:
Thank you very much, Mr. Chair, and good morning.
[Translation]
I am joined by my colleagues from the Canadian Bankers Association—Terry Campbell, Vice-President of Policy and Darren Hannah, Director, Banking Operations. We also have for you an information package on the issues that we will be discussing this morning, and which I hope has been handed out to you.
[English]
I hope you have our information package there. I won't read the opening remarks; instead, I will just briefly give the highlights of the issues we will be discussing this morning.
[Translation]
To begin, I would like to highlight a few statistics about the contribution of banks to the Canadian economy. In terms of employment, banks and their subsidiaries employ a quarter of a million Canadians—this is an increase of 16% over the past 10 years.
As well, most Canadians are shareholders in Canadian banks, either directly or through the Canada Pension Plan (CPP), other pension and mutual funds. Speaking of taxes, of course, banks paid close to $9 billion to governments in Canada last year.
[English]
Banks make an important contribution to the economy, and I'm sure the members around this table realize that. The real message today is that Canadians need to continue to have confidence in their banking sector.
Reflecting on the turmoil in the global financial system, we need to remember that this turmoil did not originate in Canada. Banks in Canada have largely avoided the difficulties that banks around the world are now facing, although they are not immune, and they've had no need for direct government intervention, as we have seen in so many countries around the world. Why is that? I think most observers point to four principal reasons.
First of all, we have a national system with very well-diversified banks.
Second, our banks in Canada are among the best-capitalized in the world, and they are strengthening their capital levels with new capital being raised from investors in the marketplace. Also, they are prudent and well-managed.
I think the third reason is that our regulatory system is very strong, very robust. I know that this committee has heard from the Superintendent of Financial Institutions, Ms. Dickson. We are also regulated by the Financial Consumer Agency of Canada, and you have Ms. Menke here with you today.
I think the final reason our banks are so strong in comparison to others right now is that Canada's mortgage market is very different from that of the United States. In Canada, by far the majority of mortgage loans are prime loans. We have avoided that subprime problem. Mortgage arrears remain very low in Canada. They are close to historic lows, in fact.
Clearly, each of these attributes has served us well through very difficult times. I stress, however, that a strong and stable banking system is essential to helping Canada get through these tough economic times.
I'd like to turn briefly to the issue of credit, something we're certainly hearing a lot about from members of Parliament. Let me assure you that our banks are continuing to lend to creditworthy customers. The facts prove it, and I'm sure we will speak about that matter today.
On the consumer side, Bank of Canada figures for January show that consumer credit continues to grow. It grew 14% from January to last January. In terms of business credit, bank financing of business is up almost 11%, well in excess of the growth in financing in the marketplace, which is about 4%.
It is extremely important to note that banks represent about half of the business credit marketplace and only about a quarter of the total financing marketplace. In your information kit you have a little backgrounder called “Business Credit Availability”. A pie chart on the second page shows you that banks represent about 56% of that business financing marketplace.
There has been a serious slowdown of business credit from other sources, from sources other than banks. Some of them are non-banks. Some of them may be lenders, and we have a representative here today. Some Icelandic banks, for example, as you know, have completely left the marketplace.
Banks are trying to fill the gap left by these non-bank providers, but they can't do it all, so we were pleased to see that there are some steps to address this issue in the budget, specifically by funding increases for the Business Development Bank of Canada and for Export Development Canada as well. Those complement banks, and we're working very closely with those two agencies to make sure that credit flows to creditworthy businesses.
There is a new reality in the international credit marketplace. Certain types of credit, such as commercial paper and the securitization market, are just no longer functioning properly around the world. Those that are functioning are available at relatively higher costs, so that does affect the banks' overall cost of borrowing and certainly has an impact on the consumer.
Risk is also another factor affecting the rate of interest on loans. Unfortunately, we are in a recession, which does have an impact on both retail and business customers. As prudent lenders, banks need to adjust their pricing to reflect this new risk reality, but I stress that it is really important to remember that banks are open for business and that credit does remain available for creditworthy customers.
To conclude, Mr. Chair, Canada's banks are strong. Canadians remain confident in their banking system. This is an advantage for Canada that other countries do not have, and certainly keeping that advantage will be crucial to the recovery of Canada's economy.
