Mr. Speaker, I am pleased to speak on this important bill, Bill C-8—the former Bill C-38—to reform the financial institutions and create the financial consumer agency of Canada.
From the beginning of the process leading up to this bill, the Bloc Quebecois has been closely associated with the suggestions made through the Standing Committee on Finance.
In September 1998, the Bloc Quebecois also submitted a memorandum expressing its view of the MacKay report, which is behind financial institution reform. We made a number of recommendations in it geared to the modernization of the financial sector and especially of the environment in which the financial sector and the banking sector more specifically were evolving.
We realized the importance of renewing the regulatory and statutory context of financial institutions, which had not been renewed for five years. We were in fact behind the time in some respects, something that was becoming a cause of concern when we could see how quickly the North American and, more specifically, the Canadian financial sector was changing. We were somewhat frightened by the thought of developing in a context that was already several years out of date.
We were the first to ask the federal government to change the rules on the ownership of financial institutions, which prevented businesses from acquiring other businesses in complementary sectors, since the financial institutions act did not permit it.
I would like to quote the brief the Bloc Quebecois tabled in 1998 with the Standing Committee on Finance, in which we asked the government, among other things:
—to change the rules on ownership to permit and encourage the amalgamation of small and medium-sized financial institutions into financial holding companies, as suggested by the MacKay-Ducros Report.
At the time, we supported, and we continue to support, changes on ownership rules to enable groups, such as insurance companies, investment companies or a brokerage firm. The aim was to build strength so that, with markets opening in the financial sector and competition appearing from outside the country and even from within it, the quality of services provided by them could be assessed in a healthy business environment and consumers advised of what they would get for their money.
We warned the government against the rule of 10%. Let me explain that, because I think it is worthwhile to do so. It is a bit complex, but when we take the time—and I have the time to do it this morning—it is easy enough to understand.
Before the minister introduced his bill, a single individual could not hold more than 10% of the banks' shares. This meant that 90% of the voting shares of a bank were allotted among the public. An individual still cannot hold more than 10% of a bank's voting shares and 90% of these shares must be allotted, that is they must be widely apportioned among the public.
With the changes proposed in the bill, we have a totally different situation. The 10% rule becomes the 20% rule. This means that, in the case of major banks—this applies to them—with equity of $5 billion or more, a single individual cannot hold more than 20% of the shares, whether that person is a Canadian or a foreigner, while 80% of the shares of these major banks, again those with equity of over $5 billion, are allotted to the public.
The bill proposes two other categories regarding ownership. The second category includes banks with equity of $1 billion to $5 billion. For these banks, the degree of ownership is different from that of major banks. In the case of these middle size banks, a single individual can own up to 65% of the shares. The other 35% must be widely distributed among the public.
This is a major change. We still wonder why, considering that the 50% plus one rule is the generally accepted one for full control of a business, 65% of the voting shares of a bank such as the Laurentian Bank, for example, which has equity of less than $5 billion, could be owned by a single individual. The other 35% would be allotted among the public in a democratic fashion.
This is a revolution, a financial one, of course. I call it a revolution because, up to now, the philosophy that has driven all successive governments since passage of the Bank Act many decades ago was to give the financial institutions' shares a wide distribution, to prevent an individual from holding too much control over the banking institutions or the financial institutions in general; as everyone knows these institutions have a strategic importance in the economy.
The practice of widely distributing the voting shares of a financial institution to prevent one individual from holding extraordinary power over the Canadian financial sector or even industrial sectors stems from a policy that was renewed from decade to decade.
We have to realize that the financial sector is a public interest sector in the sense that multimedia companies, companies in conventional industries or anywhere else have to be able to rely on a solid, open and transparent financial sector, one that will not be detrimental but rather useful to them.
Having a single individual controlling a financial institution, that could be a lending institution for SMBs, could give rise to touchy situations as far as conflicts of interest are concerned.
Here is an example. The main shareholder of a medium sized bank owns more than 50% of the voting shares of the bank, which makes loans to small businesses. But the main investor or shareholder of the bank is also involved in the same industry as a small business that is asking for a loan from the bank.
The shareholder who owns more than 50% of the voting shares and therefore has full control of the bank making loans to small businesses will have the final say on the loan request of the business in the industry where the main shareholder is also involved. The main shareholder of a bank can also be an industrialist in a given industry.
