Madam Speaker, I will begin by making it clear that the government fully supports the principles of community investment.
We are also committed to ensuring proper accountability and transparency of the banks' small business lending activities. We will continue to challenge the banks to do a good job of meeting the needs and in particular the credit needs of consumers and small businesses across Canada.
It is also important to note that the Task Force on the Future of the Canadian Financial Services Sector is examining the responsiveness of financial institutions to community needs as part of its work. Consequently we believe that it is appropriate to wait for the task force views before deciding whether any further action is required.
The issue of community reinvestment involves a number of important considerations. At the end of the day the task force will need to assess whether there is a need for a more focused approach to community investment by the banks. There may be a number of models that would have to be carefully considered. The government's primary task, should it decide to move forward on this matter, is to ensure that the model chosen will accomplish specific policy objectives in an efficient manner.
Bill C-289 represents one approach to community reinvestment. While the bill's provisions are intended to promote equity in community investment, it contains some elements that could have unintended negative impacts.
Bill C-289 appears to be loosely modelled on the American community reinvestment act, legislation that was implemented in the U.S. in response to a unique credit discrimination problem. This type of credit discrimination does not exist in our banking system.
It is important to recognize that the CRA was introduced in the U.S. during the 1970s to discourage financial institutions from red lining inner city areas, that is, taking deposits from the entire service area but not lending in certain neighbourhoods. This practice is believed to be the primary factor underlying the transformation of many U.S. inner cities into urban ghettos.
While the CRA has been useful in raising U.S. lenders' awareness of their lending patterns, it remains unclear whether its benefits, primarily social, outweigh the regulatory costs. This legislation has been criticized for imposing cumbersome and expensive data reporting and record keeping requirements on both the government and regulated institutions.
Bill C-289 will require Stats Canada to produce estimates of monthly unemployment rates for each federal riding. Statistics Canada has estimated the initial implementation cost would be $15 million. The ongoing annual cost of the monthly labour force survey would mushroom to $40 million, triple the current cost. We would want to explore whether there may be a more cost efficient method of designating disadvantaged communities and establishing stress measurements.
Under the provisions of the bill, branches of schedule I banks located in designated disadvantaged federal ridings would be required to produce detailed lending statistics for those specific areas. Disadvantaged ridings would be defined on the basis of the unemployment rate within the riding. However the proposed criteria that would be used to assess whether a riding is disadvantaged is problematic.
Any federal riding having an unemployment rate equal to or higher than the national average unemployment rate would be designated as disadvantaged. Furthermore a riding's monthly unemployment rate need only equal or exceed the national rate once during the preceding year to be designated as disadvantaged. Such a loose definition goes far beyond capturing those ridings with chronic unemployment problems.
Moreover there is a problem with the definition of community in general. Imposing artificial limits on bank lending based on the geographic source of deposits presupposes that the market is not working efficiently. In considering any potential community investment initiatives, the government would want to be assured that the model being examined would not lead to inefficient allocation of capital.
A further area of concern with Bill C-289 is the requirement for banks to generate detailed lending statistics at the federal riding level. This could impact negatively on privacy protection for bank customers.
During its hearings with the banks on small business financing, the House industry committee explored the concept of requiring a much more detailed breakdown of lending statistics. In fact the committee looked at seeing whether we could get the breakdown by postal code or community. In the end it was determined that the aggregating of lending statistics to this extent would potentially result in the breach of client privacy.
I want to re-emphasize the government's commitment to community investment despite the criticisms I have put forward here. Today the government is taking action to promote community investment. The regional development agencies and other government programs continue to play a big role in financing community needs across Canada. We are also sustaining efforts to aggressively encourage the banks to meet legitimate small and medium size businesses' financing needs in all regions of Canada.
The government is nevertheless sensitive to the fact that many rural communities have experienced difficulties in accessing not only credit but banking services in general. Let us be clear. The banking landscape has changed dramatically in recent years. The banks must take steps to ensure that rural and remote communities have sufficient access to banking services.
The government is also keeping a watchful eye on the banks' lending activities and carefully reviews their lending data in order to assess progress in meeting the financing needs of small business. Regular House industry committee hearings with the banks provide a good opportunity to question the banks on statistics which may reveal problem areas with respect to access to capital. While it is recognized that credit decisions are highly subjective and involve potential considerations, the data reporting requirements of the banks provide an effective check on the banks with respect to their efforts to support community development.
Much of the debate on community reinvestment has focused on the increasing availability of microcredit to small business. I would note that there are a number of federal and provincial microcredit initiatives run by a variety of community organizations right across the country.
In general these programs offer financial assistance as well as training, mentoring and counselling services. These programs serve not only small business operators but also target youth, aboriginal peoples, women and non-urban rural communities. The government considers these microcredit programs to be of vital importance in promoting community development at the grassroots level and will continue to support and promote microcredit lending.
In summary, while the government supports the principle of community investment, Bill C-289 may not be in fact the best approach. Furthermore, we believe that it would be premature to take any action in this area before the task force submits its views to the government this fall. For this and the other reasons I have outlined in my discussion today, I believe that it would be incumbent upon the House to reject Bill C-289.
I also want to say that the hon. member, I am sure, is quite sincere in putting forward the bill and does believe in what he is doing. I merely want to point out a number of deficiencies that I see in this particular bill.
In fact the reason we set up the task force was to look at the changing financial institutions and the changing financial sector. I do believe that waiting for that report would be the most effective way of dealing with the change that is going on.
In the end we all want to ensure that Canadians in urban Canada and rural Canada, Canadians who are involved in small businesses and Canadians who deal in microcredit are all properly served by the financial institutions in this country.
I certainly applaud the work of the industry committee and certainly the work of all members. The outcome is the benefit that can be achieved by ensuring that small business and Canadians in general do have the proper access to capital and do receive the necessary banking services they require so that they can continue to contribute in a very real and effective manner to the growth of this country and its economy.