Thank you very much. We'll be pleased to answer your questions.
Thank you for having invited the Financial Consumer Agency of Canada to appear before the Finance Committee today.
I am accompanied by my colleague Lucie M. Tedesco.
[English]
While the role of my agency is limited with respect to the specific nature of the present study, it's my belief that the overall effect of our work produces very real and widespread benefits for individuals and the Canadian financial sector in general.
The agency has two principal roles. First, we promote and ensure compliance by federally regulated financial institutions with the consumer provisions in their legislation.
The agency is also charged with a consumer education role. Through its consumer education mandate, FCAC provides objective and timely information to help Canadians understand and shop around for day-to-day financial products and services.
[Translation]
It is worth nothing that the compliance and consumer education roles of FCAC's mandate are inextricably linked. They support and complement each other. In essence, the consumer provisions provide consumers with detailed disclosure about the product or service they wish to procure. Our education role is aimed at ensuring that they have the knowledge and confidence to make informed use of that disclosure.
[English]
We do not, however, have a role to play in the setting of interest rates or service fees, so we try to help consumers by providing them with objective financial information and education. Financial products such as credit cards and bank accounts are an indispensable part of everyday life.
From our surveys we have learned that many Canadians are not using their financial products to their best advantage. To take the example of credit cards, many consumers are not using them as a method of payment as they should be used, but instead are relying on them to borrow money. That is an extremely costly way of borrowing. Through our consumer education publications we inform consumers about the advantages and disadvantages of different financial products and services, explain the costs and other features, and provide them with alternatives to consider.
[Translation]
Through our website, we offer interactive tools that allow consumers to quickly and easily compare the different options available to them for credit cards, banking packages, savings accounts and mortgages. We regularly update these tools to ensure that consumers have access to accurate and timely information. Our credit card selector tool, for instance, allows users to compare more than 200 credit cards to find the best product for their needs.
[English]
But beyond information on financial products and services, we promote broader financial education. We have directed our initial efforts at young Canadians. We believe that early exposure to financial skills will serve people well throughout their lives. With the British Columbia Securities Commission we launched a new course last fall called “The City: A Financial Life Skills Resource”, aimed specifically at the learning needs of 15- to 18-year-olds. We're excited about the program because it is designed to give all young Canadians a solid foundation of basic financial acumen. There are no shortcuts or magic solutions to elevating money smarts. It is a long road, but I believe we can make headway through initiatives such as “The City”.
All interested parties and governments at various levels, working together with private and voluntary sectors will achieve the greatest impact and make a lasting, meaningful improvement in financial knowledge and the financial future of the greatest number of Canadians.
[Translation]
I would like to speak to an important compliance initiative that we have undertaken recently to benefit consumers. Over the past year, we have initiated a process to review and modernize our Compliance Framework, which sets the guiding principles for our supervisory work. We intend to implement a compliance approach that builds upon and broadens our current complaints-focused compliance framework, which has been in place since 2002. Our modernized framework will seek to actively promote compliance in the marketplace through a risk-based oversight approach. This approach will permit us to better identify compliance risk areas in the marketplace and address potential market conduct compliance issues more effectively and in a more timely manner. While such an approach to compliance will be new for FCAC, similar approaches have been implemented effectively by other regulators in Canada and abroad. Our discussions with these regulators have highlighted the benefits of such an approach which we believe will lead to a more responsive framework to the benefit of all stakeholders.
[English]
I would like to thank you for the opportunity to appear before the committee. I look forward to answering any questions you may have.
:
Thank you, Mr. Chairman.
As chair of the board of CDIC I appreciate this opportunity to meet with you and members of the committee to discuss the role our crown corporation plays in enhancing credit availability and the stability of the Canadian financial system.
With me is Michèle Bourque, executive vice-president, insurance and risk assessment. Unfortunately, Guy Saint-Pierre, our president and CEO, is ill today, but I can assure you that Michèle is a very able substitute for him.
I appreciate that you have other witnesses today with whom you wish to have a dialogue, so I will keep my remarks brief.
