INST Committee Meeting

STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

COMITÉ PERMANENT DE L'INDUSTRIE, DES SCIENCES ET DE LA TECHNOLOGIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 1, 2001

• 0910

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'm going to call the meeting to order, pursuant to Standing Order 108(2), consideration of business lending to small and medium-sized enterprises.

We are very pleased to have with us this morning a number of representatives from our banking community. We have Carol Gray, executive vice-president, small business banking, CIBC; Jim Hamilton, vice-president, strategic markets, personal and commercial banking, Royal Bank of Canada; Jim Howden, senior vice-president, risk management and credit services; Caroline Hubberstey, adviser for small business from the Canadian Bankers Association; Susan Kennedy-Loewen, vice-president, small business banking, Bank of Nova Scotia; Derrall Moriyama, senior vice-president, small business banking, Bank of Montreal; Nick Stitt, vice-president, small business banking, TD Financial Group; Benjamin Tal, senior economist, CIBC; and Peter Thompson, vice-president, business banking, National Bank of Canada.

Caroline Hubberstey and Benjamin Tal are going to provide opening statements, and then all the witnesses will be prepared to answer questions. So we'll begin with Caroline Hubberstey, please.

Ms. Caroline Hubberstey (Advisor, Small Business, Canadian Bankers Association): Thank you. Good morning, Madam Chair and members of the committee.

We are pleased to be here today to continue our valuable dialogue with you about the banking industry's relationship with Canada's small and medium-sized business sector. It is a relationship we take extremely seriously, and I am pleased to have senior representatives from each of the major banks with me to participate in this discussion and to respond to your questions. I don't think you can open a newspaper or turn on the television today without encountering a story about the economy. So we are also very pleased to have Benjamin Tal with us to discuss the economic environment in which small businesses are operating. Mr. Tal has a great deal of experience studying the small business market.

On behalf of the banks and the CBA, I would like to begin by saying it has been our pleasure to work with this committee over the past number of years. We have fostered a productive and proactive relationship that has enabled us to work together towards our mutual goal of helping Canada's small business community grow and prosper.

During this time we have also come to realize that achieving this goal involves the efforts of many stakeholders in the private sector, associations, academia, and government. As we move ahead, we look forward to continuing our work with you and hope the many other stakeholders will join us at this table to find ways of addressing the numerous issues and challenges confronting small business in today's ever-changing world.

The forces of change are driving all businesses to think differently about how they operate. Large or small, businesses are facing increased competition, changes in the marketplace, and the challenge of applying new technologies to improve efficiency, capture new business, and serve customers better. These changes are driving us all to be more entrepreneurial in order to succeed at what we do. Banks are no different. In fact, being entrepreneurial is probably the best way to describe how banks are working to meet the needs of small business.

Canada's banks have a relationship with over 1.6 million small businesses. In dealing with these unique relationships, there's no “one size fits all” solution. To believe that there is is to underestimate the truly dynamic nature of the small business community, its businesses, and its owners. Just think about all the different industry sectors: agriculture, communications, manufacturing, business services—and that's just to name a few—and all the types of businesses within those sectors. Each of these businesses is at a different stage of development, with different needs, and facing different challenges.

That is why Canada's banks are being entrepreneurial and thinking outside of the box when developing and implementing new products and services. The banks are investing considerable resources, time, and energy in serving Canada's small business community, and are continuing to implement new initiatives that will attract new business and better serve their existing small business customers.

Small business is a hotly contested market. Banks are not only competing aggressively with each other for market share, they are also being challenged by a growing array of competitors. The banks' individual strategies are becoming more divergent and more innovative. They include increasing the range of service and product options by developing unique strategic alliances and partnerships with other businesses. This involves not just providing capital but services, information, and expertise. Although you'll hear about the banks' different approaches, you will also hear some common themes, most notably each bank's desire to service small business and each bank's desire to get it right.

• 0915

With respect to small business financing, make no mistake about it, banks are competing. They are serving existing clients and pursuing new businesses by offering more flexible products and working to simplify the credit application process, especially for smaller amounts of credit. The most recent statistics show that the seven major banks are authorizing $71.5 billion in debt financing to over 788,000 SME customers in Canada. That's an increase of almost $5 billion in capital and a 12% increase in customers since the same period in 1996.

In the area of financing, competition is alive and well in Canada. In fact, banks provide about 50% of the debt financing to SMEs. Enhanced technologies are making it easier for other providers of financing to compete. They don't have to be Canadian. They don't even have to be banks. A small business could finance all its computer equipment through Dell and its bank wouldn't even know it was looking for financing.

Through the work of this committee, we have learned a great deal about the dynamic nature of SME financing and the importance of understanding what is happening in the financing marketplace. That is why the major banks, since the fourth quarter of 1995, have provided detailed, quantitative information regarding the amount of credit provided by the banks to SMEs in Canada. The industry has also supplemented this reporting with three national surveys of small business owners.

The banks have been leaders in providing data regarding their SME debt financing activities. Now we need information from the other suppliers of credit and about the other types of financing—including equity—to properly understand and act on the financing needs of SMEs.

The federal government agrees. It has started a project that will build on the banking industry model. Statistics Canada, in cooperation with Industry Canada, will work to collect and publish data on the supply of debt and equity financing from all suppliers.

In keeping with the new federal government policy, the CBA is also working with Industry Canada, Statistics Canada, and other organizations, including the Canadian Federation of Independent Business, to develop a survey of Canadian small businesses. The results will help us better understand how these businesses are financed.

We have been working closely with government officials since February 2000 to ensure the success of these projects. Ultimately, we look forward to the day when all providers of SME financing will join us at this table to discuss their role in helping to ensure the financial health of Canada's small and medium-sized business sector.

Including information from the increasingly broad range of SME providers will not only assist in developing a better understanding of the SME marketplace, it will also help to enhance SMEs' knowledge of financing issues and awareness of financing sources.

Financing is an important issue for small business. That's why it's so important to get information into the hands of small business owners about all the types of financing available and all the various providers, so they can make informed decisions about their financing needs.

It is extremely important for small business to know what type of financing is available, what's the best financing for the business at its stage of development, where to get it, and what has to be considered in managing the financing it receives.

Although financing is important, we know that running a successful business takes more than capital. It takes know-how. If we want to help small business, we must reinforce the message that access to information and skills development are the most fundamental components of a business's foundation. As with most things, it's incredibly important that businesses start with a strong foundation. That is why the banks are contributing to small business skills development on many fronts.

Small business owners and would-be entrepreneurs can access a wealth of information from Canada's banks. Canada's banks also support many entrepreneurial studies programs at post-secondary institutions across Canada in an effort to help business owners develop the skills and knowledge base they need to manage the challenges of a rapidly changing world.

• 0920

The banks are also working collectively on a number of small business skill-based initiatives. We are working in partnership with Industry Canada in Kingston and Sault Ste. Marie to pilot test an SME infrastructure project that has been successful in the Niagara-St. Catharines region. At every turn this particular project underscores the importance of access to information and skills development and the importance of a multi-stakeholder community effort to help small businesses succeed.

As well, through the CBA—and as a result of efforts with this committee—the banking industry has been successful in helping to educate young people about the importance of good money management skills with the program There's Something about Money. These skills are a key component of running a successful business. This fact is well known by our educators: over 60% of sessions for There's Something about Money have been held in entrepreneurship-oriented classes.

Since its launch in mid-1999, nearly 700 sessions have been held in local high schools, benefiting over 18,000 students. And we're planning new sessions daily. The banking industry is receiving a tremendous response from students, teachers, parents, and parliamentarians. Most importantly, over 98% of the students rate the session good to excellent.

Last spring we launched a seminar to help small businesses build a better understanding of e-commerce. Since the launch we've run 42 sessions of the Preparing Business for the E-Commerce Age seminar, benefiting nearly 6,000 small business owners. We are currently scheduling an additional 28 sessions for the coming months. Small businesses are giving the seminar top marks, with 97% rating it good to excellent. Their feedback is proving invaluable to other stakeholders looking at the issues facing e-business adoption.

Thank you for supporting these programs and for your participation.

In a recent speech, Catherine Swift, CEO and president of the CFIB, said, and I quote:

So psychologically gridlocked have we become as a country that too often more effort is spent in firming up battle lines than in opening up communication lines. Somehow we bump along despite all this, keeping ourselves from becoming completely mired in the ruts, but not moving as quickly to that brighter future just down the road as we should be.

To Ms. Swift's point, much can be accomplished when the lines of communication are open. The banking industry's work with this committee is an excellent example. It has always been about open discussion, moving forward, learning, and being proactive. It has always been about working towards our mutual goal of helping Canada's small business community grow and prosper.

Thank you for your attention. I would now like Mr. Tal to deliver his comments. We will then be pleased to respond to your questions.

The Chair: Thank you. Mr. Tal.

Mr. Benjamin Tal (Senior Economist, CIBC; Canadian Bankers Association): Thank you very much and good morning.

Quite frankly, I have good news but also bad news. I think I'll start with the bad news. But before that, let me make a comment on a subject that I think is very important when we start discussing the economy.

You know that there has been a great deal of talk and speculation recently about the upcoming recession in Canada. For an economist like me, a recession is nothing more than a technical term. It means two consecutive quarters of declining GDP, declining economic activity. But for many people who are not economists, a recession means going back to the dark days of 1991. There's a huge gap between these two interpretations of the term.

When we're talking about the economy, it is important that we speak the same language, that we don't use the language used in the newspapers in order to catch attention. Having said that, let's start with the story of the economy. Hopefully we'll get to the good news very shortly.

Look at the first chart and you can see that the U.S. economy is slowing very rapidly. In fact, the manufacturing activity there is probably in technical recession. Manufacturing activity has been slowing or actually declining for probably two consecutive quarters. We are seeing significant slowing in the auto industry in the U.S. and we are clearly seeing it in the textile industry. Over the past few weeks, there have been growing signs of slowing in the high-tech industry in the U.S.

• 0925

If you look at the solid line, the overall economy is following the example of the manufacturing industry. The economy now is rising at about 1% to 2% on an annual basis. This is down from about 5% just a few quarters ago, so we're talking about a very sharp and rapid slowdown. Quite frankly, even God himself, Mr. Greenspan, was surprised by this rapid slowdown.

What's going on with the Canadian economy? Well, more or less the same, quite frankly. As you know, manufacturing activity in Canada is slowing down. Definitely the auto industry in Ontario is. Look at the dotted line. You are clearly seeing a significant slowing in manufacturing activity. But you can also see the correlation between the overall economy—which is the black line—and the manufacturing segment of the economy.

Now you see why it is so easy to be an economist: you simply follow the lines, and you can say that with the manufacturing industry going down, the Canadian economy will follow. We know the recent numbers from Stats Canada about GDP are starting to show this trend, so clearly there is no question about it. We are going to slow down from about 5% to 2% or 3% growth, and this is a significant and rapid slowdown. We are going to follow the example of the U.S. to an extent.

Let's move to the next chart.

This of course means that corporate Canada is starting to feel the heat. The year 2000, last year, was the best year in history for corporate Canada in terms of corporate profitability. As you know, the stock market reacted accordingly, of course. But we are starting to see signs that corporations are starting to lose some of their previous health. Corporate profits will slow down in the next six to eight months. If we meet again a few months from now, you will see that all the lines that are here will have gone down. So clearly corporate profit will slow down in the next six to eight months, and we should expect it.

This of course means—the next chart—that bankruptcies will increase. I think it will be naive to believe that business bankruptcies will remain at the level they are at now. The next six months will see a significant increase in business bankruptcies. We should expect it. This is the way the cycle works, and whatever we do in the economy now unfortunately won't impact development in the next three to six months, because it's already there, it's happening. So I expect business bankruptcies to increase over the next six months.

And of course the stock market—the next chart—is reacting. As you know, the stock market has been softening over the past few months, and the main beneficiary is the bond market. People now are moving from the volatility of the stock market to the safety of the bond market. Quite frankly, I think this trend will continue over the next few months. I think the bad news is not totally in the market yet or in the psyche of investors, and I think we'll hear more and more bad news in the next few months. I think the stock market will soften further and the bond market will improve. That's the dynamic in this kind of an environment.

So the summary of the bad news—this is the next chart—is that the economy is going to slow down. It's going to slow down in the next six to eight months, from 5% to about 2% to 3%. The unemployment rate will go up from the current 7% to maybe 8%. Business and consumer bankruptcies will rise and corporate profitability will decline. All these factors are almost a given and we should expect them.

Now, that's the bad news, so I'm sure you're ready for the good news. Actually, I will use the exact same chart for the good news, if you turn the page, but I will put a different spin on it. Basically, I will have to go back to my first remark about a recession and comparing it to 1991.

