, there is a consensus in Quebec that the federal government should stay where it is, deal with its own affairs, and not create costly inefficiencies, overlaps and duplications for the taxpayers of Quebec and Canada.

This being said, and considering that the government did not respond in any way to our expectations, since it refused to accept any of the amendments we proposed, to avoid three of the negative aspects of the bill, I have to ask my colleagues from the official opposition to vote against this bill. We will do so with energy and conviction, and then start working against it, given that the federal government has firmly decided, first in June last year and then with the speech from the throne and the budget provisions, to interfere in a very cavalier and cynical way in the area of securities.

I am convinced that, over the next few weeks, the main stakeholders in Quebec, just like the official opposition, will oppose vigorously this interference by the federal government.

Bank Act
Government Orders

3:45 p.m.


Jim Silye Calgary Centre, AB

Mr. Speaker, Bill C-15, an act to amend, enact and repeal certain laws relating to financial institutions, is a continuation of the old Bill C-100 before Parliament prorogued. The government is bringing it back substantially in the same form as Bill C-100. That is why we are at third reading now.

The purpose of the bill is to make many amendments and changes to financial institutions and to do a lot of fine tuning. This act is a result of a review of the safety of financial institutions.

It comes about as a response to the failures of a number of financial institutions and is essentially the government's response to concerns regarding these same institutions. The bill is also a prelude to the Bank Act review due in 1997. That review promises to be much wider in scope.

I will go through some highlights, some objections and some deeper facts on some of the aspects of the bill. It is very complicated and complex. It covers a lot of areas. I will not touch on all of them, but I will try to hit on some of the points I feel the Canadian public should be aware of. I will also try to enlighten people interested in this debate.

The bill rejects deposit co-insurance, and we do not know why. Since the introduction in 1967 of 100 per cent deposit insurance up to a maximum dollar value which is currently $60,000, 30 financial institutions have failed, with 20 failures in the last 10 years. This has cost the CDIC, the Canadian Deposit Insurance Corporation, about $5 billion as of March 1994.

Interestingly, in the period proceeding 1967 there were no bank failures. Governments over the years have exhibited reluctance to institute market based measures of reform such as co-insurance, instead opting for more regulation and oversight. The use of the market through the implementation of co-insurance and market based criteria as early warning signals would alleviate the problems in the financial system in a less costly yet more effective manner than proposing further regulatory change.

Regulatory attempts to mimic the efficient results achievable only by the free market will always be more costly for all parties involved and will rarely if ever achieve the same quality of results.

Under the proposed system depositors are only encouraged to seek out the best rates regardless of the risk profile of the institution in question since they know they will be fully compensated by the CDIC in the event of a failure. This facilitates the entrance, growth and eventual failure of risky and recklessly managed institutions. It also discriminates against healthy, strong

financial sector players who minimize risk by conservative lending and borrowing policies.

I sure have a tough time making a loan. They are always tough on me.

The act does set the stage for risk based CDIC premiums. However, premium levels for different institutions will not be made public. Again this gives the appearance designed to protect weak institutions. As mentioned earlier, it also keeps the regulation of financial institutions under too large a veil of secrecy. A willingness to provide more information to the public would be a positive move.

The Reform Party does not support the bill because 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 happening and would have some faith in it.

The bill proposes rated premiums for the CDIC and the premiums will be according to the risk. As I mentioned, the bad thing is that the CDIC intends not to make the Canadian public aware of the particular potential risk involved in any particular financial institution. This is a veil of secrecy and the taxpayers will be left with the bill when large institutions collapse, as we have seen in Barings' $1 billion loss and in Alberta's Principal Savings and Trust Company.

That is why it is important for the government to consider what it has unfortunately rejected, co-insurance as a partial solution. By perhaps insuring up to only 90 per cent rather than 100 per cent of deposits, investors having a 10 per cent stake in what they are investing in, a 10 per cent stake in what is going on, would know they have a potential exposure.

