Mr. Speaker, we have seen how foreign competition such as the Wells Fargo operations directed at small business have actually sparked some lending in Canada to small businesses which is not based on balance sheets.
We have seen how foreign operations through electronic banking here in Canada have encouraged Canadian banks to get into all of these areas. We have received indications from a number of these foreign banks that the areas they will concentrate on are certainly commercial; big companies of course, but also hopefully the smaller businesses that may not have options under existing regimes.
Let me talk about the conditions for entry. I emphasize that the government will maintain control over which banks will be allowed to enter our market. Let me highlight some of the standards they will be required to meet.
A foreign bank must obtain the approval of both the Minister of Finance and the Superintendent of Financial Institutions. As a condition of establishing a branch in Canada, the foreign bank must be regulated in its home country in a manner satisfactory to the superintendent. Furthermore, we will be looking to see whether it has sufficient size, experience and financial health to support its branch operations in Canada because, above all else, we do not want to see banks in Canada going under, even if they are not taking retail deposits.
More specifically, a foreign bank wishing to branch into Canada must generally have a proven track record in international banking, must have demonstrated a favourable financial performance over the last five years and must be widely held. These are the guidelines which are in place. In addition, foreign banks wishing to set up a full service branch must have a minimum of $5 billion in worldwide assets.
Safety and soundness in the financial sector is our top priority. Let me explain how these banks would be regulated. First, they would be required to maintain a minimum deposit with an approved financial institution in Canada. For full service branches the deposit would be the greater of 5% of the bank's liabilities or $10 million. Since lending branches would have no depositors but would only be permitted to borrow from other financial institutions, they would be required to maintain a lower minimum deposit of only $100,000.
The only way to establish a foreign bank in Canada is by establishing a subsidiary, not a branch, and presently the minimum deposit is $10 million. The bank's parent is naturally incorporated in another jurisdiction and its primary supervisor would be the authorities in its home jurisdiction. However, its business in Canada would be supervised by the superintendent. OSFI would be given adequate regulatory powers to carry out this role, including the ability to order that a branch maintain specific additional access with an approved Canadian financial institution if this were deemed necessary to protect depositors and creditors of the branch.
In the case of insolvency, OSFI could take control of the assets of the foreign bank which are in Canada. If the proceeds from any liquidation that might occur were not sufficient, the depositors and creditors could seek recourse from the liquidator of the foreign bank in its home jurisdiction. While foreign bank branches would be exempted from many regulations, I emphasize that they would be subject to all of the rules that we have in place for the protection of consumers, such as regulations on disclosing the cost of borrowing, interest and other charges.
I will touch briefly on four technical changes contained in the bill. First, if the foreign bank is a member of the World Trade Organization, then it would no longer have to seek our approval to establish individual branches in various different locations in Canada. In other words, we would remove one regulatory impediment to their further expansion.
Second, there are proposals to eliminate the reciprocity provisions in the financial institutions statutes to reflect the most favoured nation principle of the WTO. Under this principle, parties to the agreement must not discriminate among financial institutions from different countries and must grant most favoured nation treatment. This means that Canadian firms can expect to receive the same treatment in other jurisdictions as those host countries offer to any other foreign institution coming to them.
A third amendment will be that OSFI can accept delegated legislation or regulatory responsibility from the provinces in Canada. We are trying to harmonize a lot of the regulatory laws and rules governing financial institutions in Canada and this is a major thrust in that direction.
There are federal rules and there are provincial rules. This causes unnecessary red tape. We will continue to try to eliminate this overlap and duplication, this totally unnecessary burden, by offering to take over the regulatory functions of provincial regulators so that we have one regime.
We are working to encourage the provinces, where they do not want to give up regulatory control by delegating it to the federal government, to at least harmonize provincial laws among the 10 provinces and territories and with the federal government so that at least people can understand that there is only one regime they need comply with.
Last, an amendment to the law would provide authority to OSFI to make regulations restricting the disclosure of supervisory information by financial institutions.
We are attempting to enhance the competition in our financial services sector. This is in accord with what the MacKay task force recommended, with what the Senate committee recommended, with what the House committee recommended and with what the committee chaired by the hon. member for Trinity—Spadina recommended. We are proceeding with this and we look forward to this law being passed.
Let me conclude by saying something about the entire banking structure in Canada. Our domestic banks are in favour of this legislation. It will subject them in certain areas of business to even greater competition from abroad. That is a sign of the confidence which they have in their own future.
I want to put on record very clearly that I could not be prouder than to be the secretary of state dealing with Canada's financial institutions. By all objective criteria, Canada's financial institutions are among the finest in the world in terms of the service they offer their customers and in terms of what they have contributed as an industry to our country.
Our banks, for example, employ directly over 200,000 Canadians. That does not include the thousands upon thousands of other jobs which they generate, such as those found in marketing, accounting and in other areas. They are the most highly taxed industry in Canada. Forty per cent of the their income comes from abroad. They have penetrated foreign markets throughout this world.
In spite of the fact that 40% of their income comes from abroad, fully 85% of the global taxes they pay are paid right here in their home jurisdiction, Canada. Ninety per cent of their global jobs are in Canada.
I would defy members of this House, if they wanted to set up a new industrial strategy for Canada, to find an industry which is contributing more in terms of exports, taxes and jobs than our banking sector.
Maybe it is in fashion to criticize our institutions. I am not saying that they are perfect any more than I am perfect. However, this does not mean that we will renounce our obligation to continue to work with all groups in Canada to make sure that our banks provide not only world class service, but that they are world class players.
Let us look objectively at what the banks have achieved in Canada and around the world. Let us give them the credit that is their due.
I look forward to the comments of members, to the bill going to committee and to its eventual passage into law.