Mr. Speaker, I would be very interested in hearing from my colleagues on the finance committee and other colleagues in the House on this issue.
Like others, I was a little surprised today to see that we would be dealing with this matter. As chair of the finance committee and as one of my duties in the House, I know very well that all members of the finance committee asked that the government respond to their report “Large Bank Mergers in Canada: Safeguarding the Public Interest for Canadians and Canadian Businesses”. We tabled that in this chamber in early March and asked for a 90 day response from the government, which should be coming toward the end of June. We are awaiting that response at this point. Therefore, it is a bit unusual to move a motion for concurrence before the government has had a chance to respond.
It is quite a pleasure to talk to people in the House about the work of the committee on this issue. Many Canadians have not had the chance to hear from some of the hon. members, my colleagues. All parties did very good work on this study. All 18 of the members from the committee, from all five elected parties in the House, worked very hard and diligently throughout this many month process.
Not only did the members work hard but we were assisted by three parliamentary researchers and our clerks, both procedural and legislative. We posted all our testimony, which was done throughout the hearings for Canadians, on our finance committee website, as well as the report in a bilingual manner.
How did the report come into being? In October of 2002 the Minister of Finance and the Secretary of State for International Financial Institutions wrote to both the Senate Standing Committee on Banking, Trade and Commerce and the House of Commons Standing Committee on Finance asking for their views on the major considerations that should apply in determining the public interest with respect to large bank mergers. After we had done previous legislation in this area, some merger review guidelines were issued, applicable to proposed mergers of Canadian banks, those with more than $5 billion in equity.
Some stakeholders had suggested, apparently, that the public interest test needed greater clarity. There were four specific areas that the letter asked us to address: first, the access of Canadians in all regions to convenient and quality financial services, with special attention to the disabled, low income individuals and rural communities; second, the choice among financial service providers and the availability of financing for businesses, particularly for small businesses and Canadians in general; third, the creation of long term growth prospects for Canada through more effective Canadian based internationally competitive institutions; and fourth, any adjustment or transition issues, including the treatment of employees. These were pretty important areas for us to dialogue about.
When the letter was received, fortunately the committee was involved in our prebudget consultation process. Consequently, even though we chose our witnesses in early December, after tabling our prebudget report, we had one piece of legislation with which to deal.
Thus we started listening to witnesses and we heard a wide variety of witnesses. In fact we heard 46 individuals who represented 29 organizations by the time the committee concluded its hearings in early February. Also, we received briefs from an additional 21 groups or individuals. That testimony covered a range from one extreme to the other, and there are parties in the House that do represent one extreme to the other.
For me as chair, the pleasure at the end of the report is seeing the degree of consensus with four of the House parties. This is something not very common and certainly something that was achieved only by taking the time to discuss, throw out ideas and figure out what were the really important areas on which the committee should focus. In fact during the study of the merger guidelines and public interest, we came to conclude that OSFI and the competition bureau, which also had roles in this process, were very competent in these roles, in the committee's opinion, and that we should not tread into those areas that were already covered by these institutions.
Our 11 recommendations mainly focused on the gap between where these various bodies would make their report to the Minister of Finance.
The report was fully endorsed by the official opposition, the Canadian Alliance Party, and we worked very well together in committee to get to the interests of Canadians as opposed to the partisan interests of the parties, and I respect that.
The supplementary opinions were provided by the Bloc Quebecois and the Progressive Conservative Party. Again, I was very impressed how these members worked to get the agreement on the main body of the report with a couple of pages of supplementary on additional points that those two parties wished to push for discussion.
The party bringing this debate today is the New Democratic Party. It is the only party submitting the lone dissenting opinion, as is its right. It represents some people and a percentage of Canadians who hold a different view. That is fine in a democracy and that is fine to debate in a chamber of this nature where we are free to debate.
However four out of five parties in the House reaching a consensus on the main points of the body was important. If we had not taken the time, we would have potentially had more dissenting or supplementary reports.
We began our work with the premise that the reality of mergers by large Canadian banks, and I quote here, “are legitimate business strategies for growth and success”. We examined not whether large bank mergers should or should not be allowed, but rather the public interest aspect and consideration that should exist with respect to mergers by large banks in Canada.
As my colleagues have stated, although most of the committee's recommendations focused on the issues of access and long term growth for Canada, the committee did make recommendations concerning the process itself.
I would like to state that members of the committee, as a whole, believe that regulation of the banking sector is both appropriate and necessary. However we did caution that it must be the correct level and type of regulation. As we developed recommendations, we were very mindful in our discussions of the need to avoid being overly prescriptive. That is why I believe in the end, as the recommendations were reached, we did not have numbers or percentages, but came to the conclusion that this might constrain the business plans of any banks, and who would know which institutions would choose to move forward together in their plans or their ideas. We wanted to provide guidance but without a micromanaging constraint.
We highlighted those areas of concern, those areas that we thought the Canadian public and the engines of our growth, the small businesses in Canada, may be particularly concerned with, whether they were concerned from their own capital needs priority, or the needs of employees or the needs of the people accessing full service banking in their location. At the end of the day, when we made our recommendations, we did not add any new tests. We did not create a new stepladder. We came out saying that we wanted to allow flexibility and, as I say, ensure that the public interest was the theme.
Right now merger proposals by large Canadian banks continue to be subject to a three level review that currently exists. We know the Competition Bureau and the Office of the Superintendent of Financial Institutions are there to do their work. Their report at the end of the day goes to the finance minister. Right now the guidelines allow for both the Senate and the House to have a committee review, although In report that was tabled in the other place, the members of its committee decided that if their wishes were followed, they would not want to be part of a further review process.
The minister comes back on behalf of the government to tell us his choice for a process. After that, we know that information: whether the Senate will stay out of this process or whether it will step back into it. That will be quite interesting.