As the members of the committee will know, in framing CDIC's statute, Parliament specifically mandated the corporation “to promote and otherwise contribute to the stability of the financial system in Canada”. I would suggest through another one of our objects, namely to provide insurance against the loss of part or all of deposits, we also contribute to enhancing credit availability.
As of April 30, 2008, we insured some $512 billion in deposits in 80 member institutions. Canadians are comforted by the existence of the insurance provided. Deposit insurance supports their willingness to place deposits with the banks, trust companies, and other entities comprising our membership. Those organizations in turn can mobilize the deposits entrusted to them to make credit available to a broad range of borrowers.
For Canadians to have the type of confidence that an effective deposit insurance scheme provides, they must first be aware of its existence. To help increase that level of awareness we have been pursuing a series of public information campaigns over recent years. Our strategy for this year includes a six-week national advertising campaign, delivered in concert with our partners at the AMF in Quebec, which is just now drawing to a close. I hope some of you have seen the television and print advertisements that form part of that campaign.
We have pursued similar campaigns during the RRSP season in prior years, which is a period when the general population tends to have a higher interest in such matters. But this year we plan to resume our publicity program again in the fall.
Judging by the extent of inquiries we have been receiving at our call centre and via our website, we know that Canadians have a heightened desire to know what is covered by deposit insurance and how it works. Although no CDIC member has failed in over 13 years, Canadians have observed media coverage of failures in other jurisdictions, including some where the existing deposit insurance schemes did not offer the type of comfort that we believe our approach here in Canada provides. This definitely raised anxieties in some, and it is an important part of our mandate to put to rest those types of unwarranted concerns.
Another way we contribute to the stability of the financial system is by being ready to act should the need arise. We have dealt with 43 failures since our creation in 1967. In the process we've protected $26 billion in deposits held by over two million Canadians. Throughout this, not one person lost one penny of insured deposits.
As an organization we focus on readiness. In cooperation with our federal partners--the Office of the Superintendent of Financial Institutions, the Bank of Canada, the Department of Finance, and the Financial Consumer Agency of Canada--we monitor the health of our member institutions so we can be ready to take actions to intervene if we ever need to. I can state that the level of inter-agency coordination and information sharing in Canada is the envy of many other jurisdictions throughout the world.
Another aspect of readiness is ensuring that appropriate tools are available to CDIC to enable it to act effectively and efficiently should the need arise. In that regard Bill C-10, now before the Senate, contains several key measures related to CDIC's powers. These measures provide CDIC with greater flexibility and reflect best international practices, in keeping with Canada's commitment to the G-7 plan of action to stabilize financial markets and restore the flow of credit.
Mr. Chairman, and members of the committee, Michèle and I would be pleased to answer any questions you might have.
Thank you.
:
Thank you very much, Mr. Chairman.
Good morning, ladies and gentlemen.
The CVMA is very pleased to be here to discuss the current state of the auto sector in Canada and the importance of credit to the operation of our industry. With me today is Mr. Peter Andrew, who is the regional director of consumer lending with the General Motors Acceptance Corporation.
The CVMA, for more than 80 years, has represented Canada's leading manufacturers and sellers of light and heavy-duty vehicles, namely Chrysler, Ford, General Motors, and Navistar. By way of background, it is important to note that our member companies touch virtually every province and every territory and every major community. Through their 45 Canadian facilities, our members directly employ about 35,000 Canadians and support roughly 50,000 Canadian retirees.
They have over 1,750 dealers in their networks and literally thousands of suppliers and business partners across the country in a wide variety of industries, including rubber manufacturing in Nova Scotia through to aluminum in Quebec and B.C. and petrochemicals in Alberta.
Their vehicle assembly and parts manufacturing operations are the backbone of their operations in Canada as well as the pivotal link to the broad direct and indirect supplier network across the country. Chrysler, Ford, and General Motors continue to produce 70% of all cars and trucks in this country and to purchase over 80% of all Canadian-produced parts and components.
