Mr. Speaker, it gives me great pleasure to present Bill C-67 for third and final reading in the House of Commons.
The legislation before us would allow foreign banks to establish branch operations in Canada.
The idea is to increase competition in our banking sector. This should help increase sources of funding for small and medium size businesses, and certain types of consumer loans.
Competition will be greater because for many foreign banks the establishment of a Canadian branch will be more profitable than the current system. A branch could use the funds of its parent bank to finance its loan operations in Canada, while foreign bank subsidiaries must use separate funds.
This bill will also make the Canadian system compatible with that of the other OECD countries, with the exception of Mexico.
Let me briefly summarize what we are now proposing in this legislation and how it will meet our goal of enhanced competition in Canada.
Currently, foreign banks can take retail deposits in Canada by setting up a fully regulated subsidiary corporation here. Under this new regime this option is going to remain open to them, but in order to give these foreign banks greater flexibility with respect to their lending operations in Canada this bill proposes two branching operations, either a full service branch or a lending branch. The full service branch would be entitled to take deposits of greater than $150,000, whereas a lending branch could not take any deposits, large or small.
The benefit of offering two branching options is that the level of regulatory requirements can be tailored to match the banks' activities in Canada. Since lending branches would not be taking deposits of any sort they would face fewer regulatory requirements than would full service branches.
I believe that these measures will help foreign banks to enter our current market and will help the 45 foreign banks that are currently here to expand their existing operations.
Bill C-67 contains a number of technical changes to the financial institutions statutes.
The proposed system is the result of extensive consultations. The idea of establishing a branch system came up during the consultations that preceded the 1997 review of the legislation governing financial institutions.
At the time, the House and Senate finance committees had published reports recommending that the government allow foreign banks to establish branch operations in Canada.
Later, the Minister of Finance released a consultation paper and consulted all stakeholders extensively. This consultation paper was examined by the House and Senate committees, as well as the MacKay task force. These three groups supported the bill.
In fact, throughout our consultations we found broad support among stakeholders, including SMBs, Canadian banks and especially foreign banks for the establishment of foreign bank branches.
We tabled this bill on February 11 in the House. Since then it has gone through second reading and before the House of Commons Standing Committee on Finance, which was a couple of weeks back, we introduced a few amendments. These amendments were the result of consultations we had had between the time the bill was actually tabled and when it went before committee.
I would like to go through some of these amendments briefly. They came about as a result of extensive consultations and working very closely with our banking community. There are five I want to talk about.
First, as I have mentioned, full service branches will not be able to take deposits of under $150,000. This was intended to ensure that only sophisticated depositors would be making these deals with the foreign banks. As the hon. member of the NDP opposite knows very well as he is an expert on these things, we have deposit insurance for retail bank deposits. These deposits of $150,000 and more are not insured. Therefore we want to ensure that only sophisticated people make these deposits at the banks.
We had a de-minimus provision of 1% in place. One per cent of a branch's total assets could be deposits of less than $150,000. This is to account for business flexibility, such as if one has foreign exchange accounts. The foreign bank community pointed out to us that in most cases this 1% de-minimus would not be enough. We expanded that amount in order to ensure that they could operate effectively and in conformity with their commercial requirements but without causing undue risk or risk to retail depositors.
The second amendment related to the funding options for lending branches. The bill allows lending branches to borrow from financial institutions but it prohibits the subsequent sale of any debt obligations, bankers acceptance or guarantee issued by that lending branch. Our amendment would permit these instruments to be subsequently traded but mainly to other financial institutions, again to sophisticated buyers.
The third amendment we introduced was to extend the time allowed for filing of auditor's reports from 60 days to five months. That is the period allowed for Canadian branches of foreign insurers.
The fourth amendment related to taxes. We agreed that if a deposit is made in the branch of a foreign bank here in Canada that for purposes of our pension funds or our RRSPs this would not be considered a foreign property and therefore subject to the 20% rule. This makes sense since it is a branch of a foreign bank that is here in Canada, but it is a deposit that is made here in Canada and is subject to Canadian rules.
The fifth change was also a tax change. This was to aid the transition from the current subsidiary status for the 45 banks that are here today to the branch format. We have offered a temporary limited rollover so that the taxes otherwise payable when a subsidiary corporation is wound up will be deferred until the funds are actually withdrawn from Canada or the Canadian operations of the branch are eventually wound up.
Why did we grant this? Because initially we did not give the option, as we do in every other area of the law almost, for the foreign banks to enter Canada in the branch form, which is the accepted mode throughout the world. We insisted that they come here under the 1980 laws as a subsidiary corporation. We have changed that. We want to seek a continuity in expansion of operations of these 45 banks that are here today, rather than create a disruption and a penalty, so that they can restart perhaps at a lower level of ongoing Canadian operations.
These changes respond to the informed comment, concerns and research brought to us. No doubt in the future there will be more changes that the foreign banks would like to see and that our Canadian banks would like to see. These will have to wait for our response to the MacKay task force. It would not be proper to bring forward benefits for foreign banks which were not available at the same time to our Canadian banks.
In conclusion, this bill follows through on the commitment to allow foreign banks to engage in more productive competition in Canada.
By eliminating pointless regulatory obstacles this bill will encourage competition in our banking industry. By encouraging the healthy presence of foreign banks we are ensuring that Canadians have access to more financing sources.
We will be getting more competition here. This legislation opens the door to more competition but without sacrificing the current level of safeguards for consumers.
The most important thing is that these banks will bring more activities to Canada. With that comes what is perhaps one of their biggest contributions to Canada, not just the lending activities that they carry out, but the expertise. Bankers trained throughout the world in other systems in other countries under other regimes know other techniques. When they come to Canada they bring that expertise with them, expertise which can benefit not only our consumers and our companies, but their fellow bankers here in Canada.
I urge the House to move quickly to pass this important legislation.
Before I sit down, may I beg the indulgence of you, Mr. Speaker and the House to say thank you to the House of Commons finance committee and to the Senate banking committee which have studied these proposals, given us the benefit of their doubt and have approved them. I thank the House of Commons finance committee which gave the bill all-party approval.
I also want to thank the Canadian banks. We would think they would not want to suffer increased competition and increased capacity of foreign banks coming in here to compete with them. But no, they said that this is the way of the world. Canada has to be up to scratch and has to have the most competitive financial services sector in the world so they will not stand in the way of competition.
That speaks a great deal about the confidence which our banks have. It reflects the great success our banks have had in doing business throughout the world and in providing first rate services to Canadians which can compare with those of any other banking sector in the world.
I would like to thank the members of the foreign bank section of the Canadian Bankers Association who worked with us long before 1997 to develop this foreign branch regime. This group was initially headed up by Mr. Fred Buhler of the Bank of America who has since retired and returned to the United States. He did a great deal of the groundwork in working with finance and in bringing the foreign banking sector together. For the past year or so following Mr. Buhler's retirement, although he has still been available for consultation, this task has been carried out by Gennaro Stammati of the Banca Commerciale Italiana.
Mr. Stammati has been a great support in bringing to us, particularly since February 11 of this year, some facts on which we could make some difficult decisions, the need for the tax rollovers and things such as that. We have appreciated very much the spirit of co-operation he has brought to this effort. Mr. Stammati will be leaving Canada in July to head up BCI's operations in Paris and we wish him well.
I am very grateful for the support of all members of this House for this bill. We look forward to its early passage.