If you look at the chart, you can see the 1991 situation and you can see the current situation. You can see that you really cannot compare them. Even the gloomiest predictions in the market don't see the economy going down in the way that we saw in 1990-91. We have to remember that the 1991 recession was a major shock to the Canadian economy. First of all, the official recession lasted for four quarters. We had a full year of declining GDP. That's virtually a double recession, if you wish.

• 0930

But it was not just the magnitude of the official recession. The recovery, as you remember, was very slow. I'm sure that all of you remember the term “jobless recovery”. In fact, we didn't recover from the 1991 recession until 1994-95. This was a very painful shock to the economy. Now the situation is different, and we don't expect the current slowdown to be as severe. The question is, why? Why are things so different now? Let's turn the page and see.

First of all, there's inflation. The current inflation rate is much lower than it was in 1991. Basically, it's around 3% now if you include the recent increase in energy prices. If you don't take into account the energy prices, the current inflation rate is much lower and actually very well behaved. The inflation rate now is basically half of what it was in 1991.

Now, why is inflation so important? Because lower inflation means lower interest rates. If you turn the page, you can see that current interest rates are at about 5%. In 1991, interest rates were at about 11% to 12%. This is a significant difference. Not only are interest rates lower now, they are already on their way down.

As you know, the Fed in the U.S. cut interest rates by 100 basis points in January, or 1%. This was the first time in a long time that they acted in such an aggressive way. The Bank of Canada will follow very soon, probably by 50 basis points, so interest rates are already on their down from a very low base. We're talking about the very ability of central banks to lower interest rates, and it's because of low inflation. That's very important.

The main casualty of lower interest rates is the dollar, as you know. The dollar has been doing very well over the past few years. It's at about 65¢ to 66¢ now. Everyone is talking about the fact that the dollar is undervalued, and everyone is saying the fundamentals of the Canadian economy should support a strong dollar. Quite frankly, I don't think that's the case. I think the Canadian dollar will not be able to recover in any significant way in the next year or two. Why? Because we really react to what's going on in the U.S. Yes, the fundamentals of the Canadian economy are maybe better than those of the U.S. economy, but for the market as a whole, the focus is on the U.S. If we expect the U.S. to recover next year, the focus will go back to the U.S. dollar. Given the strength of the U.S. dollar, it will be very difficult for the Canadian dollar to recover in any significant way.

I'm not extremely optimistic about the prospect of the Canadian dollar within the next year or two. From the short-term perspective, however, the lower Canadian dollar is good news for exporters and therefore for the economy. If we compare the current situation, 65¢ as compared to 88¢ in 1991, you can see why the lower dollar can help the recovery process currently.

On the next page is the next reason why the economy is going to do better now than in 1991. The fact is that corporate Canada is much more productive now than it was in 1991. We are talking about significant increases in investment in machinery and equipment and in high tech. You cannot have such an increase in investment without some positive impact on productivity. Clearly we are seeing significant improvement in productivity in corporate Canada.

But it's not just productivity; it's also flexibility. We have companies that now outsource a lot of their activities, so they are more flexible. They keep much lower levels of inventories, so just-in-time inventory is not just a phrase, it's a change in philosophy. I think all these changes are making corporate Canada much more immune to an economic slowdown than it was in 1991.

Another factor that we have to remember is that in 1991, corporate Canada had to deal with the restructuring process affiliated with NAFTA. Now NAFTA is ongoing, so you don't have this negative impacting corporate Canada.

All these factors mean that companies are now much less vulnerable to the cycle.

Of course, the third factor here—the next page—is the government. In 1991, we had to deal with a deficit of $30 billion, as you know. Now we are in a surplus. We are talking about tax cuts and we're talking about increased spending. Of course, one can debate how much tax cuts are good and how much spending is better. But the point is that the government is playing a more positive role in the economy in terms of stimulating the economy. The government is better able to help the economy, which is a big difference between now and 1991.

• 0935

Overall, we're talking about a totally different economy. In a funny way, the shock of the 1991 recession is the main reason for this improvement, because you cannot go through such a major shock through this jobless recovery without changing the economy in a significant way. I believe the Canadian economy has seen a significant structural change in the way things are done. Therefore, I think the economy will be able to recover.

Yes, the economy will slow from 5% to 2% or 3%. Your guess is as good as mine. But it's not going to be as severe as the 1991 recession and the recovery process will be much faster. The economy will bounce back much faster than in 1991. We won't have the jobless recovery that lasted until 1994 or 1995. That's the good news.

What does it mean for small business? Small business is a very cyclical segment of the economy, probably the most cyclical segment of the economy. In good economic times, small businesses tend to outperform the overall economy because they are smaller, more dynamic, and able to change things. But in bad economic times, they tend to underperform the economy. That's very important. For example, when there is outsourcing activity, when large businesses start seeing some slowing down, the first to go, as you know, are small businesses that are doing the outsourcing work.

Clearly we're talking about a very volatile and very sensitive segment of the economy. We know that the economy is going to slow down in the next six to eight months. What does it mean for small business activities? Small business activity is going to slow down. It's going to slow down even more rapidly than the Canadian economy as a whole. We should expect it. It would be, again, naive not to expect it. I think, as I said, this means bankruptcies will go up in the next six to eight months.

Having said that, we have to also look at the small business sector from a more structural perspective. We have to remember that there is a significant increase in the world of self-employment in the economy over the past decade. In fact, 50% of all jobs created between 1989 and 1999 were self-employed. We believe that over the next five to ten years self-employment will become much more important in the economy. Why? There are a few reasons.

First of all, there are the demographics. For the first time in history we will have a situation where the fastest growing segment of the population, the baby boomers of 45 to 65 years old, will also be the segment with the highest probability of becoming self-employed. We have a situation where the fastest growing segment of the economy is also more likely to be self-employed, clearly calling for some increase in self-employment in the economy.

We are also seeing a significant increase in a propensity to be self-employed among young people. The self-reliance philosophy is there. Many young people are choosing to be self-employed because that's the way they want to see themselves. They want to excel on their own terms.

Of course, you have technology. The very existence of the Internet and chip technology shapes the decision to be self-employed. Therefore, the technology itself will increase the propensity to be self-employed.

There is immigration. We know that the propensity to be self-employed is much higher among immigrants than people who were born in Canada—again, a reason to believe that self-employment will rise.

There are many reasons to believe that, from a structural perspective, self-employment and small business activity will continue to be a dominant factor in the economy. In fact, currently self-employment is 16% of total employment. In five to eight years, we think it will reach more than 20% and one in five employees in Canada will be self-employed.

We're talking about a significant structural change, but at the same time the next six to eight months are going to be very difficult on the economy and on small businesses.

That's more or less my message to you. If you have any questions, that would be great.

The Chair: Thank you very much, Mr. Tal.

• 0940

For members of the committee who are new, we are going to go back and forth across the table. We'll begin with Mr. Penson. We normally do five-minute rounds, but we do have a large number of witnesses, so I'll be a little bit flexible with the time.

Mr. Penson.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you, Madam Chair, and thank you to the witnesses for coming today to give us a glimpse of what we might expect in the short term. I think, Mr. Tal, you would agree that forecasting is a pretty inexact science, so long-term might not be quite as effective. Even the guru of the United States, Mr. Greenspan, has trouble predicting where the economy is going, and his fight against inflation in the United States by using monetary policy, fiscal policy, has led to some of this, I think, in terms of high interest rates to slow down the U.S. economy and the inflationary factor.

I agree with you that Canada is better positioned this time around than we were in 1991. A lot of structural adjustments have taken place. We could go further, I'm sure, but we are better positioned. But we are still not an island. The biggest economy in the world is slowing down. The second biggest economy in the world, Japan, has actually slipped back in the last year, instead of experiencing any kind of economic recovery. Given the fact that we are so dependent upon exports for our economy—almost 40% of our GDP comes from exports—isn't our fate pretty dependent upon those two economies, whether they continue to slow down or are going into a recession?

Mr. Benjamin Tal: Our dependency on the U.S. has risen over the past 10 years. Our trade with the U.S. has risen by 200% over the past 10 years. So we are more vulnerable to what's going on in the U.S., and we have to face it. I think the good news is that all the structural changes I described also happened in the U.S. So there is a very high probability that the U.S. economy will bounce back in the relatively short term. So I agree that the dependency on the U.S. is not really great news in respect of our ability to conduct monetary policy in a way that is independent of the Federal Reserve, but that's a fact. We have to face it, we are dependent on what's going on in the U.S.

For example, we have to realize that all the layoffs happening now in the auto industry are just because of the fact that auto sales in the U.S. are slowing down. That's the main reason. And of course, I don't think monetary policy in Canada can be totally independent of what's going on in the U.S., because then the dollar will suffer in a very significant way. I think my optimism about the long-term and middle-term prospects of Canada comes because I believe that the U.S. will also do well.

With regard to Japan, you're absolutely right. In fact, Japan is really struggling, and I'm not extremely optimistic about Japan, short term and long term. I think Japan is facing significant demographic problems that will really have a negative impact on the long-term prospects. I think they would like to see themselves as an economic superpower, but they are not. In fact, their importance in the world economy will decline as time goes by.

Mr. Charlie Penson: Mr. Tal, if we are going to have to watch the United States so closely because there's a lot of dependence on demand down there—the automotive sector is one you've just mentioned—we need to watch carefully what's happening in regard to the continuing reduction in interest rates and how that might pull the U.S. out of it. There's also the tax package that the President just took to Congress this week—I know that's a longer-term thing. Aren't interest rates a pretty blunt instrument to try to slow it down to the soft landing? That didn't really happen. And isn't that also a pretty blunt instrument to try to get consumer confidence back again? Sounds like you're optimistic that they'll recover fairly quickly. Can you give us any idea as to when you see that happening and what the reasons that would drive that are?

Mr. Benjamin Tal: First of all, you are absolutely right. Interest rates have been used by Greenspan and the Bank of Canada to stimulate the economy before, and a year ago to slow down the economy. We have to remember that the only thing making a difference between a slowdown and a severe slowdown is confidence, business confidence and consumer confidence.

I think the latest speech by Greenspan—and also by Mr. Dodge—was more about psychology than economics. They understand that consumer confidence and business confidence are crucial to this recovery, and I think that's what Mr. Greenspan is trying to do now. He has been very aggressive in lowering interest rates, cutting them by 100 basis points, 1%, in one month. They haven't done that in ages. The reason they did it is they believe the cycle has changed. He basically says companies now have much more ability to control their production processes. More information is available, therefore they can react much faster to a slowing economy. You call this a just-in-time economy. Mr. Greenspan says, okay, a just-in-time economy means a just-in-time monetary policy. You have to be aggressive to accommodate these changes in the economy.

• 0945

I think what you say is valid. Quite frankly, I think they're going too far. I think they're panicking a little, because they might cut interest rates too fast. As you mentioned, next year this interest rate will start to have an impact on the economy—as you know, interest rates work with a lag. But next year, we might also see the impact of tax cuts in the U.S. All of a sudden we will have two shocks to the system. But actually we will stimulate demand, and we will probably live through some inflation.

So it's possible we're seeing some overshooting, as there was a year ago about raising interest rates. Unfortunately, monetary policy and economic policy are not exact sciences. So you have to guess, and you have to remember that most of your information is from the past four or five months. We really don't have current information, so we're always acting and reacting. I think that's a challenge.

Of course, everyone thinks Mr. Greenspan is God, but he has been wrong many times about the economy. Still, he is trying to fine-tune the economy, and quite frankly I think that's very good for establishing consumer confidence. I think that's key.

Mr. Charlie Penson: The banking industry has a significant part of your...(Inaudible—Editor)...outside Canada these days. That has been a strength, but I guess in today's environment it could also be a weakness. How much does what's happening internationally affect your profits and your ability to deal with these downturns, in terms of our own situation with our small business? The bankruptcies you forecast are going to go up, and I suggest that some of your international business is going to go down. Where does that leave the banks of Canada?

Mr. Benjamin Tal: Actually, it's interesting, because it helps to some extent. Europe is doing much better than North America now, so if you do business in Europe you can increase your profit and exposure. So it has really helped to offset some of the weaknesses.

Mr. Charlie Penson: In other words, it spreads your risk?

Mr. Benjamin Tal: Yes, it's diversification. Like any other portfolio investment, you want to diversify your sources of income. We're seeing activity in Europe improving, rising by about 3% in terms of GDP—compared to 1.5% in the U.S. Clearly, Europe is a good place to be. Some of the countries in Asia are still doing relatively okay. As I mentioned, Japan is definitely a problem, and in the U.S.A. we are going through the same cycle, so we're suffering to the same extent.

