Mr. Speaker, I am very pleased to stand in the House today to speak in favour of Bill C-67, an act to amend the Bank Act. This bill is very important, not in itself necessarily, but because it begins the process of creating a more competitive financial services sector in Canada.
As a member of the 1998 national Liberal caucus task force on the future of the financial services sector, which was chaired by my colleague from Trinity—Spadina, I met with Canadians and listened to their concerns about the financial services sector. Canadians of all walks of life are concerned with both the accessibility and the affordability of financial services in Canada.
For example, seniors and seniors' organizations shared with the task force many of the same concerns about banking services as did other Canadians. Seniors are concerned about reduced choice in banking services, tied selling, poor service in rural areas, access to capital for small businesses, high levels of profit and privacy issues. Seniors also brought forward issues regarding the cost of banking services, reduced teller services, fewer branches, reduced pedestrian access and a lack of information about basic accounts.
Although many seniors are having their banking needs properly met, the multitude of different banking options now available can be very confusing. Banks have a tendency to promote the most expensive service packages, which may include features seniors do not need. It is particularly important that services available to seniors and basic low-cost service packages in general be advertised prominently at bank branches and automated teller machines.
The trend toward automated services cuts costs for banks and can provide a convenient service for many customers. Many seniors, however, are uncomfortable with some of the new technologies and prefer to deal with a person rather than a machine.
Further, not all branches have lower counters for persons with limited mobility or provide areas where seniors and others can sit while waiting for service.
For many seniors dependent upon public transportation, a visit to a bank branch a few kilometres away can cause significant travel time while waiting for buses.
Low income Canadians and ethnocultural communities in Canada have also raised concerns about the accessibility and affordability of financial services in Canada.
As well, small and medium size businesses, which are the driving force behind economic growth, also need affordable and accessible financial services. There are 2.4 million SMBs in Canada. Half of all private sector jobs are in these businesses. They are also responsible for 45% of the production in the private sector, and 95% of all new jobs.
Small businesses are highly dependent on the chartered banks for financing. This dependence has been increasing over the past few years. The Conference Board of Canada has shown that domestic chartered banks held 50.3% of the total SME financing market in 1996, compared to 48.4% in 1994. In addition, they held 72% of outstanding commercial loans to SMEs in 1996, up from 66% in 1994.
With such a large share of the SME lending market, the chartered banks face little competition from other institutions. This absence of competition is even greater in some regions of the country and in rural areas where small businesses may be totally dependent on one or two banks that operate in their communities.
The situation is even worse in areas located outside financial centres. Women, young entrepreneurs and aboriginal people in particular have poor access to debt financing. Small and medium size businesses are an integral part of our economy, yet they have only limited access to bank capital.
In the gallery are two business people from Alberta, Darrell Toma and Tom Clark, who have a very good entrepreneurial idea involving innovation in the agricultural and agribusiness sector. Capital is an issue that is constraining them. For that reason I am hoping they are successful in their visit to Ottawa.
It is for these reasons that our caucus task force made it a priority to offer solutions to ensure that affordable financial products and services are available to all Canadians and their businesses, regardless of where they live. We, the members of the task force, concluded that the most effective way to make the financial services sector more affordable is to encourage more competition.
Among other measures, the task force recommended the introduction of foreign bank branching into Canada. Our government again has responded.
At the present time, foreign banks wishing to operate in Canada must open distinct Canadian subsidiaries. For foreign banks not wishing to receive retail deposits in Canada this constitutes a needless regulatory requirement, which adds to their costs of doing business in the country.
Since reaching a peak of 59 in 1987, the number of foreign bank subsidiaries in Canada has declined to just 45 in 1998. Their share of total banking sector assets, which stood at about 12% in 1990, fell to just under 10% by the end of 1998. Almost all of the foreign banks in Canada operate solely as investment banks specializing in financing large corporations.
Foreign banks have publicly stated that they currently find the cost of trying to compete head to head with Canadian chartered banks for personal and small business lending to be so high as to make it futile. These banks cite tax, regulatory issues and the delay in introducing branching as factors inhibiting the entry of foreign banks.
I am pleased to note that earlier this year our government announced measures which will ensure that Canadian branches of foreign banks, Canadian subsidiaries of foreign banks and domestic banks are all taxed on a similar basis. Bill C-67 further levels the playing field for foreign banks. At the same time, however, no advantage has been provided to foreign banks over our domestic banks.
Compared to other industrialized nations, Canada is falling behind. The 1998 world economic forum on global competitiveness ranked Canada 39th in the ease with which new banks can begin operation and 40th for the participation of foreign banks in the Canadian financial sector.
There is no question there are significant barriers to entry for foreign banks and that is why this bill is so important. It is also why our national Liberal task force encouraged the government to move expeditiously to allow foreign banks greater access to Canada, and our government has responded.
Bill C-67 will bring Canada's foreign bank entry policies into line with practices in other major industrialized countries, all of which allow foreign bank branching. The new rules will give foreign banks the option of establishing one of two types of branches, a full service branch or a lending branch. Full service branches will not be allowed to accept deposits of less than $150,000 from Canadians. Lending branches will not be able to accept any deposits or borrow except from other financial institutions.
Since the branches of foreign banks will not be accepting retail deposits, they will be subject to slightly less stringent regulatory requirements in Canada than the subsidiaries of foreign banks.
The restrictions applicable to deposits ought not to discourage the arrival of any new banks, since most foreign banks want primarily to provide commercial banking services in Canada. Those wishing to accept retail deposits will still be able to establish a distinct subsidiary in Canada for that purpose.
The proposed banking regime will permit foreign banks to use their larger capital base to support lending activities in Canada. Over time this should allow foreign banks currently operating in Canada to increase their lending activities. This will provide new sources of capital for small and medium size businesses.
Bill C-67 is the first step in a process to encourage more competition in Canada's financial services sector. I encourage our government to unleash the power of our domestic financial institutions such as the credit unions, near banks and some of our very own crown corporations through further legislative and regulatory change. This will further encourage greater competition in Canada's financial services sector.
In conclusion, the bill benefits all consumers of banking services. It will, in particular, help small businesses to create still more jobs in the 21st century.
It is for this reason that I am proud to support Bill C-67 and I hope my colleagues will do the same.