The advantages of this exposure would make the public more interested in its money and it would do a little more research on the financial institution. The competition and knowledge that this would bring out would bring out the best in business among those institutions. Just to have a monopoly, big is not necessarily better.

Also recent claims, as I have pointed out, have cost. When they go into receivership these losses cost the taxpayers money, which gives this guarantee by the government and CDIC which is really backed by the taxpayers, and the big banks love it.

I will continue in this vein and discuss some facts on co-insurance basically for future consideration, to lay it on the record. There are some strong advantages in considering co-insurance.

One hundred per cent coverage creates an incentive to place funds with high risk institutions. With 100 per cent insurance risky institutions can attract deposits by offering slightly higher rates.

Depositors are willing to use these institutions because they know the CDIC safety net up of to $60,000 will be there if anything goes wrong. This has enabled risky and uncompetitive institutions to enter the marketplace, grow and ultimately fail and distort the marketplace.

The consumers who bear the cost of deposit insurance. Depositors of stable institutions suffer the most. They do not get the higher interest rates and yet they still have to pay for the damage caused by risky institution failures.

Therefore, as recognized in the just published study by the Public Interest Advocacy Centre, the irony is that it is the very group that co-insurance is intended to benefit, the average consumer, that subsidizes the risky activities of the more sophisticated who know how to take advantage of the inefficiencies embedded in the system as a result of 100 per cent deposit insurance.

There is almost universal consensus and support for co-insurance. Talk about having committee meetings, listening to witnesses and acting in conjunction with what you hear, despite diverse interests from the banks, the insurance industry, both present and past superintendents, the chairman of the CDIC, the Canadian Institute of Actuaries, academics including most recently PIAC which studied the issue from the consumers point of view, and the Senate banking committee, all supporting co-insurance, this bill and these changes do not include it.

Consumers can judge risk. Consumers do not use the vast amounts of disclosed information because without co-insurance there is no incentive to do so. Why worry? Why bother? Why read? Why care? Just put in your money, it is guaranteed anyway. Look for the best advertisement, the highest rate of return and away you go.

The extremely high percentage of insurance deposits in failed institutions illustrates that consumers are making accurate judgments. For example, a recent failed institution, Income Trust, had 99 per cent of deposits insured versus the 50 per cent industry average.

Countries such as the United Kingdom and Ireland have forms of co-insurance with no evidence of widespread demand for 100 per cent coverage.

The secretary of state argued on August 15, when this bill was still Bill C-100: "The measures included in Bill C-100 flow from a series of basic principles as outlined in the white paper issued last February. Our subsequent consultations have left me more convinced than ever that these principles and the fundamental shift in the philosophy that some of them represent make this legislation a vital and valid turning point in our approach to regulation".

The secretary of state went on to point out there are are four key principles underlined in this bill: ownership of financial institutions is a privilege, not a right; early intervention in and resolution

of institutions experiencing difficulty should occur; financial institutions must operate with sufficient incentives to solve their problems in a timely manner; there must be appropriate accountability and transparency in the system.

Those are tremendous underlying key principles. How could one in the financial sector argue with those principles? I support satisfying those principles, but this bill falls far short of the accountability and transparency in the system. It is still veiled in secrecy and by not considering co-insurance it denies the consumer the opportunity to make some rational judgments for himself.

There has to be a greater review. Financial institutions of all types, the four pillars, must come under a serious review, not separately but collectively. We must do a massive evaluation. It is time to stop and take a good look at the financial sector.

My colleague, the hon. member for Okanagan Centre, who is the Reform Party's industry critic, wrote this brief paper. I would like to read it into the record to give him credit for it because if we truly wish to satisfy the four principles which the secretary of state has stated in terms of evaluating financial institutions, then I feel that my colleague's recommendations are worthy of consideration.