The Chair: Thank you very much, Mr. Tal, Mr. Penson.

Madame Jennings, please.

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Madam Chair. Thank you also to our witnesses for their presentations.

My questions are on two issues. The first is the Canada Small Business Financing Act, and the statute that preceded it. In the data you provided, I note that in the third quarter of 2000 authorized credit to SMEs amounted to $71.5 billion. What percentage of those loans were guaranteed under the Canada Small Business Financing Act?

• 0950

And what can you tell us about the quality of those loans, in comparison with other loans granted by major banks?

Mr. Tal, you said that the number of bankruptcies among businesses was increasing. Do you have any idea of how high that percentage might go with the economic slowdown? That is one part of my question.

The second part of my question is on the programs and activities which the Canadian Bankers Association has instituted to help small businesses cope with the new economy, and the new structures. I know that you have conducted a series of seminars on money for students, called There's Something about Money. I've just read about them, and you yourself said that you had a program of seminars for small businesses. I would like you to tell us more about the content of that program, and its impacts. There, I'm done. You will have time to answer.

[English]

Ms. Caroline Hubberstey: Thank you very much for your questions. I'll take the first part, let Mr. Tal take the middle part, and then it can come back to me for the end part.

You ask about percentage of loans for the Canada Small Business Financing Act vis-à-vis the banks' regular lending. I'll break it down just a little bit more, because under the act, the limit is $250,000. The number quoted in the speech is for loans under a million dollars.

So if I look at loans under $250,000, they represent about 15% of the bank's total portfolio of small business lending. That means the banks are increasingly using their own product for the vast majority of lending to small business—because, as you know, this is a risk-shared program. The government takes part of the risk, the banks take the other part. It allows all lenders—and there are 1,500 lenders under the program—to climb the risk curve a little and help higher-risk loans.

Industry Canada will release its report on the program at the end of this month, I believe. You'll find that actually registrations under the program are going down, probably for a number of reasons. One, we're seeing businesses in a better financial position; and two, the banks are developing their own products to service the small end of the market better, and they're adjudicated in a different, easier way.

As to the quality of loans under the program...I think you raised the question of the default rate. The default rate under the CSBFA program is about 7%, so 93% of the loans are repaid.

It's a very good program, if you compare it to its international counterparts. Look at the 7a program in the States, or the loan guarantee program in England. In England, the loan guarantee program has a default rate of 25%. So here it's actually very effective, and it's a very effective cost-sharing, risk-sharing arrangement.

[Translation]

Ms. Marlene Jennings: What is the quality of those loans, in comparison with loans that are not guaranteed?

[English]

Ms. Carol Gray (Executive Vice-President, Small Business Banking, CIBC; Canadian Bankers Association): I'll address that from our perspective. I'm sure my colleagues will contribute as well.

We have seen no deterioration in our small business lending portfolio. In fact, it continues to grow in a very healthy state.

I want to add one point to what Caroline said. Anywhere from 20% to 30% of smaller loans to small businesses are often financed through personal lending products. At the very small end, it's often very difficult to distinguish between personal loans and business loans, and so the customers will use a personal lending product to finance their needs.

• 0955

So from that perspective, even if you look at the quality of a personal loan, it continues to be quite healthy and dilutes the overall guaranteed loans as a percentage of the total block. I think it's a reflection that we are seeing more financing done by the banks without reliance on the government guarantees.

Ms. Marlene Jennings: You talked about 14% to 15% of the total portfolio representing loans guaranteed under the Small Business Loans Act. Is that 15% of the authorized credit or of the outstanding?

Ms. Caroline Hubberstey: Of the outstanding.

Ms. Marlene Jennings: Of the outstanding. Okay.

Mr. Benjamin Tal: I think you asked about the bankruptcies.

Ms. Marlene Jennings: Yes.

Mr. Benjamin Tal: First of all, we have to remember that bankruptcies actually have been falling over the past two and a half years, so that we are starting from a relatively low base. During the 1991 recession, bankruptcies rose by about 35%. Currently we expect bankruptcies to rise by between 10% and 20%. So it won't be as significant as the 1991 recession.

Ms. Marlene Jennings: Thank you.

[Translation]

What is your answer to the last part of my question?

[English]

Ms. Caroline Hubberstey: Are you referring to the CBA's programming, the initiatives I've highlighted?

[Translation]

Ms. Marlene Jennings: Yes.

[English]

Ms. Caroline Hubberstey: The program called There's Something about Money, as they indicated, has been going since mid-1999 and is expanding by leaps and bounds. In Quebec alone probably 800 students will go through for the month of March.

We asked young people how prepared they were for their financial future before going into the session. We find that about 45% or 46% are saying they prepared a little bit, but the rest of them are not preparing for their financial future. We then asked, “After you've gone through the program, do you feel better prepared?”, and 94% are saying yes.

We're also seeing teachers use the material as part of the curriculum to continue the learning process. And the more we can teach young people about the importance of maintaining a good credit history, how to manage credit, how to budget, the importance of investing early, preparing for your financial future, the better. We've talked about the program before and the fact that we are looking at young people in Ontario in OAC, and in other provinces, and CEGEP, as well as down to grade 11 and grade 12. These young people are heading off and making decisions about their future, whether it's going off to post-secondary education, into the workforce, or becoming entrepreneurs, and we need to get this information into their hands. So it's an important program. We hope these young people are better prepared.

The e-commerce seminar is also a very important initiative and we built it.... E-commerce is important for business today in the marketplace. Most important is the information we're getting from the small business owners about what they're learning and what they see as their next steps in terms of information they require to become more e-business ready. We're getting a lot of information, and we're sharing that with other stakeholders, so we can develop more programs and products to meet these specific needs.

Ms. Marlene Jennings: Thank you.

I wanted to make the point that given the information Mr. Tal provided on the increase in the number of people who are self-employed and how this is a growing phenomenon, I commend the banks on the work you are doing through the program There's Something About Money and with regard to small businesses on e-commerce, because you're obviously providing information and instruments to teachers, educational institutions, and young people who are the future self-employed.

The other point is that if 14% to 15% of the total portfolio is guaranteed under the Small Business Loans Act, we're talking about some $10.6 billion, so that would be about 20% of the total SME loans by banks. Is that correct? Are my figures right?

Ms. Caroline Hubberstey: Just a second, I have the numbers.

Ms. Marlene Jennings: If I take 15% of forty-seven point five, that would be four point seven plus two point....

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Ms. Caroline Hubberstey: It's the outstanding for loans under $250,000, not loans under $1 million.

Ms. Marlene Jennings: Okay.

Ms. Caroline Hubberstey: I can get that figure for you.

Ms. Marlene Jennings: Please do.

Ms. Caroline Hubberstey: I will provide it for you and circulate it to the clerk.

Ms. Marlene Jennings: Okay, thank you.

The Chair: Thank you, Ms. Hubberstey.

[Translation]

Mr. Brien, please.

Mr. Pierre Brien (Témiscamingue, BQ): Thank you. Mr. first question is for Mr. Tal.

In your portrait of the economic situation, you say that basic conditions are relatively good for Canada, and that you are confident the economy will recover quickly, possibly some time in the third quarter of this year. What is worrying about the US market is that there are still signs of inflationary pressure. Even if it remains within levels that we might consider tolerable here, the US reacts much more quickly to mild inflationary pressure, and it may have some inflation at the same time as the economic slowdown occurs.

Do you think there is a risk of this, or do you not believe that there could still be inflation in the US at the same time as the economy slows down?

[English]

Mr. Benjamin Tal: What you are referring to is inflation, which is basically rising inflation, and also rising unemployment and a slowing economy. This is a risk, but I think if you attach probability to these rules, the probability is not as high as the other options. I think the most likely scenario is that the economy will slow down, as I said, in the next six to eight months. I don't think the recovery will be in the third quarter; maybe it will be in the fourth quarter. It will be later and definitely next year. Given the slowing U.S. economy and the magnitude of the slowing, I think demand in the U.S. will slow in a way that will also have an impact on prices. Therefore, the increase, the currently upward pressure on prices, will slow down.

We have to remember that the main factor impacting prices now is energy prices, and energy prices are starting to slow down and soften. In fact, we expect oil prices to average about $25, down from $35 just a few months ago. The energy component of the inflation is starting to soften, and this is actually good news for the economy. Yes, it is a risk, but I don't think it's a significant risk.

[Translation]

Mr. Pierre Brien: My second question is on the importance of consumer and business confidence in the economic recovery. You talked about this, and you said that there is still lots of bad news to come. In other words, when we see the figures for quarterly profits in the next few months, in spring and summer, we will have clear indications of what has occurred in recent months. Don't you think this could undermine consumer confidence when it happens, and reduce the economy's ability to quickly recover in the second half of the year?

[English]

Mr. Benjamin Tal: Well, definitely, the consumer will feel insecure. I think it's already happening. If you look at the consumer confidence index, it's slowing down very rapidly in the U.S. and starting, actually, in Canada as well. It's already happening. I think you will see consumers starting to save more and actually spend less. This is almost a given.

Quite frankly, I will make the point that I think it's not bad. I think it's healthy because the savings rates in Canada are very low. I think actually we need to take a breather in terms of increasing our savings and slow spending for a while. To the extent that this lasts from six to eight months, I think that basically may a be healthy slowdown.

Clearly, the consumer will feel the heat. I think consumer confidence will go down, given the fact that interest rates will be lower and we don't expect a significant increase in the unemployment rate. For example, in 1991, the unemployment rate started at 8% and went to 11%. Now we expect it to start at 7% and reach 8%. We're talking about completely different fundamentals in the labour market, so the impact on consumer confidence won't be as significant. I think definitely it will slow down the process, but the process will continue nevertheless.

[Translation]

Mr. Pierre Brien: My question is this: how do you—the various banks—adjust to that outlook? Businesses frequently say that in a context of increasingly difficult economic markets, you are making credit more difficult to obtain, thus exacerbating the problem because you are not responding solely to broad economic development concerns, but to shareholder pressure to produce consistent results quarter after quarter.

What that makes me worry about is that in the coming months business people will appear in my office to tell me that banks are making it even more difficult for them to obtain credit, and restricting any leeway they might have in a difficult economic climate. Thus, what attitude do you intend to adopt in view of current economic projections?

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[English]

Ms. Caroline Hubberstey: We're very pleased to be here today to talk to you about your specific concerns. I'd now like to ask each of the members who would like to address Mr. Brien's question.

Mr. Jim Hamilton (Vice-President, Strategic Markets, Personal and Commercial Banking, Royal Bank of Canada; Canadian Bankers Association): Thank you very much.

For the Royal Bank that's a very serious concern as well. There are two aspects we try to deal with. The first aspect would be constantly increasing our knowledge of the various industries we deal with in the small business sector. We try to specialize and have specialists that understand all of the industries, including the auto industry, the agricultural industry, knowledge-based industries, and so on. In fact, one of the key recommendations our bank had from our group of small business advisers from across Canada is that we should move to increase knowledge and specialization of all the industries.

We also try to be very proactive, and that is the most important consideration. We try to search out our clients in advance and have a dialogue with them as best we can around the issues they are facing. As an example of that, I'll speak to my previous experience in Ontario where I managed a region for the bank. There was some agriculture in that region, and it was when hog prices were very low. We've had many cycles throughout this last 10 years in different industries, there's no question about that. It's not just in the overall economy, but there have been cycles throughout. I'm not an agriculture expert, but I have a team of specialists. My job, as their regional vice-president, was to go to them and make sure they had contacted all their clients that were potentially affected, had a dialogue with them, and developed an action plan. I was very pleased to find they had done that. That's what they do, and they have that dialogue.

So those are the ways we have to be proactive around the economic turbulence we may or may not have.

Mr. Derrall Moriyama (Senior Vice-President, Small Business Banking, Bank of Montreal; Canadian Bankers Association): On behalf of the Bank of Montreal, I'd just like to say that we like to use a very consistent approach with our clients. It's a long-term relationship approach, and we don't like to be fair-weather friends. We can't be getting in and out of relationships and be in the market with those clients. We understand there will be economic cycles. We understand they will have times of prosperity and times that will not be quite as prosperous for them. In doing so we have to understand what those cycles are. We have to understand the industry, as my colleague just mentioned, and again, we're in it for the longer term. We also have to work with our clients in that relationship so that they understand more about what's affecting the economy and their industry, and we can give them that kind of information when we do talk to them. So, again, we are maintaining a very consistent approach in good times and bad.