In the past, we have avoided this kind of situation where an industrialist involved, say, in the steel industry, who has full control of a lending institution can sideline his competitors because such control allows him to have the last say on loan requests from competitors. This has been avoided in the past through widely held ownership of financial institutions and especially banks.
We now have a dangerous situation where, in banks with a capital between $1 billion and $5 billion, a single person can own up to 65% of voting shares. That individual has full control.
We do not like this. In Quebec, we have one institution in the category of medium sized banks in Canada, and that is the National Bank, the bank used by SMBs in Quebec.
We think it is very dangerous for an institution such as the National Bank to end up with rule changes whereby one person could hold 65% of shares, while the remaining 35% would be held by a wide range of members of the public.
Some said that there were no longer any problem, that it had been addressed with Bill C-8, formerly C-38, and that in any event the National Bank now had equity capital topping $4 billion, which could soon reach, and even exceed, the $5 billion ceiling, putting it into the category of a major Canadian bank.
In that event, the same ownership rules applying to those banks would also apply to the National Bank. No one individual could hold more than 20% of shares, and 80% of other voting shares would then be widely held, thus eliminating the problem.
There are two ways of looking at this: the first is that the National Bank does not yet have $5 billion in equity capital, and it could be months before this ceiling is reached. Also, it is clear from Bill C-8 that—even if a bank reached a certain level of equity capital, even if the National Bank had over $5 billion in equity capital—the Minister of Finance has full discretion to determine the number of years or months needed before this bank can reposition itself in a new category with respect to percentage of shares.
A three year period is specified. In other words, 10 months or a year from now, the National Bank could reach a level of equity capital exceeding $5 billion, which would put it into the category of a major bank subject to the ownership rule of 20% of the voting shares being held by a single shareholder, whereas the other 80% are widely held. It could be considered as such, but it is up to the Minister of Finance.
Several clauses of the bill refer to the finance minister's discretion. The Minister of Finance is given so much decision-making power that, with this bill, the government is all but crowning him legislative emperor of the financial institutions sector.
Towards the end of the bill, entire paragraphs contain a provision saying that the minister may do this and that. Finally, this is a bill that could be called discretionary from the minister's point of view. It is all about discretion.
Therefore, even if the National Bank reached a level of equity capital above $5 billion, the finance minister could decide to consider it as belonging to the category of 20:80 percentage ratio of voting shares only in three years.
Moreover, subclause 393(2) gives the finance minister the power to specify a later day as the day from and after which the financial institution must comply with the new provisions of the law. So, this creates a situation where, even if the National Bank reached a level of equity capital exceeding $5 billion within the next year, the minister could decide that the new category or ownership rule will apply only in three, four or five years.
This period of three, four or five years is an eternity in the financial sector. Anything can happen during that time. The National Bank might not be protected from a takeover by a single individual or by speculators for resale, thus enriching only one, two or three individuals instead of everyone.
Can we take that chance? As I said, three, four or five years is an eternity in the financial sector. Anything can happen during that time, especially when one realizes the speed with which changes take place. Ought we not to set some criteria for this ownership issue in order to avoid having the negative effects of the new provisions blow up in our faces in the coming years in connection with the National Bank or some other financial institution?
Just to provide hon. members with a slight idea of the speed with which changes can take place, I will quote from the MacKay-Ducros report, which is what led to the bill being drafted by the Minister of Finance and his secretary of state.
The latter indicated that two virtual banks had cropped up within two years, as the MacKay-Ducros commission sat. In less than two years, these two virtual banks started up: the Citizen's Bank of Canada, a subsidiary of the Vancouver City Savings Credit Union, and ING, the subsidiary of a major Dutch financial conglomerate.
BNA and the Capital One Corporation, both of these American credit card specialists, have begun Canadian operations, again during the less than one and one-half years the MacKay-Ducros commission was sitting.
A number of special financing corporations began to operate in Canada, among them Finova and Heller Financial. Nine new pooled investment fund companies also started up within that same period of under two years. From September 1996 to May 1998, the number of pooled investment funds available in Canada rose from 954 to 1,079, again in under two years.