The paper states:

Finance Minister Paul Martin surprised many in his 1996 budget speech by assuring Canadians that banks would not be allowed to sell insurance through their branch networks this year. This softball so deftly tossed our way neither eased our concerns nor addressed the issue.

The real issue is not whether the banks should be allowed to sell insurance or enter into the car leasing business, but whether true competition exists within the financial sector and, thus, whether the consumer and the economy will benefit if banks are allowed to enter other markets.

The banks assure us that their own industry is competitive and not the oligopoly that Canadians suspect. This is difficult to believe when the six largest banks in Canada move en masse to raise or lower interest rates every time the bank rate so much as twitches. The only competition in this case is who will move first.

Yet none of them have moved very quickly to change interest rates down on the personal credit cards that everybody has through Visa and MasterCard, et cetera. One would think someone would drop the rate to get more business.

The four pillars of the financial sector, banking, insurance, trust companies and security dealers, have crumbled as deregulation and technological progress has blurred the lines of distinction. The banks have been applying pressure ever since to sell insurance in their branch networks, enter into auto leasing and increase their interest in the securities market. Further deregulation and the subsequent increase in the size of banks, however, could reduce competition in the financial sector and hurt consumers. These are perennial issues in the Parliament of Canada, particularly when a review of the Bank Act is scheduled. Major reviews are conducted every ten years, interspersed with minor reviews every five years.

1997 brings a minor review, but it is a major review that is required. We need to know a good many things. How do our financial institutions interact? How do they operate in relation to other sectors of the economy? What are the strengths and weaknesses of the current regulatory structure? Not only will the answers reveal whether or not true competition exists within the banking sector and, thus, whether or not they should be allowed to expand into other financial services, the answers will determine the veritable strength of our financial sector as it heads into the 21st century. Until such a review is completed, a moratorium should be placed on making any further decisions about financial institutions.

Furthermore, Parliament must be the venue, perhaps in the form of a joint committee of the finance and industry committees. It is the only way we can assure that all interests will be recognized and the process will be both accessible and transparent. Canadians must be able to see the process in order to put their faith in it.

As lobbyists from all sides pressure members of Parliament to take sides and others try to frame the issue within the overtly political constraints of a war between big and small business, the challenge will be to keep our eye on the ball. That is, to ensure true competition exists and is free to function within the marketplace, that stability is maintained in the respective financial sectors and a prudent regulatory structure is in place to protect the consumer. If the bottom line is met, Canadians and the economy will indeed emerge as the winners.

Before I conclude, I have one thing to say about financial institutions and, more specifically, the banks.

There is concern among a lot of people, especially people who are left wing political animals, who feel that the banking institutions are taking advantage of them. I have some good things to say about big banks and some criticisms as well. Since we are dealing with financial institutions, I would like to take the opportunity to touch on two points.

A lot of people are criticizing the banks for not paying their fair share or they are saying they should be embarrassed by their huge profits. I know that the banks, although some may make a billion dollars in profits, also pay a billion dollars in taxes. Profit is not a dirty word. Profit means jobs. Losses mean lack of jobs. Losses means subsidies; grants from governments; subsidization by taxpayers; losses mean rewarding failure.

Let us reward and encourage profit and stop criticizing companies that make a profit. That is no business of the politicians. It is the business of businesses. Businesses should be encouraged to grow, prosper and expand the economy. They should be given compliments when they do so and government should stay off their backs and out of their pockets so that they can create jobs.

How many pages does this bill contain? All these regulations have to be read and interpreted by somebody. This is a cost. It is an expense to business. This is not an inducement to improve business or hire more people and increase employment. We need fewer regulations. Good regulations, yes, but fewer. We need to get the government out of the business of being in business.

There are many financial institutions. I am looking for a document that lists the number of institutions and their assets. I was shocked to see how much these institutions control. But it looks like I will not be able to find it at the moment so I will not be able to quote from it.