Mr. Carol Gray: The CIBC's perspective is not inconsistent with what my colleagues have said. I think bankers don't like surprises any more than customers like to be surprised, so our approach is to work proactively with our customers. Starting with a business plan and taking into consideration the information our economists can provide, we can help sensitize those plans to various probabilities that could occur in the future so that the customer and ourselves feel that whatever risks are there are mitigated to the greatest extent possible and are being managed. That gives the customer the confidence that they have a plan in place so that when some of these eventual things happen, as Benny Tal has described, they have a way to react to them, and it takes out the surprise element.

I think we also see that for many of the small business owners, their businesses metamorphose many times through the business cycle. We realize it's important to keep the relationship with the individual, because the business may change its name, its product, its mandate, or its business model many times over the course of an economic cycle in an effort to maintain its competitiveness. So it's to our advantage to keep that relationship with the individual, because that's the constant.

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Ms. Susan Kennedy-Loewen (Vice-President, Small Business Banking, Bank of Nova Scotia; Canadian Bankers Association): Thank you.

On behalf of the Bank of Nova Scotia, I'd like to add to the comments that have been made. The consistency point is absolutely clear, and we must manage consistency throughout the process. We've done a lot of analysis to ensure that as we've moved forward over the past year, specifically over the past four to five months, we're watching what's happening with applications that come in from our small business customers. We do know that the total number of applications coming from small business clients right now is down slightly from where it was a year ago. I am happy to report that the percentage of approvals, the decisions we're making with that small business group, is consistently where it was over the past year.

We might ask why we are having a slightly lower amount of applications. If we look at the opposite side of that, we're also seeing a build-up of assets in the small business customers' accounts, so they have more capacity. They are perhaps better prepared than they were in 1991, and that will hold them in better stead.

I think the grassroots approach of the Bank of Nova Scotia will be very important as we move forward. We have empowered our local bankers to make sure they understand the needs of their small business communities. We stay very closely linked with those bankers in order to understand what we need to do to make sure we're keeping this moving forward in a very positive and proactive way. This was supported just recently by a cross-country tour we did with a small business owner speaking to our branch champions for small business in order to understand just exactly what we need, how we can deliver, and how we can make sure we're managing this effectively.

Mr. Nick Stitt (Vice-President, Small Business Banking, TD Financial Group; Canadian Bankers Association): I think a lot has changed for TD. We learned a lot in the early nineties from what we went through with small business customers. There is definitely a much greater focus on the small business segment than there was in the early nineties. We have a separate business unit that's focused on that segment, and we have specific expertise that is involved with serving that segment from a credit and account management standpoint, which I think serves the customers and the bank well.

We have changed the dynamics of the relationship between the branch people and the customers. The branch people are sales people who are building long-term relationships with the customers. They are really the advocate for the customer, whereas in the past they were involved more in the credit, adjudication, and collection process. I think they found that very difficult. It's difficult to deal with a customer that is having financial difficulty, and they are now oriented more toward meeting their needs as best they can and being an advocate for them.

We have moved more to specialized roles in terms of account management and underwriting, where we use technology and information a lot better in order to spot earlier customers that might be experiencing difficulties. I think if we deal with things earlier, we can help them get through their period of difficulty.

Again, we're very concerned about what's happening in the economy. We hope it's short-lived. The shorter it is, the easier it is for us to bridge that gap with the customer through their financial difficulties.

Having said that, we are not seeing any significant deterioration in our small business portfolio, and our approval rates are not down. They are consistent with what they've always been. We are not tightening the credit policy, we're just being very vigilant. Again, we put a lot of focus on this particular segment.

Mr. Jim Howden (Senior Vice-President, Risk Management and Credit Services, HSBC Bank Canada; Canadian Bankers Association): I'm from HSBC Bank Canada. We're somewhat smaller than our competitors here today. Our branch managers are still in charge of their units. It's their responsibility to ensure that their customers who are having problems are identified. If they do experience problems, then we have special account managers to work with those customers to try to rehabilitate them and encourage them to make changes to their operations so that they can survive downturns.

With regard to our lending guidelines, we don't anticipate making any changes whatsoever this year. We expect we will be able to grow our business even in the light of what appears to be more difficult business conditions.

To date we haven't seen any problems in our loan portfolio, but, again, I caution that there's always a lag effect between an economic downturn and when it starts to show up in our loan portfolios.

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[Translation]

Mr. Peter Thompson (Vice-President, Corporate Services, National Bank of Canada, Canadian Bankers Association): As far as the National Bank is concerned, we identify ourselves as an SME bank, something of which we are very proud. We have always worked in partnership with small businesses, and that partnership is something we have every intention of maintaining.

When times become somewhat more difficult, as my colleagues have said, it is all the more important that we understand the sector in which our clients operate, that we understand businesses. True, we do not want any surprises. Things work much better when clients and banks agree on the action plan to be implemented when difficulties arise. On that basis, we can act in co-operation with the businesses in question. Obviously, we are ready to support our clients.

Banks are becoming increasingly specialized in business sectors, be it high technology, agriculture and so on. They are also developing specialized products, and try to suggest products that can help small businesses with cash-flow problems. For example, very small businesses can use factoring. We try to be innovative in that area.

At present, there is no significant deterioration in the portfolio. We have significant growth objectives, both in Quebec and outside, as well as even more dynamic objectives outside Quebec. This is the Bank's current approach, and we will be staying with it for the moment.

[English]

The Chair: Thank you very much, Mr. Brien.

Mr. Ianno, please.

Mr. Tony Ianno (Trinity—Spadina, Lib.): Thank you very much, Chair. It's interesting, as I listen to everyone, how all of a sudden the focus has been on small business. We've been very kind in the last year or so, because the economy's been good, and I guess the small business sector hasn't been in as much need of loans. So that's great.

The question I have is, why is it that in December 1995 the banks in total lent out to small business 27% of their outstanding loans, while today, using September 30, 2000, it's at 22%? Yet you all feel proud that, somehow or other, you're doing a great job. I would assume that if the economy is in a slowdown, as Mr. Tal is saying, somehow there's going to be a change in fortune for the small business sector, and therefore there's going to be more loan availability for the small business sector.

I would like each of you to talk about your individual loan difference to small business—and I have the numbers available if you don't have them—and tell me why you've reduced, in effect, the percentage that you lend to small business. You could also include the loan loss ratio between small business and large business from your bank's perspective.

Ms. Caroline Hubberstey: If you don't mind, I'd like to start. This is a question, I know, the honourable member has raised before to the committee about making loans to larger businesses versus making loans to smaller businesses.

If a bank—this is a statement we've made before to this committee, and I'll reiterate it now—makes a loan to a large business, that does not mean there is less money available to a small business. We're not talking about a pie, where if you cut the piece larger here, there'll be less for smaller businesses.

Mr. Tony Ianno: You've been trained well by your predecessors, because they all try that approach. But no one is asking you to reduce one part of a pie and increase another part. That's not the point. The point is that, according to Mr. Tal and others, there are more small business sector owners now as compared to six years ago, yet six years ago you lent out $45.5 billion and today it's $47.5 billion.

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So the question becomes—under the circumstances, but still on the large business sector, of course, since demand is not great in good times, whether it's large business or small—$123 billion for large versus $168 billion for large.

So can each of you tell me—and I have limited time here—the amount you have lent to small business in that last six years, what you intend to do if the economy slows down, what the loan loss ratio difference is between large and small business?

Thank you.

Ms. Carol Gray: I'll start off. There are a number of parts to your question, so I'll try to deal with them in the order that you posed them.

First of all, the average size of loan has gone down because the growth in the small business market is at the smaller end. So those smaller businesses require smaller loans. As you pointed out, the overall numbers of customers have actually increased. At CIBC our small business banking portfolio has actually increased almost 15% on a year-over-year basis.

Mr. Tony Ianno: What numbers are you reading from, because I can read for CIBC, December 31, 1995, $8.53 billion, versus September 30, 2000, $8.31 billion?

Ms. Carol Gray: Our small business portfolio includes things such as commercial mortgages, which would not be in those numbers. It includes sectors of the agriculture portfolio, which would not be in those numbers.

Mr. Tony Ianno: These numbers are the same numbers that were used in December 31, 1995, compared to September 30, 1995, so we don't have to add oranges into the apples—let's go with the apples.

Ms. Carol Gray: And, as I said, our portfolio continues to grow in terms of numbers of customers. But I think the important thing to realize is that the average loan size has decreased.

The other point to note is that there are other competitors, outside of banking, that provide financing, which contributes to the overall competition within the marketplace, and that eventually benefits the customers. I think Benny has noted already that the small business sector right now is very healthy, and so their need to borrow is not as great as it was in previous years. All of those things certainly contribute.

I think, as I noted before, what is not in those numbers is that, again at the smaller end of the small business market, many customers choose to use personal lending products to fulfil their financing needs.

Mr. Tony Ianno: Is that by choice or because they have no choice?

Ms. Carol Gray: By choice—each product provides different features and benefits.

Mr. Tony Ianno: Such as the fact that a personal loan is character lending, so no collateral is required, whereas on the business side collateral is required.

Ms. Carol Gray: Actually, most of our loans are unsecured on the business side as well.

Mr. Tony Ianno: Is that right? Most of your small business loans? Can you give me a percentage on that?

Ms. Carol Gray: At the small end, under $100,000, yes, they are.

Mr. Tony Ianno: Can you write to the committee and tell us what percentage that represents?

Ms. Carol Gray: Yes, I can, and I'll submit it to the clerk.

Mr. Tony Ianno: Great. Thank you.

Could you answer the question about the loan loss ratio between small business and large business in your bank?

Ms. Carol Gray: I'm sorry. I don't have specific information on that comparison. I can say that our loan loss experience has certainly been less than 1% in the small business market. I don't have the information on the large corporate, so I can't make the comparison.

Mr. Tony Ianno: Could you get that information for us?

Ms. Carol Gray: Yes, I can.

Mr. Tony Ianno: Thank you.

Mr. Benjamin Tal: I'd like to make a point with regard to this, because I think it's very important. There is an assumption in your question that it's a supply thing, but there's also a demand aspect to this equation. Let me give you some numbers. Between 1989 and 1999 the economy generated about 1.4 million or 1.5 million new jobs. Of those 700,000 were—

Mr. Tony Ianno: It says over 2 million here.

Mr. Benjamin Tal: Pardon me?

Mr. Tony Ianno: Since 1993 over 2 million new jobs in Canada.

Mr. Benjamin Tal: That's right. Now if you look at the situation between 1994 and 1995 and 1999 or 2000, about 40% or 50% of these jobs came from self-employment. Okay?

Now, 95% of these self-employment jobs were one-person operations. This is very different from the eighties. One-person operations—we call it small office or home office. By definition, you're talking about smaller operations that had fewer requirements for credit.

Mr. Tony Ianno: So you're saying that individuals who are self-employed have less requirement for a loan. Is that what you're saying?

Mr. Benjamin Tal: If you employ five people, your requirement for credit is much higher, because the operation is much bigger. Of the growth over the past ten years, 95% has been from one-person operations.

Mr. Tony Ianno: So you have that information regarding one-person operations?

Mr. Benjamin Tal: Yes. We did a lot of personal checks on small business.

Mr. Tony Ianno: Will you supply that to us?

Mr. Benjamin Tal: Absolutely.

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Now, another factor is that because of the good economic times, only 6% of small businesses in the manufacturing sector say they have working capital programs. This is down from about 20% early in the decade, so we're talking about a significant decline in the need for this kind of financing. There is a demand aspect as well, not just supply.

The Chair: Mr. Ianno has a question that is specific to the individual banks. If you could answer briefly, please do so. As to whatever information you don't have, you could provide it later and let us know that.

Mr. Hamilton, please.

Mr. Jim Hamilton: Thank you, Madam Chair.

Mr. Ianno, I have a couple of points in answer to your question. First, on our commitment to small business, on behalf of the Royal Bank let me say again that we have been committed to small business for as long as I've been in the bank. I've been in the bank 20 years. In the early 1980s, as I was going through the organization, I personally went on a course specifically for small business lending and then was posted into a small business centre in 1984-85. So I just want to give the perception that....

Mr. Tony Ianno: Just give the numbers, because the rest of the stuff—you may have been in there for 20 years—

Mr. Jim Hamilton: Okay. I just wanted to leave you with the perception that it was in the last five years of—

Mr. Tony Ianno: [Inaudible—Editor]...your predecessors that isn't necessarily the case because—

The Chair: Mr. Ianno, please.

Mr. Tony Ianno: I'm sorry.

The Chair: If we could just try to stick to the questions and the answers, we might get through this a little quicker.

Mr. Tony Ianno: Please just give the numbers.

