Mr. Speaker, I am very pleased to rise in the House today to speak to Bill C-67 at second reading stage, I hope with the support of this House that this bill will go to committee.
We are moving forward on second reading today to allow foreign banks to establish certain types of commercially focused branches in Canada. Establishing this branching regime will undoubtedly enhance competition for banking services within the Canadian market. This will help to provide a wider and better range of financial services for all Canadians.
The essence of Bill C-67 is that it will remove unnecessary regulatory barriers by allowing foreign branches to offer specified services in Canada through branches rather than requiring them, as at present, to set up a separate subsidiary in Canada with all of the regulatory implications and capital implications that that involves.
The major benefit that we will be giving to the foreign banks coming to Canada is that they will be able to draw on the capital base of their parent. They will be able to draw on their global capital in order to back up their Canadian lending operations.
They will be spared as well the expense of having here in Canada a separate board of directors and the different committees that are required by our regulators to ensure that they are compliant.
This will give to foreign banks greater flexibility in how they structure their Canadian operations. We believe this to be a useful step to help stem what has been over the years a withdrawal of foreign banks from Canada.
Yes, there has been a reduction in the number of foreign banks in Canada since we allowed them to come in here in a subsidiary form in 1980.
The cost-effectiveness of foreign banks operating in Canada is noticeably lower than that of the Canadian banks. The reason given most often for this difference is the cost structure relating to the activities of foreign subsidiaries.
But it must also be acknowledged that our Canadian banks are truly competitive worldwide, and this may well be the real reason.
A considerable number of foreign banks have cut back on Canadian activities, or pulled out of Canada altogether. Between 1990 and 1998, the number of foreign banks with subsidiaries in Canada dropped from 57 to 45.
I do not believe that this is something we should ignore. Any unwarranted damper on the ability of foreign banks to maintain a presence in Canada runs counter to our efforts as a government to encourage competition in the market for financial services. We want and need this competition in order to ensure maximum choice and value for consumers of financial services in Canada.
We believe that maintaining the status quo would likely rule out the prospect of more new foreign banks establishing operations in Canada. Simply put, they have plenty of opportunities throughout the world to expand their efforts and their operations. Their investment choices and decisions will be made on the basis of where they can get the best return on their capital. Removing some of these impediments will enhance the capacity of these foreign banks to develop higher returns because of the lighter regulatory burdens.
I would also point out that not only throughout the G-7 but throughout the entire banking world, there are only two countries today, and unfortunately Canada is one of them, that do not permit this type of foreign bank branching in the host country.
In order to remedy this, in February 1997 the government announced its intention to allow foreign banks to open branches in Canada. The following September, it published a consultation paper on the foreign bank access policy, followed by extensive consultations with all interested parties, as well as an examination of the regimes other countries had put in place in connection with foreign banks.
The regime set out in Bill C-67 is the outcome of these consultations. The key parameters of the proposed framework are similar to those of our main trading partners. The proposed regime will enable foreign banks to set up subsidiaries in Canada which would focus mainly on commercial banking activities and lending operations of a more general nature.
The regime would offer two options to foreign banks wishing to establish branches in Canada. They could establish either a full service branch or a lending branch.
Let me begin by explaining that neither type of branch would be permitted to take retail deposits. That would mean they would be limited to deposits of $150,000 or more. There is very good reason for this. If foreign bank branches were allowed to take retail deposits, then we could not offer them as attractive a regulatory regime. We would have to impose the full measure of regulations in order to protect those depositors.
In any event, foreign banks already have the option in Canada to take retail deposits by setting up a fully regulated subsidiary. This option remains open to them. Let us recognize right from the start that most foreign banks will not set up retail operations. They have indicated that their interest is in expansion in the commercial wholesale banking market.
Accordingly, these foreign banks would not be permitted to take retail deposits and since there would be no Canadian retail depositors' funds at risk they would naturally face this lighter regime of regulations.
Looking at the two types of branches that we are allowing, lending branches and full service branches, it is only the full service branches that will be permitted to take deposits of greater than $150,000. The lending branches will not be permitted to take deposits, large or small.
As well, the lending branches would be restricted to borrowing only from other financial institutions. As the name implies, the lending branches, the most lightly regulated of these branches, would be in the business of providing loans to Canadians.
The availability of two options for branches will make the regulatory framework more flexible. Regulatory requirements may be adapted to the nature of the activities of foreign banks in Canada.
Since lending branches will not be able to accept any deposits, they will be subject to fewer regulatory requirements than the full service branches.
Foreign banks choosing to operate lending branches will not be able to operate either a deposit branch or a full service branch. However, they will be able to operate other types of financial institutions that do not take deposits, such as insurance companies or other financial services. Foreign banks choosing to operate full service branches will also be able to operate deposit taking branches.
These options should be attractive to foreign banks already operating in Canada and those perhaps contemplating setting up here. I have had indications from a number of foreign banks that, with the new Canadian system, they will consider setting up business here.
The manoeuvring room associated with these options and the more flexible regulatory requirements adapted to each category of activity should reduce the costs to foreign banks of operating in Canada.
What does this mean for Canadian consumers of financial services? Since the foreign bank branches would be prohibited from taking retail deposits they would not be competing with fully regulated foreign bank branches or domestic banks in the retail deposit market.
However, we believe that they can make a positive contribution to the Canadian market in terms of lending to small and medium size businesses, corporations and some areas of consumer lending such as, for example, credit cards.
We believe in addition that the domestic banks stand to gain from liberalization. More often access to the Canadian market helps to promote fair and open treatment of our Canadian banks abroad and from 1980 when we allowed foreign banks to come into Canada this of course was always the main—