One criticism I have of the banks is that they are quick to fiddle with certain prime rates but have not looked at the rates of interest on consumer loans or credit cards. I feel that sometimes they encourage indebtedness by sending letters to university students giving instant credit of $1,000. I know that happened to my daughter when she graduated a couple of years ago. A bank sent her a credit card and guess what? Within 30 days she was in debt to the tune of $1,000. I do not feel that is a practice I would like to see. As a parent I know I did not like it but it is done. There is nothing illegal about it, but I feel that some people get themselves into financial difficulties when that happens.

The problem with government tinkering with regulations and trying to establish a level playing field among the four pillars of financial institutions is that it keeps attempting to amend the definition of a bank. In the Bank Act the definition of a bank is something like "a bank is what a bank does in Canada". Governments keep changing what a bank does. Therefore, other financial institutions have a hard time competing because they are at a disadvantage.

The thorough and proper review which is scheduled for 1997 should lead to some positive results. I sincerely believe that once again this is an example of a Liberal government which uses all the right words even when it describes the budget. It has the rhetoric down, but the reality and what it is doing does not match the words. The words are greater than the actions it takes.

As I have pointed out, the four key principles which the secretary of state believes he is accomplishing with these new regulations for financial institutions is honourable. But he is ignoring completely and avoiding the issue of co-insurance which would clean up a lot of the failures in these institutions and introduce responsibility to investors. It has so many advantages. With so much support from all the institutions and groups, at the very least this could have been done. I believe we introduced it either in the standing committee or in the House at an earlier stage as an amendment which was defeated. I know we talked about it as a party.

This measure would eliminate the burden on taxpayers. It would reduce the risk for high risk institutions. We must have high risk investments. We must have somebody to take them. We must encourage them. The best person to take that risk is a person who can afford to take the risk. We should not be putting all the taxpayers' money at risk.

Bank Act
Government Orders

4:10 p.m.

The Acting Speaker (Mr. Kilger)

This concludes the first round of 40-minute speeches. We now enter the next stage of debate which has 20-minute speeches subject to 10 minutes of questions or comments.

Bank Act
Government Orders

4:10 p.m.


Richard Bélisle La Prairie, QC

Mr. Speaker, Bill C-15 amending and enacting certain laws relating to financial institutions is, in our estimation, a new attempt by the federal government to control the provinces, and especially Quebec, which, for the last 30 years, has developed several original tools of economic and financial development.

On the economic and financial side, the federal government's control is increasing daily. On the constitutional side, the Quebec wing of the Liberal Party of Canada proposed last weekend that Quebec now be recognized as "the principal homeland of French language, culture and legal tradition in North America".

The distinct society concept, which was part of the political landscape since the Meech Lake accord and was the subject matter of a motion in this House last December, and which the government seemed to want to enshrine in the Constitution, is suddenly put off indefinitely following some prevarication by certain premiers.

After the second world war, women were sent back home. Some right wing groups still regularly send women back home. Optometrists will often tell us whether bifocals will improve our sight. But what does this vague concept of homeland have to do with the constitutional issue and the recognition of a people?

Today, no longer sure about what to do with it, the federal Liberals are sending the Quebec issue back home. Even the leader of the official opposition in Quebec City tells us this has no legal meaning; it is like saying that Newfoundland is an island and that the Rocky Mountains are in the west. There are no intellectual giants in this government.

This whole farce of a principal homeland in America shows once again the true face of the federal Liberals and how little they know and understand modern Quebec. Less than six months after the Quebec referendum, the Prime Minister is once again going back on his word.

What are we discussing these days in the House? Homeland rather than distinct society, the importation of cheese made from raw milk, our soldiers' lack of discipline, the Somalia affair, the lightning search for missing documents ordered by the defence minister. Once again, our play soldiers, who still cost Canadian taxpayers $11 billion a year, are once again making fools of themselves. It is a good thing that ridicule does not kill. Is this why

Canada still has armed forces, to protect the country from ridicule? If so, they are not doing a very good job.