Mr. Jim Hamilton: Okay. I will supply the numbers as you've requested later as well because I don't have them. That should be a good news story for you, actually, because we don't compare any of these ratios with those of our large business accounts. We don't have a process to compare our loan losses on small business accounts with our loan losses on large accounts, multinational borrowings, or the like, so I will also have to provide those numbers as well.

The Chair: Mr. Moriyama, please.

Mr. Derrall Moriyama: Thank you, Madam Chair.

I would just like to say that during the last recession, Bank of Montreal actually grew its small business book, and it certainly helped us to diversify and proved to us the value of this business. This is not something new for us. We have been in this business for some time, and this is a key plank of ours for our ongoing growth.

In the early or late 1980s we were at about 9% growth. We're up to 18.5% growth now—or market share, I should say—and we're number two in Canada. We're number five in North America.

It continues to be a key plank for us going forward. We're looking at a double-digit target for growth on an ongoing basis. Having recently been in the field, I can tell you that it is a very competitive market out there.

The Chair: Mr. Penson, please.

Mr. Charlie Penson: Madam Chair, there are a lot of witnesses here. There have been some specific questions asked, and it doesn't sound as if the witnesses have the information at their fingertips. I think it would be helpful to the committee if they could just provide it to us. There are other questions—

The Chair: I understand, Mr. Penson.

Mr. Charlie Penson: —we want to deal with, this is taking a long time, and if they don't have the information at their fingertips, let's table it.

The Chair: Thank you. Okay, Mr. Penson.

Does anyone have the specific information Mr. Ianno is requesting today?

Ms. Kennedy-Loewen.

Ms. Susan Kennedy-Loewen: We have pieces of it with us. I'd be happy to share the rest of it with you. I do know that our loan losses on our small business portfolio are less than 1%. We don't compare them with the mid-market or the commercial accounts either, but we would be happy to provide that to you.

The Chair: If everyone else could just provide it in writing to the clerk, that would be fine.

Thank you, Mr. Ianno.

Mrs. Desjarlais.

Mrs. Bev Desjarlais (Churchill, NDP): I will make it quick.

I want to thank Mr. Ianno for his questions. He put them in a much better perspective for us. He got in the questions I was wanting to ask as well.

The first question is, do the banks have a limit on what their local managers are allowed to approve, and what would that limit be?

Mr. Jim Hamilton: That varies completely, depending on the type of.... There's technology involved in certain types of loans as well—

Mrs. Bev Desjarlais: Okay. Give me a rough figure. Is it $50,000? Is it $100,000? Do bank managers have the okay to approve a certain size loan? I think we're being given the impression that there's this down-to-earth approach; that bankers say, we want to work well with our small businesses and we're going to provide what they need. So do the individual, local bank managers have the okay to approve a certain level of loan? I'm sure it's easy to put in writing. We probably all heard about it during the election campaign. If we could hear about it then, we could hear about it now for small business.

Mr. Jim Howden: In our bank, yes, we do.

Mrs. Bev Desjarlais: And what would that figure be?

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Mr. Jim Howden: It varies according to experience, but our branch managers would be able to approve the vast majority of small business loans locally.

Mrs. Bev Desjarlais: Up to?

Mr. Jim Howden: Up to....

Mrs. Bev Desjarlais: Up to $250,000, perhaps $100,000?

Mr. Jim Howden: Yes.

Mrs. Bev Desjarlais: Okay. That's the type of answer I'm looking for.

Mr. Nick Stitt: Can I answer on behalf of TD? Our local branch managers have authority to grant credit to small businesses up to $15,000 if it's fully secured. However, because we have introduced technology, they can get answers for up to $30,000 almost instantaneously and other answers in less than 24 hours.

Mrs. Bev Desjarlais: Okay.

Ms. Susan Kennedy-Loewen: The approach we have right now for loans up to $250,000 is a centralized approach, although the branches have the right to appeal. We expect to bring the authority to approve loans up to $250,000 right into the branch within the next year.

Mrs. Bev Desjarlais: Okay.

Ms. Carol Gray: At CIBC, the local folks know what the lending guidelines are, and so they know—

Mrs. Bev Desjarlais: I just want the figure.

Ms. Carol Gray: The figure for what they can approve is any amount up to $10,000, but on a centralized basis there's a 48-hour guaranteed turn-around time.

Mr. Derrall Moriyama: Generally, the average manager in Bank of Montreal can approve up to $50,000 on his or her own authority and get approval for up to $3 million within a matter of hours.

Mr. Jim Hamilton: Yes, at the Royal Bank our methods are similar to those of some of the folks who talked before. We have tried to introduce technology, instantaneous approval—

Mrs. Bev Desjarlais: Figures, figures.

Mr. Jim Hamilton: We don't have figures. We try to score things—

Mrs. Bev Desjarlais: So it could be $100?

Mr. Jim Hamilton: Yes.

Mrs. Bev Desjarlais: Okay.

Mr. Jim Hamilton: The objective is the same, though.

Mrs. Bev Desjarlais: Okay. How many small business loan applications are rejected by each of the banks? I apologize if the figure is here somewhere and I've missed it, but for each of the banks, how many small business or medium-sized business loan applications do you reject?

Ms. Caroline Hubberstey: Quickly, just to respond, we did a survey—we did this in partnership with the committee back in 1988—and we were actually surveyed. There are two different projects here. We surveyed small business owners and we asked them—

Mrs. Bev Desjarlais: I'm asking how many—

Ms. Caroline Hubberstey: —based on figures—

Mrs. Bev Desjarlais: No, but we don't have much time and I'm asking—

The Chair: She wants a direct answer from each of the banks that are here. Mr. Hamilton, please.

Mrs. Bev Desjarlais: That's right. You must have a figure of how many—

Ms. Caroline Hubberstey: We have a figure for you I want to share.

Mrs. Bev Desjarlais: That's all I want to hear because we really don't have much time, and I don't want to waste other people's time.

Ms. Caroline Hubberstey: It was an 8% approval rating, cumulative for the banks, and I could provide you with the.... The small business owners themselves were recording a loan approval rate—

Mrs. Bev Desjarlais: I asked you what the rejection rate was.

Ms. Caroline Hubberstey: It was about one out of 10 loans.

Mrs. Bev Desjarlais: That's fine. Thank you.

The Chair: Okay. Thank you very much.

Mr. McTeague, please.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you.

I'm very interested in the comments that have been made back and forth, and indeed Monsieur Brien has already anticipated some of my comments in expressing concern about the potential slowdown in the economy, which you referred to so vividly, Mr. Tal. I was initially going to look at the question of how we arrive at methodologies with respect to provisions for loans to individuals. But I want to focus on a couple of themes that are appearing at the same time.

We have or are anticipating a slowdown in the economy. We are possibly looking at mergers in this industry down the road. Moreover, we have a growing number of people who are ostensibly going to be laid off from large corporations, some of whom will be seeking opportunities as small business entrepreneurs; we are looking at an increase of 4% or 5%, I think—from the difference in percentages you had given, from 16% to 20%, Mr. Tal. Given these factors, what provision can we as members of this committee anticipate will be the response by banks in the future? I don't mean for existing clientele because many of you have covered that, and we'll be looking forward to the documentation you'll be providing. How do you anticipate being able to accommodate this new growth opportunity with small business entrepreneurs, who suddenly discover that they're really the only engine of growth in our economy?

Mr. Benjamin Tal: I think that again, given the research we've done, we have recognized that small business is going to be a growing segment of the economy. We also know that we are talking about a more sophisticated level of such endeavour. If you look at the education aspect of growth and such employment, this sector has actually been rising much faster than any other segment of the economy. These people are increasingly better educated and more highly skilled, so they require much more attention. I think that's the approach the banks are trying to adopt. It's not just about providing you with a loan but about trying to understand the business.

• 1035

Another sector or segment is that it will be very difficult to define a typical small business. What is a small business? Now we're talking about someone who is working from his or her home, and this person will be connected with some people around the world via the Internet, so you don't have a typical business any more. You really have to know this person in order to do business with this person. So it's not just the business, it's the person. I understand—and Carol can talk about it—that we're trying to integrate this kind of process of looking at the person, not at the business, because this business can change from today to tomorrow but the person won't.

Ms. Carol Gray: If I understand, part of your question is how the banks are growing capacity to be able to deal with the increased numbers of small business customers going into the economy. Is that correct?

Mr. Dan McTeague: That's correct.

Ms. Carol Gray: From CIBC's perspective, over the past year we've added 400 people directly into our marketplace or into our business to serve the small business customers. In urban and rural markets today, we have over 2,000 people dedicated for small business customers exclusively.

We've also launched BizSmart which is a new enterprise, a consortium of companies whereby we provide the banking services, and other companies, such as Business Depot, provide other services to customers. That's another way in which we've added capacity to service the growing numbers of small business customers. The BizSmart initiative is targeted primarily at the SOHO market, where we expect to see the overwhelming growth, which Benny has referred to earlier.

Mr. Dan McTeague: I want to shift gears a little bit if I can, Madam Chair, to the question of strategic alliances—and I don't necessarily mean strictly mergers between yourselves.

Give me a picture of the kinds of services you anticipate will be more user- or customer-friendly down the road. I know we've gone a long way in just ten years with the development of electronics, but if you could, possibly give a snapshot to this committee of the kind of anticipation of what will we hear tomorrow. For instance, will the Bank of Montreal be merging with Burger King to provide a much smarter french fry? I don't know. I'm going from the sublime to the ridiculous, but the question is, where are you going in terms of your industry as it relates to serving the kind of clientele we're interested in?

Ms. Carol Gray: If I could just lead off, you may have known that at CIBC there was a press announcement on our latest alliance with Wells Fargo. We see ourselves as a distributor of financial products and services to small business customers. Therefore, where we believe we cannot manufacture all of those financial products and services and be in the top quartile as a manufacturer, we will form alliances so that we can bring the best products and services to the customer. That's what's in the interest of the customer, and ultimately in our interest as well, as we can continue those relationships. Our recent alliance with Wells Fargo is an example of that, and I think you're going to see more of that. A lot of it can be facilitated by the Internet and technology so that it's distributed in a way that's easily accessible by the customers.

Mr. Dan McTeague: That's great.

Could you perhaps give us a better illustration of what you're doing with Wells Fargo? A few years ago, I think there was some concern within the industry about the presence of Wells Fargo in Canada. Give an illustration of what this relationship, what this alliance, really means for Canadians.

Ms. Carol Gray: A customer who would like to borrow up to $100,000 can go into a BizSmart location or a CIBC branch and apply for a loan through a simple form that looks like a credit card application. They provide consent if they want their application to be considered by Wells Fargo. In the instance where the loan does not meet our standing lending guidelines, then, because the customer has given consent, we will automatically pass that application on to Wells Fargo, whereby they will be given a 48-hour response.

Mr. Dan McTeague: There are other banks that presumably offer that very similar service, so I guess my question is why someone would have to go to that format when it's readily available throughout other financial institutions.

Ms. Carol Gray: It's more convenient, one-stop shopping. I think it's primarily the convenience.

We find that for most of our small business customers—and I'm sure my colleagues would echo this—their needs go much beyond just financing. What we want to do is give them access to financing and then be able to look at their other needs to help them grow their business. Growing their business is not just a capital or financing requirement, so there are other ways we can help them with that.

Mr. Dan McTeague: Thank you.

The Chair: Ms. Kennedy-Loewen.

Ms. Susan Kennedy-Loewen: Another type of alliance that Scotiabank has undertaken just recently and that has been announced as well is a partnership with United Grain Growers. We have been able to now take over the financial services and be the financial service provider to the farmers who are dealing today with United Grain Growers. The advantage this provides to the farmers is that it will free upwards to $200 million in capital with UGG, and they'll be able to dedicate that back into providing the products and services they best deliver to that market.

• 1040

I think there's a growing need in the Canadian marketplace to start looking at producers, at suppliers, at ways in which we can integrate those markets to increase the opportunity, which will virtually end up being an income benefit to the small business, or to the farmer in this case. Scotiabank is looking at several of these types of initiatives, partnerships, or strategic alliances in which we can add value to the small business customers by the virtue of them coming together.

Procuron is another very good example of where we can bring high technology to the small business clients of Scotiabank. They can actually go online now, make purchases using group buying power, and receive discounts for that. This will provide them with options and alternatives that will bring together a better opportunity for that group, which sees itself a bit as an industry of one, but needs the power of the mass.

The Chair: Thank you very much, Ms. Kennedy-Loewen.

Mr. Rajotte, please.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Madam Chair. I just want to return to Mr. Tal for a few questions, and the first question relates to the Canadian dollar.

You mentioned how the economic fundamentals in Canada, I believe, were better than the economic fundamentals in the United States, yet you just briefly touched on the Canadian dollar. If the economic fundamentals are better here than they are in the U.S., why the disparity between the two dollars?