We were concerned that Canadians and Canadian businesses would have access to reasonably priced services in all regions of Canada, to a range of service providers offering a range of services, and to employment transition measures and high quality jobs. These are all very important areas that have to be addressed. If a bank wishes to merge, the reality of these issues will be there for consideration.
The committee in its recommendation said that a merger applicant should be able to provide at least an equivalent level and range of services to all Canadians before and after a merger. We put some caveats on this having regard to the effects of technological change and changing consumer requirements over the years.
However technology will not do it for full service banking for probably another decade. Therefore, although many of us use the technology, it is not accessible to everybody at this point in time and we are in a transition time.
We have to realize that sometimes the results of a competition analysis says that in any given merger there would have to be divestiture. Obviously the legal requirements that are needed have to be understood. Sometimes there will not be that complete equivalency if somebody has to divest part of their business operations.
We asked in our recommendation to be advised how the merger applicants would demonstrate to us the manner in which the merged entity would increase access to capital for such businesses, the small enterprises in this land. At the end of the day maybe their answer will be that they will not do that. That would then be part of the assessment for whoever was doing the assessment. What we asked for was not necessarily the guarantees but the information.
We believe that retail financial services at comparable or lower prices on balance in a transition period of perhaps up to three years should be available. We again tried not to be overly prescriptive but to signal this area of concern so that banks would know the areas of discomfort. Again, we are not micro-managing. We know in the past that the competition bureau has assessed some situations where services and the hours of operation have increased but in some situations individual prices rose. It is an on balance assessment.
We were concerned, as a committee, about rural and remote areas of the country. We received evidence that credit unions and medium sized financial institutions could fill the gaps, especially if a bank had closed the branch. The reality is that banks are closing branches throughout the country. I believe almost 1,000 bank branches have been closed in the last little while, and that is without a merger situation. Hon. members should remember that banks have the right to close branches as long as they follow the rules and give the appropriate notices.
However what we were asking for in our recommendation was that the merger applicants outline the manner in which the merged entity would ensure service to the rural and remote communities where they were providing financial services at the time of a merger application. Some people, the media in particular I might add, thought that meant guarantees. I am not sure if that was what the committee was looking toward. I think it was looking for information. For all the committee knows, in certain situations there could be a credit union, an ATM or a full service automatic situation coming in, or a part number of days of the week full service banking would be provided to an area.
It was a very dynamic situation inside the committee. We know there are domestic and foreign based medium sized banks anxious to grow in the country. We know some of the players have an interest in purchasing branches that might be divested as a result of a merger by large Canadian banks.
We also heard that they were still encountering barriers. Some of our recommendations, especially with respect to credit unions, addressed that where it was within the federal jurisdiction, because credit unions, for instance, are primarily a provincial regulation, we should remove the barriers that we could at this level.
There was also a belief that some of these growths or the emergence of credit unions or other international banks would become more prevalent with or without the merger process. A big concern was access or employment transition measures. It was a concern, not only to the members of the committee and members from all the parties, but also to many of our witnesses.
Since one of the usual consequences flowing from most merger and acquisition activities, regardless of the sector, is job loss, as job duplications are rationalized or eliminated, one of our recommendations was, to the greatest extent possible, that job losses should be minimized, that training, relocation and out-placement counselling should be provided, that employment reductions be accommodated mainly through attrition and early retirement incentives and, where it came down to an involuntary job loss, that compensation in such an event should be consistent with that provided by other financial service providers in similar circumstances.
For instance, we would not want to see the hollowing out of all those thousands of jobs even in downtown Toronto. I know there is sometimes no love for downtown Toronto but in reality there are thousands of employees affected, not only in the rural and remote areas, but also in our large urban centres, especially where the financial services sector is prevalent.
We must also be concerned that high quality jobs remain in the country. As a committee we discussed in our report that Canada's large banks must make every effort to ensure that employment growth occurs and that this growth involves a creation of jobs for Canadians with desirable compensation packages, and that they optimize their head office and executive activities and high quality employment opportunities in Canada. I must say that the committee members on the whole did not think this would be difficult for these entities to do.
The second part of the report very much talked about the long term growth for Canada. Comments were made about issues of international competitiveness, shareholder value and the health of the financial services sector. I think it should be stated and restated that Canada enjoys a healthy financial services sector, one that we know from the testimony of our large banks that they wish to grow by making inroads into international markets.
The committee made some comments about how a merger situation would benefit the domestic market at the same time as enhancing international competitiveness. This would be different depending on the merger applicants who came at the appropriate time and over time. It would be different if we were talking about a first merger or a second merger scenario. Who knows? I certainly do not. I do not have any special knowledge of what the future holds in this area. All I know is that we discussed in very great detail and very comprehensively those concerns of financial success by our financial services sector, if only for the benefit of all the shareholders, tens of thousands of Canadians who, through their pension plans or ownership of shares, want to ensure that the country's financial services are successful.
We were aided again by OSFI, the Competition Bureau, an oversight by the finance minister at the end of the day, who in the current guidelines would have to have the final decision in this situation.
I might add that when this report was prepared cross pillar mergers were not being talked about in the media. We were not asked to study it. The committee chose its witnesses for their expertise on the study that we were doing and on which we have confined our recommendations.
However that is not to say that at some future date people who have an interest in this may or may not do it. What I am saying is that this report does not deal with it and I know the report in the other place does not deal with it.
However I want to thank all members from all parties. It was a pleasure to be the chair and to have these members work so hard to do their work in a co-operative way. We do not always agree on every issue but we are respectful in the finance committee. As a chair, the level of consensus, four out of five parties agreeing to the main precincts of the report, is testimony to all our efforts cooperatively.