Because of the rate these changes occurred during the deliberations of the MacKay-Ducros Commission, which in fact caused the commission to make certain adjustments at the end of its deliberations, anything can happen to the National Bank.
We, as Quebecers, need guarantees and additional safeguards, within the bill, to reassure us in this regard and essentially eliminate the negative effects of the new rules of ownership, by taking specific criteria included in the bill into account.
The Quebec finance minister and the deputy premier, Bernard Landry, wrote the federal Minister of Finance last June to express his concern on the way the situation was changing and on the first draft of his bill.
The Quebec finance minister and deputy premier, Mr. Landry, said in a letter to the federal Minister of Finance that with respect to the National Bank public interest in the present matter had to be defined according to four criteria, which he identified and which would complement the bill before us this morning, to the satisfaction of the opposition. These criteria, included in Bill C-8, could eliminate the risks I have just mentioned.
The criteria are as follows:
First, we should evaluate the effect of the change on the banks' current activities, including the services available.
Second, the effect of the change—
In the case of a change in ownership of the National Bank, for example.
—on the head office and the branches, including on professional jobs or jobs requiring certain expertise.
Third, the effect of the change on the economy and technological development of Quebec.
Fourth, the effect of the change on the financial sector and on Montreal's role as a financial centre, including the keeping of the ultimate decision-making centres in Montreal.
Mr. Landry continued, saying:
We think that the legislation should contain provisions ensuring respect for these measures, which would be taken to prevent the unfavourable effects of allowing one person to hold more than 20% of the voting shares in a bank in the previously mentioned areas.
The opposition, the Bloc Quebecois, is not alone in its concern. All of Quebec is worried.
That is why, when the secretary of state told me about the evolution of the bill in this respect, he told me it would be different from the first version. He indicated that, with the publication of the new Bill C-8 on the reform of financial institutions, the Minister of Finance had released new guidelines.
In light of these guidelines, I can tell the House that it would not take much to satisfy us with respect to the ownership rules. In fact, all that it would take is for these guidelines at the very heart of Bill C-8 to be included, so that the minister has a legislative obligation to take into account not only the interests of the Canadian financial sector, the solvency of those who wish to change the ownership of voting shares in a bank such as the National Bank, and the experience of such shareholders, but also the regional effects of such a decision.
It would be easy to take the secretary of state's guidelines and include them in Bill C-8.
The bill already contains a suggestion of them. It would simply be a matter of completing them with the guidelines that accompanied the bill and that were released by the Minister of Finance and his Secretary of State when Bill C-8 on the reform of financial institutions was introduced a few days ago.
Clause 396 defines certain criteria to which I more or less alluded, namely: the best interests of the financial system, the experience of the shareholders and their track record, their character and integrity, their competence and experience and the impact of any integration of the businesses and operations of the applicant with those of the bank on the conduct of those businesses and operations.
We could add, at the end of that clause, criteria such as the impact of the proposed transaction on the safety and soundness>of the bank, on direct and indirect employment at the head office and in the branches, including professional jobs or those requiring special expertise, on the needs of consumers, on the bank's businesses and operations, on the bank's prospects in the context of the global marketplace, on the best interests of Canadians and, where the bank operates principally in one region, such as Quebec, on the best interests of those living in that region.
We could even add to these guidelines the last paragraph found in the document provided by the government, which reads as follows:
A proposed transaction that would lead to a change in de facto control of a former Schedule I bank with equity between $1 billion and $5 billion, and raises major public interest concerns, would be subject to a similar public review process as a merger between large banks.
In the guidelines on the rescheduling of banks previously listed in schedule 1 and whose equity is lower than $5 billion, thus, in the government's reference document, there are some provisions that alleviate our concerns, if we find in the thrust of the bill a reference to the criteria that I have stated, including to the last paragraph, which deals with public interest, and which also calls for public review.
Why is the government not doing this? This morning, during a briefing with high officials, we were told that introducing these criteria and guidelines in the thrust of the bill might constrain the government and prevent the finance minister from having some flexibility.
I do not understand why the finance minister agrees to introduce guidelines and criteria such as those in clause 396 of Bill C-8, and talks about the interest of the Canadian financial system and about more criteria. Regarding the additional criteria contained in a guideline, which he says he wants to apply in case of a change of ownership of the National Bank, why are those criteria already included in the bill less constraining than those in the guidelines he has made public and intends to follow?