Mr. Benjamin Tal: First of all, until very recently, the Canadian economy had been lagging behind the U.S. economy. Just to give you an example, between 1989 and 1999, disposable income in Canada really didn't grow at all. We are now basically where we were in 1989, so we lost a decade in terms of income growth. In the U.S., it has risen by about 18% or 19%, so the income gap between the two countries has risen. That's one of the reasons why the U.S. economy has been so strong, and that's why the U.S. dollar has been so robust.

Just over the past year we have been catching up, and maybe now we are a little bit better than the U.S. dollar, but I think the market does not realize it. The market is sort of preoccupied with what's going on in the U.S., and I think that to the extent the market believes the U.S. will turn around by let's say the end of the year, the focus will continue to be on the U.S.

It's very difficult to compete with a giant like the U.S. We have gained some ground against other currencies, like the Euro and the yen and many other major currencies, but not against the U.S. dollar.

Quite frankly, if you ask me about my focus for the Canadian dollar, yes, it can improve by one cent or two in the next year or so, but I really don't see it improving in any significant way. Again, as long as the U.S. economy continues to grow in such a rapid way, it will be very difficult for the Canadian dollar to improve. And again, one of the reasons is that interest rates in Canada are still much lower than interest rates in the U.S.

Mr. James Rajotte: My second question relates to what you talked about in regard to the slowdown in the U.S. being tied to the slowdown in manufacturing. Do you have any idea as to why the manufacturing slowdown in the U.S. has occurred? Is it simply cyclical, or is there a macroeconomic policy that can be pointed to?

Mr. Benjamin Tal: Apparently the economy is reacting to the increase in interest rates last year, so that's the cycle. As you know, and as we mentioned earlier, Mr. Greenspan raised interest rates in order to combat inflation because the economy was overheating. Now we have the opposite problem.

We also have to remember that the auto sector in the U.S. has been really booming. Sales in the U.S. of new cars were at about 17.9 million in the year 2000. That was a record high. The equilibrium level, if you wish, is about 15 million or 16 million. You cannot sustain this kind of boom, so I think the current slowing in the manufacturing sector in the U.S. is a clear reflection of these factors.

Mr. James Rajotte: My last question, if I might, is just related to what you mentioned in terms of the interest rate cut that Mr. Greenspan has put into place, plus the expected tax cuts to take place next year. You have two of what I think you called shocks to the system. The implication there is that the stimulus may be too great. For policy-makers here in Canada, obviously we're expecting a slowdown here over the next six to eight months. What advice can you give us as policy-makers? If you say those two factors in the United States are too much, what in your view would be a measured response to the slowdown here?

• 1045

Mr. Benjamin Tal: First of all, given the fact that the economy is going to slow down, lowering interest rates would be a smart move. I hope the Bank of Canada will do that. We have to remember that we didn't follow the Fed in such aggressive ways. So interest rates in Canada haven't been falling as they have been in the U.S., and we have much more room to manoeuvre.

Second, inflation in Canada is lower than inflation in the U.S. So again, we have much more room to manoeuvre in terms of interest rate cuts.

The third point is tax cuts. The timing of the tax cuts in Canada couldn't be better, because actually they're helping the economy now that the economy is slowing. They will hit the U.S. when the economy is recovering. That's another reason why we might see more inflation in the U.S. In Canada, I think the timing is actually not bad.

The Chair: Thank you very much, Mr. Rajotte.

Mr. Savoy.

[Translation]

Mr. Andy Savoy (Tobique—Mactaquac, Lib.): Thank you, Madam Chair.

I would like to thank you for coming here today.

[English]

Thank you very much for the visit.

I have three questions. I'll start on the SME side. You'll probably agree with me that an SME with $50 million and 500 employees is a joke. In my riding, I have four companies that are not SMEs. On that slant, I'd like to see a breakdown by the company's revenue—$500,000 or less, $500,000 to $1 million, $1 million to $3 million, $4 million to $9 million, $10 million to $25 million, $26 million to $50 million—to see if there's any trend in approval rates.

Caroline, possibly you can speak to this. Are there any trends in approval rates based on the size of company revenues—not SMEs lumped as one general group, but broken down like that?

Ms. Caroline Hubberstey: The survey I referred to was of SME owners. We looked at the profile of the business borrowing client. When you look at the small business sector—Benny might be able to add to this—the vast majority of businesses in this country are small; 75% under five employees. We're not seeing a great deal of difference in the loan approval rate across the board when you look at sales revenues. It's fairly consistent.

You're looking at the vast majority, which are small businesses. We're not seeing a great difference in the loan approval rate for the size of business. The lending statistics we've broken out for you here are based on authorization level. I think the whole small business market is defined in various different ways.

So, yes, the statistic you had—500 employees, $50 million in sales and revenue—that is on the high end. The vast majority are under 50 employees, probably under $5 million in sales and revenues, and they're still showing very good loan approval ratings.

Mr. Andy Savoy: So if you broke it down, as I said, between maybe $250,000 or less, $250,000 to $500,000, and so on, you would see no trend in approval rating from a $26-million company to a $250,000 company...? Do you understand what I mean? There would be no trend in declining approval rates?

Ms. Caroline Hubberstey: So you're asking what is the approval rate for businesses borrowing $20,000 versus businesses borrowing $20 million.

Mr. Andy Savoy: Actually, based on business revenues. Would you see a trend from larger companies to smaller companies, within that SME distinction, on approval rates?

Ms. Caroline Hubberstey: I'll let the individual banks respond to that, Mr. Savoy.

Mr. Andy Savoy: What I'm getting at is, I would like to see figures on that.

Mr. Nick Stitt: I don't have the exact numbers, but I can tell you our existing portfolio—and I focus totally on small businesses with under $250,000 in credit and less than $2 million in sales—would mirror the numbers in the population at large. If you looked at the breakdown of our borrowings, they would mirror the population, which would indirectly show that the approvals are consistent throughout the population. So if we're approving 80% here, we're probably approving 80% there, or else we would have a distortion in the portfolio. That's an indirect answer; I don't have the right numbers.

Mr. Andy Savoy: Can I get the numbers? Caroline, can you get the numbers for the industry, broken down as I said?

Ms. Caroline Hubberstey: Yes.

Mr. Andy Savoy: Secondly, our future lies in SMEs. We realize we're going into an economic downturn, and a lot of that is dependent on innovation, research and development—new companies, new products. The intellectual and human capital portion or allotment.... When you assess a company, do you have individuals or a structure in place to adequately assess both intellectual property and human capital?

• 1050

Mr. Caroline Hubberstey: I'll let the individual banks respond to that.

Mr. Jim Hamilton: Sure. Thank you.

That's definitely a critical factor, no question, and something we continue to develop and train consistently. Examples would be our knowledge-based industry team that lends to intellectual property industries, film industries, and a variety of other types of industry as well. It's a key thing because it's not an accounting term; it's goodwill created from the value of that education. So it is a definite priority and definitely important.

Mr. Andy Savoy: Is there a strategy from CBA, Caroline, on pushing this agenda of intellectual and human capital, on how to assess it properly to make sure we adequately account for it and give it its due?

Ms. Caroline Hubberstey: CBA doesn't get involved in the business decisions of individual banks. That's why I encourage the individual banks to respond to questions on how they're dealing with these specific issues.

Mr. Andy Savoy: Okay.

Mr. Derrall Moriyama: At the Bank of Montreal we have definitely established innovative technology centres across the country. We certainly see this as a growing industry, a vibrant industry, something we have to stay on top of and be part of.

Ms. Carol Gray: At CIBC, in addition to the knowledge-based business approach we've taken that's similar to the other banks, just recently we have also piloted a credit monitoring program that will allow us to evaluate the management expertise of start-ups on a qualitative basis. This would help us to provide financing to start-ups by looking at the management expertise of the owner.

The Chair: Ms. Loewen.

Ms. Susan Kennedy-Loewen: Specific centres have dedicated individuals with expertise in information and technology, but those centres are not spread evenly throughout geographic areas. So because we have individuals with a need, but they don't have the expertise in the area, we have developed a small business resource centre. It's a 1-800 number for our bankers across Canada that answers any questions they might have on small business.

Our goal in this is to ensure that a skill gap in the branch level doesn't inhibit the ability to provide excellent service to customers, and to make sure we understand the need. It's very difficult for our bankers to have all the vast knowledge they need, but we have a go-to place that's specifically designed for the small business market and dedicated to helping them focus.

The Chair: Mr. Stitt.

Mr. Nick Stitt: At TD we offer business banking services, not only in all our 1,300 retail branches but also in commercial banking centres. Certainly small businesses and high-tech businesses can choose to deal in a commercial banking centre, where we have more expertise in this industry. They are also supported by an industry specialist group in Toronto that deals with knowledge-based industries.

On the small business side, we've recently deployed a significant sales force of small business experts who support the retail branches in lending to small businesses. They can be called in to the customers and deal directly with them in credit matters.

Mr. Jim Howden: We tend to deal with small loans and big loans all the same. If our branch managers need assistance, they'll talk to our credit departments in Toronto or Vancouver and get the assistance they require to come to an informed decision. It's a relationship-based approach.

Mr. Peter Thompson: At the National Bank, it's pretty well standard to assess the management and the intellectual capital of any business. That's particularly so when we're looking at the riskier type of business—“riskier” being in terms of the product. If we're looking at subordinated debt or a less secure type of advance, that management component becomes especially crucial.

The Chair: Thank you.

Mr. Andy Savoy: Thank you, Madam Chairman.

The Chair: Thank you very much, Mr. Savoy.

We still have four or five people who want to ask questions, so we're going to run over just a bit. Perhaps we could try to keep that in mind when we ask our questions.

Mr. Brison, please.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Madam Chairman.

• 1055

And thank you to all of you for your presentations. I wasn't able to be here for all of it. I'm on House duty today so I'm back and forth.

I have a couple of questions. One is relative to the Wells Fargo involvement. It's my understanding that one of the reasons why Wells Fargo can have a greater level of flexibility in terms of lending and small business lending is that there's a greater level of flexibility in terms of interest rates charged. Is it from a policy perspective? I've been told that with Wells Fargo typically there's a greater level of flexibility in terms of assessing high-risk lending, and of course developing and providing interest rates commensurate with that risk.

A question I have is why aren't our banks in Canada in high-risk situations? Instead of simply saying no in a lot of cases or cases with small business lending, why has there not been a greater level of participation in high-risk lending with rates that would be commensurate with that?

Ms. Caroline Hubberstey: Banks are low-risk lenders. On one side we have our depositors and it's their money we're lending. As well as shareholders, we have a regulator. We're a heavily regulated industry and we have a regulator that watches over the bank's activities. We are one of many types of providers within the marketplace.

There are others who are providing higher-risk financing. Partnerships, the strategic alliances that we're talking about with some of the other providers who do provide higher-risk capital, allow the banks to expand a bit outside of their low-risk financing profile. You take a look at the depositors depositing in today's banks. They're not getting a high rate of interest but they want their capital back. That's why I'm talking about the strategic alliances that CIBC has referred to.

Ms. Carol Gray: I can answer your question in two parts. First of all, there's nothing that Wells Fargo can do to eliminate the risk on the small business loan. What they can do is diversify it through the size of their portfolio, because their portfolio is much larger and in two countries as well. They can diversify the risk, and they have a better ability to do that than we do with the small business market only in Canada. That's one answer to the question.

The second part is that Wells Fargo has been lending to the small business market in a broader, more comprehensive way. They're in the U.S. so they have access to a larger market and have had more experience with understanding the scoring methodologies to assess the risk components of small business. We're hoping to take advantage of that for the benefit of our customers.

Mr. Scott Brison: Is there any integration now with your small business lending practices and some of your merchant bank arms? Particularly with new economy ventures, financing isn't so much debt financing as investment participation. Whether it's an e-Scotia or the merchant bank arms of any of your banks, they have played a very important role, whether it's biotech or IT, in some of these areas. But is there any effort to integrate that smart money with your small business lending side? It seems to me there should be some level of synergy on the new economy side. New economy entrepreneurs need some debt financing, but typically it's more of an equity side financing. I'd be interested to see if there are any strategies that you're able to speak of here.

Mr. Jim Hamilton: Great question. I would say the strategy focuses around working with the different divisions. We have different regulations in different divisions. One of the key success factors in our industry is working with our sister subsidiaries or institutions effectively, whether it be in the large business side between the corporate investment banking division and the commercial banking division to identify opportunities or in the small venture capital side with our small business.

• 1100

We have great relationships with those folks. They cross between organizations all the time, and that's the way we try to achieve it because they are separate businesses.