After nearly three years in power, the Liberal government has gone back on its promises to Quebec. They are making fools of themselves in the rest of Canada, in terms of both imports and defence matters. The Prime Minister has lost control of the situation. There is no leadership left in this government. Worse, there is no vision as to the future of this country.

This government, which is unable to renew the Canadian Constitution, to manage its armed forces in a modern and professional manner, to set credible import policies in a globalization context, is putting forward Bill C-15, which shows its inability to manage the federation at the economic and financial levels.

This bill contains a number of scattered, apparently unrelated measures whose only purpose is to strengthen the monitoring and regulation of financial services in Canada. Once again, the federal government is trying to take control, to increase its powers.

The Bloc Quebecois is not opposed to the principle itself of Bill C-15, but rather to some of the proposed measures, which encroach on major areas of provincial jurisdiction.

The most important measure in this bill would extend the Bank of Canada's payment settlement mechanism to the area of securities.

In fact, this initiative duplicates the clearing systems already regulated by the Quebec securities commission and allows the federal government to interfere in the regulation of securities, which is an exclusive provincial jurisdiction.

Under this bill, the Canada Deposit Insurance Corporation will be setting the participation premiums according to the risk a financial institution represents. This includes Quebec chartered institutions already regulated by the Régie de l'assurance-dépôts du Québec, where the deposit volume is the criterion. Thus, there will be two standards of evaluation, and the one based on risk could put Quebec institutions at a disadvantage.

The powers of the superintendent of financial institutions will be increased so that he may request the winding-up of Quebec chartered institutions. This duplication of services could lead to numerous disputes between the different bodies.

As we mentioned during the debate at second reading, this bill amends nine acts: the Bank Act, the Trust and Loan Companies Act, the Insurance Companies Act, the Cooperative Credit Associations Act, the Winding-up and Restructuring Act, the Office of the Superintendent of Financial Institutions Act, the Canada Deposit Insurance Corporation Act, the Canadian Payments Association Act, and the Investment Companies Act, which is being repealed.

This bill is a new indication of Ottawa's centralizing attitude. By establishing Canada-wide compensation and payment systems, Bill C-15 infringes on the authority of the Commission québécoise des valeurs mobilières and of Quebec's Inspecteur général des institutions financières. This results in costly overlap and structures. Quebec's financial institutions will be subject to two monitoring systems.

Therefore, Bill C-15 is an unacceptable intrusion into the securities industry, which comes under provincial jurisdiction. In Quebec, the various governments have always strongly defended Quebec's jurisdiction over the securities industry. Even Daniel Johnson reaffirmed that position in a letter to the federal government on February 16, 1994, when he was Quebec's premier.

The authority given to the Governor of the Bank of Canada to issue directives or orders to financial institutions goes squarely against that traditional Quebec position.

This bill will result in even more unacceptable overlap. Beyond the issue of jurisdiction, the fact is that Quebec's financial institutions and individual savers will suffer from the duplication Ottawa is seeking to impose. This will result in additional costs and in a lack of consistency in government policies.

Let us now take a look at the clauses of Bill C-15 I feel will create the most serious problems.

The Bank Act will be significantly affected. Clause 12 of Bill C-15 provides that banks will have to disclose additional information. The various provincial securities commissions already request this type of information to banks and to other companies listed on the stock exchange. Therefore, this is a new type of duplication.

The Canada Deposit Insurance Corporation Act is also being amended. Clause 21 of this bill defines the notion of "affairs" and of the affiliates of the member institution. For example, if even one of the institutions affiliated to Desjardins is a member of the Canada Deposit Insurance Corporation, the federal government is entitled to give direction to all of Desjardins' affiliates.

Clause 22 will give the Canada Deposit Insurance Corporation the opportunity to be instrumental in the promotion of standards of sound business and financial practices for members institutions. This is a good thing in itself, but it is also a kind of duplication in the case of provincially chartered financial institutions that are part

of the Canada Deposit Insurance Corporation, since the province of Quebec already has regulatory control over these institutions.