Recently there has been much attention in the media and in public and political discussions to considering what is the best public policy direction to go in to support Canada's auto industry. This is not a binary question that can be reduced to an either/or response. Let me be absolutely clear. We require a comprehensive support package, which must be implemented immediately, to help stabilize the vehicle manufacturing base and retail network in Canada: first, repayable bridge loans for those manufacturers who require it; second, credit facilities for finance companies and suppliers—we must free up credit market access in a manner that is affordable to those in our industry needing it, and ultimately the consumer; and third, a direct but very simple consumer stimulus in the form of a vehicle scrappage program to help kickstart new vehicle sales and help instill consumer confidence in the market.
If we lose our focus, specifically on the first and second points, Canada risks losing critical elements of its auto manufacturing footprint, which includes the substantial, highly interdependent supply chain that Chrysler, Ford, and General Motors, as well as Toyota and Honda, depend upon. As an export-driven economy, Canada cannot afford to risk losing an industry that exports 85% of its output to the United States.
A consumer stimulus in Canada, however, by and of itself, will not be enough to support this industry. As such, the first priority for government must be to continue to offer short-term bridge loan financing to manufacturers proportional to that being made available in the United States. This financing is essential to stabilize Canada's automotive manufacturing base. Without this support, manufacturing operations, including the supply chain, will without a doubt quickly migrate to other jurisdictions that are fully supporting their manufacturers. This would have substantial negative economic ripple effects across the entire economy, which according to some studies would mean hundreds of thousands of job losses, along with the loss of tens of billions of dollars in tax revenues at all levels of government—not to mention the huge additional burden on municipal, provincial, and federal social assistance programs, a reality that every taxpayer should be concerned about.
The second priority must be the support for automotive finance companies through the creation and implementation of the much-welcomed Canadian secured credit facility, as announced in the budget, as well as the extension of credit to auto parts suppliers through the BDC and EDC.
Auto finance companies are a critical arm in the auto value chain, in that they provide financing loans and leases to consumers to purchase vehicles as well as the majority of wholesale floor plan credit for dealers' vehicle inventories. In essence, they help manufacturers move vehicles from factories to consumers.
Normally, auto finance companies raise the necessary capital in traditional markets. Unfortunately, despite a long and successful history in auto finance, the markets for all asset-backed securities, including automotive, dried up in mid-2007. This drying up of financing markets has as a result led directly to lower consumer sales, lower dealer purchases, and a very stark decline in vehicle leasing as a lower-cost option for consumers, and in the end has significantly reduced auto production.
Given their positive history, investment-grade ABF securities offer Canadian taxpayers a high-quality and low-risk investment that will provide returns on investment, and as such they are an excellent investment for the government.
To be fully effective, however, the facility must be expanded beyond the original amount, given that auto financing and leasing assets in themselves are worth roughly $55 billion, representing virtually half of the asset-backed financing of the vehicle and equipment leasing industry.
While the announced $12 billion facility is an excellent start, it will need to be expanded to meet the goals established by the government itself to get credit flowing to Main Street, given the size of auto financing in Canada. The facility must be set up to provide the flexibility needed to raise necessary funds in the constantly changing credit markets. The facility must improve access to dealer inventory financing; this will allow dealers to order more vehicles from the factory and provide consumers with greater choice in vehicle selection. Finally, it must be established as quickly as possible to fulfill its goal of economic stimulus, as it will help find a bottom in the Canadian sales market by providing more credit for consumers to get back into the vehicle market and will provide the capital needed to support the small and medium-sized business represented by our dealer networks.
In light of this, the government's goal of stimulating the economy can be best accomplished quickly by providing those companies, whose expertise is in providing credit through ABF backed by vehicle loans and leases, with access to sufficient amounts of the CSCF to kickstart the sale or lease of vehicles. These companies can quickly generate the volume of business needed to get credit flowing again on Main Street Canada. Federally regulated institutions must be prepared to support and promote the term ABS, which represents a good low-risk business for them to pass through to the CSCF.
While the facility is most critical for immediate implementation, the industry has also suggested that the government should introduce direct consumer stimulus for auto purchases to strengthen the Canadian auto market, possibly including tax holidays and fleet renewal or scrappage programs. In Germany, for example, a vehicle scrappage program is being credited with increasing sales by 21% in February compared with year-earlier levels. This is compared to a 27% decline in February sales in Canada.