That is the question we must ask ourselves. When talking about the interest of the Canadian financial sector is no problem, but it is when it comes to the interest of the regional financial system, that is the Quebec system, I do not see openness, I see a problem. The fact is the Minister does not want those guidelines to be included in the legislation because that would impose upon him the obligation to take all these effects into account. That is what is preoccupying.
If the bill only referred to guidelines on medium cap banks, this would be a step in the right direction and we would consider supporting the bill.
Frankly, I must say there are other problems. However, we intend to propose amendments to this bill. For instance, there is the issue of consumer protection. I will come back to this issue later. We intend to propose amendments that will improve the bill generally. If it were not for the major irritant, the change of ownership rule applying to medium size banks, we would be a bit more willing to work with the government in order to pass this bill rapidly.
Up to this point, there has been a positive evolution. I recall that about eight months ago, the Minister of Finance did not want to hear about guidelines or evaluation criteria regarding ownership changes for medium size banks. Today, after the election, the government is introducing guidelines. This is a step in the right direction, even if it is not enough.
I believe that the government has shown a good disposition until now, showing an increasing openness, which we find satisfactory. It would only need to go a small step further and I believe that we would be ready to fully support its efforts in that direction.
We have other concerns with this bill. As I said earlier, we will be bringing amendments throughout the legislative process leading to passage of Bill C-8.
I mentioned before the widely held voting shares of the financial institutions, including the banks. The concept of widely held shares was used to avoid the problems I raised earlier. But this has caused more problems, since with these widely held shares, any person holding a mere 10% of the shares—the maximum soon to be 20% of the shares—has effective control over the bank and the board of directors.
In the past, we have mentioned and wholeheartedly supported the proposals of the Quebec association for the protection of savers and investors. Its 12 proposals call for a greater democratization of the decision making process and of the board of directors of the banks and financial institutions in general.
These proposals are as follows. It may be time for the finance minister to pay attention. While he portrays himself as the great champion of democracy, he has allowed the boards of directors of the banks to act as if they were feudal lords and to completely ignore the needs of the small shareholders and investors. They do not even need the support of this majority of shareholders to appoint each other to key positions. I appoint you, you will appoint me, and we will keep things in our little inner circle.
The Quebec association for the protection of savers and investors' proposals are as follows, and we support them and will continue to support them strongly.
First, the association asks that the positions of chairman of the board and chief executive officer be two separate positions.
Second, the association asks for a reduction of the barriers regarding election to the board of candidates chosen by the shareholders, instead of candidates being chosen exclusively by the board or by the executives in place and instead of a system where I appoint you, you appoint me and we appoint ourselves.
Third, the association asks that the number of boards where a member can sit at the same time be limited. To avoid conflicts of interest, this might be a good idea.
Fourth, the association asks for the implementation of a process that is more democratic for the election of board members, through votes that are separate and cumulative and without any restriction to the list previously drawn up.
Fifth, the association asks for the elimination of potential conflicts of interest between board members and those who supply goods and services to the institution. Too often we see a board member who is also part of a business that supplies goods and services to the financial institution. It is easy to make such a business flourishing in such an environment.
Sixth, the association asks that it be mandatory for financial statements to be submitted for review and discussion during the shareholders' annual meeting.
Seventh, the association asks that the directors' compensation policy be submitted to the shareholders' approval. It would be interesting if most shareholders could determine what amount a board member receives for the services he provides.
The association asks for the adoption of a code of procedure for shareholders' meetings.
The association calls for businesses to fully record the minutes of all shareholders' meetings and to send those minutes to all shareholders.
The association calls for a reduction of barriers to the right of shareholders to make proposals for and during shareholders' meetings. They do not have that right today.
The association calls for giving securities commissions the right to decide if shareholders' proposals are in order. It is the board of directors that has that right at present; consequently, this right is exercized only by a very small group of people.
The association calls for limiting the powers granted by proxy to executives for shareholders' proposals not yet discussed by the shareholders or for extending these powers with corresponding means to all shareholders having registered a proposal.