Clause 27 will allow the board of the Canada Deposit Insurance Corporation to establish a system of classifying member institutions according to the risk each of the institutions represents. Hence, the federal government will have no other choice but to set up a supervisory and monitoring system for these members institutions. Again, this will mean some duplication for the provincially chartered institutions, since Quebec already has a control and examination process in place for these institutions. Besides, such a classification system will put the smaller institutions at a disadvantage. We will have to see how the Mouvement Desjardins is reviewed. Will it be branch by branch or as a whole?

The purpose of clause 34 of the bill is to determine the parameters of the examination mentioned in clause 27. For the provincially chartered institutions, this is already done by the provincial authorities. Why the duplication?

Clause 60 of Bill C-15 specifies the circumstances under which the superintendent may take control of an institution in difficulty. Moreover, the superintendent has the obligation to notify the provincial minister responsible of the takeover of a central of a co-operative credit association which is incorporated under provincial legislation. Thus, the provincial authorities are completely pushed aside and the regulatory control a province has over its co-operative credit associations becomes practically irrelevant and even null and void.

The Insurance Companies Act is also affected by this bill. Once again, the bill gives more power to the superintendent to step in if an institution is in financial difficulty. Provincially registered insurance companies are not beyond the superintendent's increased powers of intervention.

According to section 66 of the same bill, the definition of businesses to which the law applies is also amended to include fraternal societies and provincial companies. The bill encroaches upon the powers of Quebec, which already regulates provincially registered institutions. Consequently, we are opposed to the bill's measures which apply to companies registered in Quebec and we are also opposed to all the sections relating to monitoring of provincially registered companies by the superintendent.

Section 93 will also allow the superintendent to make public the information gathered pursuant to the new law. It will force provincially chartered insurance companies to publicly disclose information concerning the compensation of their executives, as well as their business and internal affairs. Since provincial securities commissions already require that information, there will be more duplication. Furthermore, the federal government has no legal right to regulate provincially chartered companies.

Moreover, clause 95 provides that the superintendent will have his say on the composition of the board of directors of provincially chartered insurance companies in financial difficulty. There is already such a control system in Quebec. What then is the usefulness of clause 95?

The main objective of clause 103 is to allow the superintendent to impose standards of sound business and financial practices to provincially chartered insurance companies. Another unjustified encroachment on provincial jurisdiction.

The Office of the Superintendent of Financial Institutions Act is also amended. Clause 105 clarifies the new objectives of the superintendent, stating in black and white that the purpose of the act is to ensure that financial institutions in all provinces are regulated by an office of the Government of Canada. This could not be clearer; the federal government has decided to gain the upper hand over the provinces.

As for clause 106, it gives more detail on the federal superintendent's objectives. No distinction is made between institutions with federal charters and institutions with provincial charters. Only federally chartered institutions ought to be covered by this clause.

Finally, clause 62 indicates that a totally new act, the Payment Clearing and Settlement Act, is being created here to allow the federal government to gain control over this area of provincial jurisdiction. The Canadian Payments Association Act is therefore done away with.

These amendments and creations of new acts, all of this legislative process is put into place in order to once again hem in the provinces. The government's throne speech could not have been clearer on this. It intends to create a national securities commission, one which will directly invade the area of jurisdiction and the activities of the securities commissions in the Canadian provinces. In this context, Bill C-15 lays the ground work for the arrival of this national securities commission which the federal government intends to create.

Once again, the government's firm intent is to establish wall-to-wall national standards, and financial institutions cannot escape from this unwavering trend. With Bill C-15, the government is expanding this principle of national standards to the financial institutions. It has now come full circle. The federal government has extended its grasp to the financial institutions, while on the constitutional level there are making a mockery of the historical demands of Quebec, by reducing it to the homeland of cultural survival in America.