Mr. Chairman, I'll stop there. I would be pleased to answer any questions you may have.
I want to start with Ms. Nancy Hughes Anthony.
We have a huge irony here. There isn't an MP at this table who doesn't believe that credit is more difficult to obtain, and yet your stats show that you're up in every category. I think the reason you may be up in every category is that a lot of non-bank actors have effectively exited the field. Because they've exited the field, the government has felt it necessary to push the risk down onto BDC, EDC, and entities of that nature.
Effectively what has happened is that the bank has increased its overall share, and your stats go up, but there's not more credit actually out in the system. In fact, consumers and business people are having, certainly at the lower end of the creditworthiness spectrum, more difficulty gaining credit, the irony being that this is probably not at all stimulative to the economy.
I'd be interested in whether that analysis squares the circle as to the contradiction between what we as MPs are hearing and what you as a representative of the bank industry are saying.
:
You obviously have put your finger on the key issue. Let me go back to the credit market and what is going on in it. As I said, I tend to think of it as a pie, like the little pie chart we have on our backgrounder. There is absolutely no doubt that there are certain types of credit, such as securitization and commercial paper, that are just gone.
There are also certain types of institutions that are gone, and they may have withdrawn either temporarily or permanently from the marketplaces. There are some foreign banks, and different types of lenders—you've just heard Mr. Nantais talk about difficulties in the car financing business, for example. There's a big gap.
I firmly believe there is more credit flowing out of banks, and I've given you the statistics—they're in our backgrounder here—and we stand by those statistics.
The question is whether they are filling the gap, and I think the answer is no, they are not completely filling the gap. I think the initiative to increase and mobilize the interaction between financial institutions—of all kinds, by the way, credit unions and everybody else—and BDC and EDC is a good thing. I think extending EDC's mandate into certain domestic areas, as proposed in the budget bill, is a good thing right now. I also think that the leasing program, which Mr. Nantais referred to as yet to get off the ground, is going to plug a particular kind of gap.
I'm going to go fairly quickly, because it's a very interesting panel and I only have seven minutes.
We are in a dilemma, as I think my colleague across the way said. Here we have the IMF report this week saying good things about the Canadian banking system. We've had a number of reports about Canadian banking, how solid it is, and that's why we're in better shape than many other countries around the world. We've had quarterly profits announced by your organization, the banking organization, with all making money. Many pension plans, including, I believe, the CPP, have a lot of money invested in banks. So you're making money. A company in this marketplace making money is not a bad thing, in my view.
But we have also reduced the bank rate to near zero. In the same week, I'm hearing...and it happened to me. My bank raised my personal line of credit by 2%. Somebody needs to explain to me, so I can explain to my people, how can the bank rate go down, things be in such good shape for the banks, and I still get a 2% increase?
:
I'll take a good stab at this, Mr. Chair.
There is a very common misunderstanding about what the Bank of Canada rate is. The Bank of Canada rate is really a short-term overnight rate that affects maybe 1% of the borrowing of Canada's banks. So for the rest of their funding, as we previously mentioned, they have to go to other markets and make sure they have matched their funds. And those funds, as we appreciate, are very expensive. So two factors are at work right now with the Canadian banks. One is the expensive cost of funding outside of the Bank of Canada, and the second is the risk profile.
It's my job to make sure that everybody is extremely confident in Canada's banks, and obviously they are. But you may have noticed in the last first quarter results we had from major banks that there were increases in writeoffs and losses and there were more provisions being taken by banks--going into this recessionary climate--for credit losses. I suspect we're going to see that continue.
With respect to the kinds of products.... Mr. Wallace, you'd probably be very happy if you had a variable mortgage, because you'd be getting a letter stating that the variable mortgage was going down. As you know, the mortgage rates are going down--
:
Thank you, Mr. Maloway.
Your ratio is approximately right, but the numbers are a little bit different. The $6 billion you refer to is our line of credit to borrow. We also have a reserve of about $1.6 billion sitting in our own accounts right now. So the grand total would still be low relative to the $512 billion of total deposits covered.