Ms. Susan Kennedy-Loewen: Certainly with e-Scotia and the small business group in Scotiabank, a week doesn't go by that we're not talking about opportunities that might exist, both from the customer level and for the customer. I think we have a tremendous opportunity to move that forward. Our strategies are very strong, and I can certainly provide you with some papers on that.

Ms. Carol Gray: I think the Niagara Growth Fund is an excellent example of at least three of the banks coming together with working ventures to provide a venture capital fund through our respective merchant banking arms. We see that as a model that we'd like to be able to put in other communities.

Mr. Derrall Moriyama: Thank you. In maintaining strong relationships with our clients, I think we want to understand exactly what is going on with their business. We want to capture as much of that business as we can. So certainly if there are opportunities to help them with other parts of our bank, with other sister companies, we certainly will be doing that on a regular basis, and we do.

The Chair: Does anyone else want to respond?

Last question, Mr. Brison, please.

Mr. Scott Brison: Can I work in two small questions as opposed to one big one, Madam Chair?

First, I'd like a little more feedback on the angel investor side. Again, one of the problems we have in Canada is the lack of an educated angel investor network across the country. Our banks are in a very good position to provide education to high net worth individuals, who are working with banks now to try to improve their ability to participate in some of the opportunities. I'd like to see if there's any interest in doing that.

Also the micro-lending issue is a completely different area, and I know some banks have participated in some work. The Calmeadow initiative is one. But what has the success rate been with the micro-lending initiatives, and what are your plans to do more of that, if any?

Ms. Caroline Hubberstey: I'll speak to the question of angel investment in Canada. We've actually done a lot of research with Allan Riding, who is probably one of the best experts in Canada on angel investment. I'd be happy to share that with members of the committee.

Ms. Susan Kennedy-Loewen: We have also added into the resource centre third-party alliances that we're trying to establish so we can get a connected group of angels. As our bankers call in, they're actually the touch point where they can hook up or make references. That has been quite effective to date. It's in its early infancy, but I think there's a lot of opportunity to grow there.

Mr. Jim Hamilton: I can talk to the micro-lending part of your question, Mr. Brison.

We have alliances with some other banks, as well as the Canadian Youth Business Foundation, that engage in micro-lending practices. We've had other experiences with other alliances. We find that the key part of that business is the educational component. It's not so much the capital part, it's the education. Part and parcel of all of those programs is a strong educational volunteer program by our staff to go out, go through business plans, and do things. We find the education part far more important than the actual $10,000 to $15,000 micro-lending part.

The Chair: Mr. Brison, are you finished?

Mr. Scott Brison: Well, you asked. I assume that was a question, Madam Chair.

The Chair: Finish, Mr. Brison.

Mr. Scott Brison: Thank you very much. The issue I would like to see, and perhaps as a committee that's something we can explore further, is this whole issue of creating a more entrepreneurial community. In terms of angel and early-stage investment in Canada, I think it is something that banks are positioned to do. Instead of simply saying no to someone in a lending institution, let's say in Windsor, Nova Scotia, sending them in a different direction where they may do equity financing would be helpful.

The Chair: Thank you very much, Mr. Brison.

Ms. Torsney, please.

• 1105

Ms. Paddy Torsney (Burlington, Lib.): Thank you.

It seems to me that for a lot of small business owners it gets more complicated as you have more employees and more customers. There are issues quite separate from lending issues that need to be addressed. Certainly whoever had the supplier group, and I think TD has an on-line purchasing group coming up.... That helps with some of those issues. But a lot of them are staff relations, and it's too complicated. It can go back to being a SOHO and not having to deal with all those employee issues.

I'm concerned that there are lots of talented people and resources that banks could use to support people and help them grow their businesses. In turn they'll end up borrowing more money and becoming more successful. But they need that connection. If more and more people are working on their own, it's only going to get worse.

I know that in Burlington, with Scotiabank, we set up a confidential independent adviser. It doesn't sell bank products, it just counsels. It was supposed to be for individuals, but it's actually finding that a lot of small business people are asking for independent advice and asking how they should approach their bank managers. It's handling some of the small business stuff because there's a need, and it's got the time. It provides that service. But I wonder what other kinds of independent services there are and what we can do to support people in the staffing and the growing business.

To backtrack for a second, the reason I think advice has to be independent is that often you don't want to tell your bank manager something. If you do, you're concerned about what she's going to say: “Thanks, we won't be approving that next loan,” or, “I think I'd better put a bigger check on it.” It's human nature; you're a little reluctant to share everything. So we do need some independent sources. The chambers of commerce might be helpful, but they're still often only a little bit bigger than a SOHO.

Ms. Caroline Hubberstey: It's actually a very interesting point, and one we've raised since we started talking about access to information, multi-stakeholder efforts, and skills development.

The project I mentioned, in partnership with Industry Canada, is a pilot project of the successful model in the Niagara-St. Catharines region. It speaks to exactly what you're talking about, in terms of providing resources to the community, which are often there at the small business centre's fingertips. I get a little bit of advice, but then they're gone, so if I have another question, what do I do?

It really develops a community of small businesses that allows them to access the information or develop the skills they need at the community level. That's something we find in our e-commerce seminars. We give them the broad strokes: Where do I go in my community to find the information? Who do I have to talk to?

So banks work together at the community level, creating the links with other stakeholders to ensure that small business owners have access to the information and the skills development they need.

The Chair: Ms. Gray.

Ms. Carol Gray: All the banks contribute significantly to the various local and regional economic development agencies, and that is a tremendous source of advice. We also contribute to the Chamber of Commerce, which is another source.

I think that with the increasing demand or usage of the Internet, there are lots of virtual knowledge centres where people can get information. It may not be on a counselling basis, but it is access to information that's more in a just-in-time kind of environment. That's a route we've gone with our BizSmart locations.

Also there's the Association of Collegiate Entrepreneurs, which we and other banks support. That's another source of mentorship. There are different avenues for us to help businesses try to make some sense of it and point them in the right direction, in addition to providing advice directly in a hands-on manner.

Mr. Derrall Moriyama: I was recently transferred from Edmonton, where the provincial government had set up a small business incubation centre. We participated in that, along with some of our colleague banks.

It was tremendous for the small business entrepreneur who really wanted information in a number of different areas. We had lawyers involved; we had CAs involved from the community. The entrepreneur could call in for help on a myriad of subjects: staffing, tax, business planning, structure. I think it was very well received.

• 1110

Ms. Paddy Torsney: Just before Mr. Hamilton answers, does anyone give proactive tips on how to improve accounts receivable or how to conquer a new market? Sometimes I don't even think people realize they need information. So it's great that you tell them how to find it, because increasing accounts receivable by a five-day turnaround could mean this much extra money. People start to think about that, and they set their own targets in their own small businesses.

Ms. Carol Gray: I think this is where banks have a unique opportunity. We see the greatest numbers of businesses, so we can amass together information that can help businesses determine whether they're competing in the top quartile. For example, we have information based on their industry statistics that would say whether or not they are bringing in the receivables on a competitive basis relative to their competition, and those sorts of things.

I know that at CIBC—and I'm sure my colleagues can speak for themselves—we have excellent tools. We can sit down with a customer and go into great detail on various scenario plannings that will give them very specific information on how to grow their business, where their areas of weakness could be, and how they could improve their working capital. These tools are very hands-on. They can take that information away, incorporate it into their business plans, and act on it very quickly.

Ms. Susan Kennedy-Loewen: [Inaudible—Editor]...a lot of small businesses, and specifically the SOHOs. As banks we look forward to seeing their business plan, but they don't always prepare one on paper for us. They have a really good business plan, but it tends to stay in their heads. If you ask them questions about it, you can get a lot of very good information.

My eighteen years in the banks primarily have been in front of those small business customers, and where you find the real value is in sitting down in front of them one on one. That's where you can share the information with them as well. To really give value-added, we have to make sure our bankers in the field are comfortable and confident in understanding what they can do to help. That's why we took a small business owner across the country to talk to that banker to say when the bank gives value and when it doesn't. That's very important, and it has been very successful for us just in raising awareness inside the bank.

The Chair: Thank you very much.

Mr. Hamilton.

Mr. Jim Hamilton: I'll just add to what my colleagues have said.

The key is the local support of the staff and their integration with the small business communities in their local markets with the enterprise centres. That's the key part of the education process, and we provide centrally definitive guides. We have a program in the Royal Bank called ViaSource, whereby we bring together entrepreneurs to mentor each other, but the key is actually the personal involvement of the local staff in those activities.

The Chair: Thank you.

Thank you very much, Ms. Torsney.

Ms. Paddy Torsney: Just as a final comment, maybe there's some opportunity to set targets for all of your bankers to have their own goals, to have all your client base improve its receivables by five days on average or something. That way you'll make sure they're being really proactive with the information.

The Chair: Mr. Howden would like to respond as well.

Mr. Jim Howden: I would just like to make a comment that our account managers—and I think it's the same in most of the banks—actually have services and products to help people manage their cashflow. For instance, if they're selling into the U.S., they can establish a lock box system in the United States to really speed up cash collection.

More importantly, what we always encourage our customers to do is establish strong relationships with their external audit firm or accounting firm, and strong relations with their legal advisers, for instance, and I guess we could add their HR firm to that. We have a great belief that for anyone to make their business successful, they have to draw in outside experience. Perhaps accountants and lawyers are not too exciting, but they're out there and they're quite willing to provide advice.

The Chair: Thank you very much, Ms. Torsney.

Very briefly, Ms. Jennings.

[Translation]

Ms. Marlene Jennings: Thank you very much. I would like to talk about the issue of self-employed workers, which you mentioned. When I say "travailleurs autonomes" in French, I mean self-employed workers. That is the most rapidly growing segment of the labour market. You have packages, products and services specifically targeting this growing sector.

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I would like to know whether you have noted any barriers created either by government policy—all levels of government—or the environment in which self-employed people work. These barriers are a very important factor. As Mr. Tar pointed out, in five or six years 20% of the population will be self-employed. I should say that to my mind our financial policy was not designed to take that into account. And in the business sector, very little has been prepared and done to take that into account either.

Thus, I would like to know what changes governments should be making to their financial policy in order to avoid creating obstacles and support the rising number of self-employed workers. And I would also like to know what you are doing as financial institutions to provide assistance and support to that sector?

[English]

The Chair: Perhaps we can start at this end, beginning with Mr. Thompson.

[Translation]

Mr. Peter Thompson: I think that those are very good points. Generally, I believe that governments at all levels are still providing a great deal of assistance to SMEs and self-employed workers. In my view, self-employed workers will have to remain alert to any programs that might provide incentives for them, such as tax credits, contributions or other measures that would provide stimulation and support.

You asked about our bank and the way in which we try to provide assistance for the sector. As we were saying earlier, we try to provide some sort of training, particularly for self- employed workers. Through the educational process, we try to give businesses as much information as possible on all sorts of issues they will have to deal with.

I think that all those measures—be they subsidies to support farmers in Ontario, in view of what's happening in the United States, or government co-operation with banks... We must establish a partnership so that we can help those people and ensure the sector does well.

[English]

Mr. Benjamin Tal: I think the two main challenges facing small business, in addition to financing, are skilled labour and time. We know small businesses are telling us they are seeking about 300,000 skilled employees. Now, when I say “skilled”, I don't just mean computer programmers and computer engineers. We're talking about electricians, plumbers, people with skills, people who can do something and not just talk about things.

A voice: Like the people around the table here.

Voices: Oh, oh!

Mr. Benjamin Tal: And economists.

There's a misconception. People think “skill” just means computers. We're talking about skills that are needed. We know there's a shortage of about 300,000. One out of five—or 20%—of small businesses are telling us the main reason they cannot grow is that they don't have skilled labour. That's significant, one out of five. So that's one thing.

Time is the other factor, because we know that small business owners are getting a little bit older. They are the baby boomers. They have aging parents and they have kids. We know small business owners currently spend nine hours a week taking care of an older parent. That is significant, and that demand on their time will grow. We know that. So I think that will be another challenging thing facing small business.

So it's not just credit, it's skilled labour and it's time. I think the banking industry and the government can help in this sense.

The Chair: Very briefly, please, Mr. Hamilton, because we're really over time now.

Mr. Jim Hamilton: I guess just two messages I would give—and this is what we would also strive to do—are to embrace technology and streamline our processes as best we can as they impact small business.

Ms. Susan Kennedy-Loewen: I have one point to add to that.

The Chair: Okay, Ms. Kennedy-Loewen.

