Madam Speaker, I rise today to discuss Bill C-229, an act to amend the Bank Act and the Statistics Act. The bill would require banks to report on investments made in electoral districts where unemployment is on par or above the national unemployment rate. It would also require that every individual bank branch set aside 5% of its income to further micro-credit financing in the electoral district where the branch is located.
In essence, the bill is an adaptation of the U.S. community reinvestment act, CRA, that the U.S. Congress passed in 1977. As such, I would like to remind hon. members that the community reinvestment act was enacted in response to concerns that American banks were redlining certain neighbourhoods; that is, accepting deposits but not authorizing loans in low and moderate income neighbourhoods.
I would like to remind all members that in 1998 the task force on the future of the Canadian financial services sector, the MacKay task force, undertook extensive research on this issue. It determined that the conditions that led to the community reinvestment act in the United States were not present in Canada. Both the House Standing Committee on Finance and the Standing Senate Committee on Banking, Trade and Commerce supported this view.
To quote the House committee, “In an industry that is continually evolving, the application of a Canadian CRA would be extremely difficult and costly”.
The Senate committee echoes this stating, “The Committee also believes that the CRA approach would be onerous, costly and a regulatory burden on financial institutions”.
Moreover, consumer groups such as the Consumers Association of Canada generally supported this view.
The bill, which on its face may seem reasonable, creates an onerous burden on financial institutions. Every bank will need to report for every branch the amount and the distribution of deposits, loan applications, loans granted and loan recalls. Furthermore, the requirement would entail that each branch break down the numbers into groups of $10,000 increments. To top it off, the bill would require that the terms and conditions of the loans, a private matter between contracting parties, be reported upon.
All of these measures are onerous and costly to comply with. The result of implementing the bill would, to quote the MacKay task force, “add substantial regulatory burden and cost to financial institutions and government”.
I must question what benefit consumers would derive from knowing in $10,000 increments what the lending practices of the branch had been. Moreover, this type of undertaking would require a lot of time to compile the information. Who will ultimately bear the cost? Consumers.
The potential costs to financial institutions are compounded by a proposal that requires every branch to reserve 5% of its income, not profit, but income to fund microcredit lending. That is pre-tax dollars. In this respect the proposed legislation goes well beyond what the community reinvestment act requires and it does not stop there.
The clause is worded such that every designated person who applies for a microcredit loan must be provided with one regardless of the merits of the proposal. This is simply bad public policy.
What is to happen if the applications for micro-credit exceed the legislated 5% requirement? Will banks then be required to take funds from their other investments to attain this legislative requirement? Alternatively, what happens if the sum total of applications is below 5%? Furthermore, on the question of loan quality, will we end up having to force a bank to shift money from prudently sound investments to high risk investments? Do we really want them to do this? What does this mean for the other customers?
I cannot stand here and support the bill. Parliament determined that this type of legislation was unnecessary only a short while ago. Furthermore, the bill would create a very onerous financial and regulatory burden on financial institutions and could lead to a situation where banks are forced to use good money to chase riskier investments to the potential detriment of sound investments.
It is for these reasons that I cannot support this bill, and I urge my colleagues here today not to support it as well.