To the question of adequacy, one can just look at the history of the draws on our organization. We feel we have to evaluate that regularly, and we look to our premium levels every year to see if they're adequate to help add to that $1.6 billion we already have. We're in the process of doing that right now for the coming year.
The amount of loss we would incur would depend on how we would handle the transaction should an organization fail. The standard traditional one that everyone thinks of is a straight payout: you just issue money to people. There are other ways of resolving a problem institution. We call them alternate resolution mechanisms, whereby you can arrange for the purchase of an organization by another deposit-taking institution and agree to share any future losses they might have--instruments of that nature. The insurance scheme could never hope to have all the money needed to handle every deposit should it fail.
Just to close, we do examine our amount of reserves and our lines of credit regularly and that's one of the reasons why the government in Bill C-10 has proposed that this go up to $15 billion.
:
Yes, I would comment. You will, I'm sure, know that I would object to the word you used, “excessive”, because I think it's so important for banks to remain strong.
Clearly this issue of executive compensation has been discussed extensively by news media, etc., all around the world, particularly in the United States. I think some people potentially mistake the U.S. situation for the Canadian situation. In the Canadian situation, obviously boards of directors of the banks have been very seized with this issue recently and in the past couple of years. Every bank has a board of directors and, usually, a compensation committee. They look at competitive values of compensation and they make recommendations.
Recently you've seen some voluntary activity on the part of our CEOs, who recognize that there are difficulties with Canadians, and they have voluntarily given some of their compensation to charities. That's their choice.
In addition, we've also seen something that I think is important in terms of a worldwide trend. I don't know if Ms. Dickson spoke about it, but supervisors and regulators are saying that although they're not going to regulate the level of compensation, they are going to make sure that undue risk factors are not present in the calculation of that compensation.
:
Absolutely. I'd be pleased to respond.
On the issue of the size or the impact of the stimulus, Mr. Dechert, I don't think it's appropriate for me to speak about how that's going to work out.
In terms of the financial sector itself, I feel quite confident that there are a number of things that have been put in place by the government over the past very difficult year, and also there are new measures in the budget that I think are very positive.
We've mentioned today the notion of increasing the cooperation and the scope of the crown financial agencies, particularly EDC and BDC--obviously very positive.
There has been one government program in place for actually a while now, the insured mortgage purchase program, which is where financial institutions, banks, and other institutions can offer securitized mortgages to CMHC, which are guaranteed CMHC mortgages, and the government provides liquidity in exchange for a fee, I might say, on commercial terms. But that has been helpful in providing liquidity to banks so that then they can turn around and provide mortgages. I think we've seen the proof of the pudding there in terms of the rates of mortgages. An offering of mortgages has been very solid and very high. All of these are good.
I think there are also programs that Mr. Nantais referred to, the one that relates to leasing--this $12 billion program. It remains to be seen; the details are being worked out on exactly that. Once again, the focus on trying to activate certain markets I think is quite positive.
Also, doing a bit of something for the small business loan program out of the Department of Industry, to rev that up, to cut the paperwork there, we'd love to see more of that happening. I think that also is a positive initiative.
The one initiative that you did refer to, the common securities regulator, I've already commented on. In terms of our regulatory structure, we're praised around the world for our regulatory structure. There is one component part missing. I think we can do better in terms of more focused securities regulation.
:
That really is a key question, and thank you very much for asking it.
I think that the Canadian regulatory system is certainly one advantage that we have over the Americans. In this regard, I think that you did have Ms. Dickson appear before you. However, as I say quite often, our banking system is structured quite differently in comparison to the American system. We have five or six major, Canada-wide institutions that have a number of diversified activities within their business plans. So that can help balance events in their markets to some extent.
You have seen that in the United States, some institutions were focused only on investment. Obviously, the repercussions of that investment focus were very unfortunate.
From a structural point of view, we have a system that puts us at an advantage, as well as a clear, compact regulatory regime. Stakeholders know each other very well, and are very familiar with the rules of the game. I was in Washington about one week ago, and I must say that from a regulatory point of view, their situation is so confusing that it is very difficult to even determine who does what, whereas here in Canada, it is very clear.