Ms. Susan Kennedy-Loewen: The high-touch high technology is very important, but I think most importantly is the time factor to the small business owner. We have to take an understanding of their personal needs and their business needs and bring them back together for the customer. That's very important. We have to understand how to get their mortgage in place without putting them through extra hoops and hurdles. In doing the financing on the business they need, the simplistic process of making it simple and keeping it straightforward, the success will work through that for the customer.

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The Chair: Thank you.

Mr. McTeague, very briefly, please.

Mr. Dan McTeague: Thank you, Madam Chair. I just wanted to ask a very simple question.

Anticipating a slowdown in the economy, we know that in a situation in which things get a little tight, large corporations can probably go to some of their collateral and pay down their loans or whatever their outstanding balances may be in order to satisfy the requirements of your shareholders and of your institutions. A small business, on the other hand, is probably maxed to the limit and probably has no other alternative.

I'm just wondering, in the spirit of these new alliances and all these wonderful, innovative thoughts that we've touched upon, what happens to a small business in a scenario in which, for instance, the bank manager may have 300 other accounts? I know you'll have that friendly little chat, but that's an awful lot of people to deal with. Do you hammer them? Do you actually say, hang on a second, you'll ride this one out with them for the next 8 to 12 months, as Mr. Tal has suggested? What innovative ideas do you have to deal with that eventuality?

The Chair: Mr. Stitt.

Mr. Dan McTeague: Mr. Stitt, we'll start with you. How's that?

Mr. Nick Stitt: First of all, I think if you look at utilization rates on revolving credit or lines of credit, a lot of small businesses have capacity. They have room on their lines of credit to draw down and carry them through temporary cash shortfalls.

With respect to how we work with them, a TD branch has a different relationship with the customer. Together, the two are focused on their personal situation and their business situation. It's a retail branch environment and they're an advocate for the customer. Their motivation is to do what's in the interests of the customer and to try to help them through this, because they don't want to lose the customer and they want to grow there some more, obviously.

We have ways of managing with technology by reviewing accounts on a regular basis so that we try to spot situations in which customers might be getting into trouble. At that point in time, we would have specialists in a centralized environment having discussions with the branch and the customer.

Obviously, what you're trying to do is, if necessary, provide additional credit to carry them through. Whatever we need to do and whatever advice we need to provide to them, we will try to help them work through that situation. It's in our interests to see them get over that period of difficulty. There's no benefit to the bank in shutting them down.

Mr. Dan McTeague: What we're interested in, though.... We have a scenario—and we've seen it many times, although I'm not singling out any particular bank—in which, with your loans, the restriction on the credit occurs as a result of a perception of a recession. Of course, irrespective of whether that small business is doing a good job or not, the point is, hey, those folks have to draw that from 60% down to 40%. And you don't care how they do it; it has to be done within a month.

Mr. Nick Stitt: I think it is different now. That structure in the economy has changed, and the structure at TD has changed in terms of how we approach small businesses. We have a specific focus on small businesses, and we have specific resources aligned to them that are separate from the commercial bank, from the corporate bank. We tend to deal with them as individuals, and each individual situation is different. So I haven't seen where we'd apply rules saying that across small business we'd do this.

The Chair: Mr. Hamilton.

Mr. Jim Hamilton: I'll just add one point.

Actually, small businesses will enhance our diversification because they are so broadly based. In some ways, when we have had specific industries having difficulty in the larger end, the small businesses, to their benefit, will actually help us to diversify, so hopefully that will also stop part of that reaction, too. That's not to say we're not immune to economic conditions, but small businesses are a naturally diversified base of business for us as well.

The Chair: Thank you, Mr. McTeague.

I'd like to pick up on Mr. McTeague's point for a moment, if I could.

About a year ago—in fact, 364 days ago—we met with your association and your group. We posed that very question, I guess you could say, for a couple of areas, but specifically agriculture, because of the situation with commodity pricing. We put forward to you how the banks were going to be proactive and how they were going to deal with this. Regrettably, we haven't heard anything back until today, and that's unfortunate. But more importantly, the messages we're getting in our communities are slightly different from what we're hearing today.

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Yesterday, as an example, I received a number of e-mails, and I'm quite surprised at what's happening when we ask for a proactive type of situation for the agricultural community. The last economist who was here basically said commodity prices aren't going to get much better. On the flip side he did say it was going to be a small business lender market and that small businesses would actually fare very well. I have the notes right here in front of me of what Mr. O'Neill said. He actually said there would be more favourable economic conditions for the small business sector.

I'm just concerned, because I see what's happening in a number of communities, and there's a domino effect when one business is carrying a number of other businesses or when one constituent has difficulties. Hypothetically, in the agriculture community you don't pay your mortgage on a monthly basis. A lot of it is paid on a yearly basis. I have a constituent who decided to double pay his mortgage because he wanted to change the timeframe from May to November. It turned out to be much to his detriment, I must say, because you now have higher-rated it. One of the banks, or all of the banks, have decided it's a higher risk now to be in the cash crop commodity, so his interest rate has gone from 7% to 10%.

There's a huge problem when we ask what you are going to do to deal with these situations. We were trying to be very proactive as a committee, and a year later I don't really know if we're much further ahead. I'm using that hypothetical example, you could call it, but if you take a couple and put them together, I become quite concerned.

With regard to Mr. McTeague's earlier comments about operating lines and demand loans, the reality is you can call them at any time. A lot of businesses don't understand that. The argument would be there'd have to be a reason to do that.

What we're looking for is how to ride through this slowdown, which, as Mr. Tal said, is nothing like 1991 and is not going to be as bad as what some people are thinking, because it's not that type of slowdown. We're in a much better situation in Canada.

How do we help our small businesses and our agriculture sector, as an example, to ride through that? In my riding there's a large automotive sector and a lot of small businesses that are related to the bigger companies and that don't have the collateral the bigger companies have to ride through it. What are we doing specifically to be proactive for them? Maybe you can't answer that today, but I hope you can, because I think it's important. As someone said earlier, bankers don't like surprises and customers don't like them, nor do MPs. So we're trying to be proactive.

We met with you a year ago on March 2, and we raised these questions and put these issues forward. We said, this is coming, this is happening. None of us are surprised that this is where we're at today. Yet we don't know what's in place. That's what we need to know. We need to know so that we can help our constituents and so that they will feel they can approach us and ask us for advice or assistance. What are you doing? What are you offering to them?

Maybe, Mr. Hamilton, you could start.

Mr. Jim Hamilton: First of all, I think we have the exact same objectives. We also want to make sure we can assist all our clients through difficult times if we're approaching them. We've heard some mixed news, but generally good news, from our economics expert here today.

As I said before, Madam Chair, our main focus right now is on contacting all of our clients and going through the list. We're very approachable, and we would encourage you to tell your constituents not to hesitate to come in at the very first sign of distressing news of any kind regarding their business. Hopefully, that relationship will help us weather it through. That's the essence of banking, in our view.

The Chair: Be careful when you use the term “weather” when we talk about agriculture.

Mr. Jim Hamilton: Hopefully, it's beneficial weather with just the right amount of rain.

The Chair: Mr. Moriyama.

Mr. Derrall Moriyama: I think, first of all, we have to understand that we're presupposing we want to grow this book. Judging from the fierce competitiveness in the marketplace I just came from in particular, I know that the people sitting around this table are not sitting on their laurels. They want to grow their book. In order to do that we have to work with our clients. These are long-term relationships, and we can't just float in and out of these relationships as times go up and down. I think what we have to do is make sure we understand the industry. We have to ride through good and bad times with our clients, and we are in it for the long term.

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Another point is that it's very expensive to go out and get new business, and it's very difficult for us to find new clients. It's far less expensive for us to keep our clients and to work with those clients. So it's in our best interest to maintain our portfolio and incrementally to grow it from there.

Again, we should be working with our clients, we should understand the industry, and we should ride that wave with them.

The Chair: Thank you.

Ms. Gray.

Ms. Carol Gray: At CIBC over the past year we've invested multi-millions of dollars in growing this business in terms of people resources as well as technology. I think that for us the largest thing, in answer to your question, is adding people to interface directly with small business customers so that they have easier access to us and to some expertise that can help them. That's what we've focused on over the past year.

The Chair: Thank you.

Ms. Kennedy-Loewen.

Ms. Susan Kennedy-Loewen: I would have to agree with most of the points that have been made. But to speak specifically to the agricultural community, I know that Scotiabank has been very happy with the growth we've seen in our outstanding financing with this group over the past three years. The amount of delinquency we see in this specific market is very low. We would never paint the industry with a brush, but we're very positive about the outcomes of what we have done and the customers we work with.

The important thing is that we do understand the agricultural market. We do have a specialist in small business lending that deals specifically with agriculture. When a customer gets into trouble, we like to see them early. Everyone does, because it's regrettable when it gets to a stage where you know you could have helped them if the relationship had been strong enough that they would have approached you initially as a banker about the concern.

We also use the consultative services. We refer the customer to the farm debt mediation group so that we can make sure we look for opportunities and avenues to move that forward, and I think that's a very important step. It also includes moving forward with alliances and partnerships, providing information that can help those people through those situations, and increasing the knowledge of the bankers so that they can look for the right opportunity and solution that's going to be beneficial to both.

The Chair: Thank you.

Mr. Stitt.

Mr. Nick Stitt: I would like to emphasize that we also are very interested in increasing our market share of small business credit. In the last three quarters we have in fact increased our market share to small business. We have specialists in agriculture, and our strategy for agriculture is to have specialists in retail branches throughout the country in rural areas and wherever the farmers might be. We have specialists at head office as well.

When we do encounter difficulties, it's a very diversified portfolio and it performs very well. We haven't noticed any problems in the portfolio. But when we do encounter situations having to do with a specific segment, such as the hog farmers or right now grains and oilseeds, we are very aware of that, and we know who our customers are in that business. The people in the field, as well as at head office, are very proactive in making sure those specific segments of the agriculture industry are addressed.

I can't emphasize enough that small business customers do not like coming to their bankers and saying, “I'm having difficulty”, although it would be very good if they did, because we don't want them to fail. It's just human nature that we don't want them to fail, so we do work with them.

Having said that, we have invested a lot of money in sophisticated account management tools, using information technology, to try to predict which customers are going to get into difficulty and then calling them and talking to them about what's going on in their business and how we might be able to help to make sure it doesn't get worse.

The Chair: Thank you.

Mr. Howden.

Mr. Jim Howden: I don't have a lot to add to the discussion, other than to say I can certainly appreciate that every customer wants to be dealt with on an individual basis and not be treated as a product.

What I should add is in our organization—and I think this is true for our competitors—there is a complaint process. We haven't talked about it today. If you're not getting the right answer from the account manager, you can always escalate it to the next level. So there is a jury process that can be used.

The Chair: Thank you very much, Mr. Howden.

Mr. Thompson.

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Mr. Peter Thompson: I think it's important, and certainly one of the common themes is specialization. We put a good deal of importance and emphasis on that, again also in agriculture. One of the reasons that's so important is this whole need for and importance of communication between the bank representative and the client so that we're on the same wavelength, so that the client knows what the bank is looking for and the bank understands what the client's needs are.

When you bring in a specialist in a particular industry, whether it's agriculture or high tech or whatever, when those people are closer to talking the same language, it's much easier to develop some sort of plan as to where we go from here. In that sense, I think it's very positive, and we work closely in a number of communities to try to help educate entrepreneurs as to best business practices and what's going on in their industry, how to transfer business from one generation to the next, and so on. I think these are all important efforts that, at the end of the day, we truly hope our clients benefit from. We hope they take some of it home and do something with it. We're very optimistic that this will bring some results.

The Chair: I want to thank you all.

I appreciate specifically, Mr. Stitt, that we don't want to paint everybody with the same brush, by all means. You're quite right that the grains and oilseeds sector is probably having the most difficulty. I would ask that all the banks take a look at what they are doing in that sector and that they write back to the committee specifically, because I think it's important to consider the domino effect that could be there if that sector is not able to meet its banking needs or its financial needs.

I would also ask that we take a look at the automotive sector and how that is affected, because different parts of the country are being affected differently. In the same way that we don't want to paint the agricultural community with the same brush, the same lending practices may not be applicable across Canada because of the different economic circumstances. So if you could, maybe just enlighten us a little bit.

I don't want to take more of your time today, but I do appreciate you coming here. I appreciate you bringing the messages you did, Mr. Tal: that things aren't as bad as what some people would like to say they are; that we are doing well as a country; that we will move forward together; that we'll ride this out together; and that the banks are going to be working with us.

As an industry committee, we have always enjoyed our working relationship with you, and we look forward to meeting with you again soon. Hopefully not another year will go by, although we had some interesting things happen in the fall, as we all know.

Thank you very much for coming, and thank you very much for your time. The meeting is now adjourned.