Moreover, the association calls for giving access to all shareholders in the name of the real shareholders. Finally, it calls for relaxing the legislation in order to allow for communications between shareholders.
Those are proposals to improve decision making within financial institutions to ensure that decisions are not made by a small number of people on behalf of the majority of shareholders, who are small shareholders.
We would have liked to see these proposals included in the minister's bill since, as we said earlier, banks and boards of directors of banks especially operate in a somewhat archaic, feudal way that is not quite democratic. The association has done excellent work up until now to heighten people's awareness about the fact that they own a few shares, but that they do not have any say. A limited number of individuals all have the power to determine what is good for all the shareholders and what is not.
Throughout the process, we are going to propose amendments relating to matters of this type. In the event we obtain a favourable response from the government, hon. members can be assured that we are not in opposition just to oppose anything the party in power happens to present. If something is good, we will support the government's efforts. In the past seven years we have demonstrated that we are prepared to support good provisions coming from government for the good of the population in general. We are not here to block the progress of government, particularly when the public interest is very much involved, as is the case with reform of the financial institutions. We shall continue to work very seriously in order to improve this bill.
The minister tells us, moreover, that the bill is in place in order to improve the environment in which all Quebec and Canadian businesses evolve, so that they may better face the major challenges that arise, particularly as borders are opening up, as globalization sets in. As a result, major competitors that are highly efficient internationally will be able to compete in our markets, and we and our businesses will be able to compete with them anywhere in the world.
As disciples of globalization, we support this policy and this government approach. However, we are well placed to see that the government gives up when the time comes to take action in very specific areas to support business. It is simply not there for them.
I am going to give a few examples—we will be coming back to this a bit later in the session but I think this is a good time to do it—examples relating, for example, to gasoline and petroleum products. Instead of going in the right direction and increasing the powers provided under the Competition Act to hold major oil companies accountable and allow us to take steps to prove that there is collusion among them to set prices that are detrimental to consumers, the government chose not to do anything. It chose not to strengthen the Competition Act, not to suspend the excise tax for a while, which would have given a reprieve to independent truckers who are being gouged at the pumps. The government also chose not to suspend the GST on heating oil for a while to give a break to those who use that type of heating fuel.
Some businesses that rely heavily on oil for their finished products have seen their costs go up by 15% to 20%. This is a huge increase. It is their profit margin. But the government did not come to their help.
As for employment insurance, we asked that the system be improved and we also asked for lower contributions, particularly in light of the tragic situation of labour intensive businesses.
Just take the restaurant business. During the election campaign, I was made aware of the fact that in the restaurant business 40% of the taxes paid by businesses are payroll taxes. This is enormous. It is more than the income tax paid by these businesses to the federal government.
There again the government should be sensitive to the plight of Quebec businesses. Instead of saying “we have the answer, we reformed the financial sector and thus ensured the profitability of businesses”, the government should do something else.
The same goes for shipyards. Why did the federal government, which claims to care about the development and growth of high potential businesses, not implement the shipbuilding policy that we have been advocating for years?
We will come back with the bill and we hope there will be good provisions from the government, because before the election it seemed prepared to pass the bill introduced by my colleague from Lévis.
Mines are a very promising sector in terms of expansion and job creation. The mining sector is not what it used to be. It has been modernized over the years and is very capital intensive. In Quebec alone it accounts for 17,000 jobs. However, it is suffering considerable problems due to fluctuations in international prices.
The government could have drawn on its willingness to help businesses, increased, for example, financial provisions for mining companies. It could have increased tax deductions for exploration, and to give the country a shipping and rail transportation network that would make the mining sector in Quebec and Canada more competitive.
There is no mention of that. Generally, the government talks of supporting business but when it is time to do something specific, it is not there.
In the case of e-commerce as well, it is said that over the next three years 180,000 jobs could be created in Quebec and Canada. The federal government has not shown any desire to shoulder this sector. One hundred and eighty thousand additional jobs is a lot. There are 95,000 at the moment.
In short, these are examples, and we will be coming back to them. For the time being, the financial sector is under consideration, thanks to Bill C-8. Rest assured that, if the government responds favourably to our amendments, we will support this bill.
In the meantime, it must demonstrate a little greater openness. There is already a little more than there was last year. We hope that by the time the bill is passed it will be a matter of fact.