Furthermore, as you said yourself, the mortgage market is an advantage for us.
I see that the chairman wants to cut me off because I can talk about the proper management of banks for a long time. So I will stop at this point.
:
I don't want to join in on the hallelujah chorus here, for goodness' sake. We are talking about banks and we are Canadians.
I don't know whether it's good luck, good management, or good intelligence, but I thought Ed Clark actually said one of the smartest things about the ABCP crisis. He said they tried to explain this product to him and he didn't understand it, so if he didn't understand it, he wasn't going to invest in it. I do wish that other bankers had actually followed that advice.
I want to actually direct my question to Mr. Nantais. I have a lot of sympathy for your situation, Mr. Nantais, and therefore a lot of sympathy for our own situation as a consequence. The growth in your market is elsewhere. It's not in North America. Your costs are here. Your costs are not terribly competitive. You have a huge capacity. You have to rationalize that capacity. And you're sitting on a whack of inventory and the inventory is not moving, notwithstanding all kinds of incentives on your part.
You come here quite legitimately, in my view, asking for somewhere in the order of $4 billion, $8 billion, or $10 billion worth of bailout, which will just cover off your burn rate for the next few months. You're asking for pension relief from the taxpayers, 70% of whom don't have pensions themselves. You say that the $12 billion the government is proposing is probably not adequate enough, and it should be up to $40 billion, because that market has dried up. I put it to you. That market dried up because the non-bank credit market has said effectively, “We're out of here. This is too much risk and we're not going to be in this any more.”
I appreciate I might have summarized that a little harshly. Nevertheless, is that somewhere close to the truth?
:
I'll try to be brief, as I would like my colleague, Peter Andrews, to comment as well on the banking side of things.
I'm not going to comment on specific liability plans, but it is really important for people to understand that, like the banking situation, the financial crisis we all face didn't start here, and the auto industry, like other sectors, is one of the victims of it in many respects. This is something that goes well beyond the three big automakers. It is not just us who are asking for a larger secured credit facility. It is the Toyotas and the Hondas of the world. It's the dealers. It's the suppliers. It is something that is not specific to us alone. It is something that is in the greater interest of the overall economy. When you consider it, this is not a totally self-serving request. In our sector specifically, there is a job multiplier of 7:1. We have roughly 3,500 dealers across the country in virtually every major community. This is something that will have pretty significant impacts across the entire Canadian economy.
Yes, we have companies that started deep restructuring well before the financial crisis hit. These companies have taken major steps now, which are reflected in our viability plans, to restructure. It does include wage reductions. It does include concessions on the part of labour, on the part of all the stakeholders. Government asked to be consulted and be part of the viability plan and restructuring. In an industry in Canada where we are 12% of manufacturing GDP, I would suggest it's really critical. The cost of doing nothing, as I touched upon in my earlier statement, is that you have billions of dollars of lost tax revenues to government at all levels and you would have a huge burden in terms of social assistance programs that would have to absorb many of the dislocations of literally hundreds of thousands of workers. This is from studies conducted by outside parties.
I can understand why you would frame the situation in the way you have, but when you look at the importance of our industry and at its interdependence in terms of our supply chains, and when you look at its impact on local economies right across this country, this is something, we believe, that needs to have serious government attention in terms of making sure we come out of this deep recession as quickly as we possibly can.
Peter, do you want to comment on the banking side?
I'm going to take the next Conservative spot. I want to follow up on what Mr. McKay and Mr. Wallace have been talking about in terms of the credit issue.
We had the Bank of Canada in and asked the classic question that we all get asked back in our ridings about the overnight rate going from 4.5% in 2007 to 0.50% in March of 2009, and the prime rate going down, and the variable mortgage rate going down—I think Canadians see that. But in the case of individual Canadians like Mr. Wallace with his line of credit, and especially for my area, with small and medium-sized businesses.... There's an industrial park in my constituency, in Nisku, from which people are coming to me saying they've been creditworthy customers for years. They understand the increase in the cost of credit, based on what's happening in the world financial markets, but they have, they say, a group of assets in place, have never missed a payment in 10 years, and their cost of credit has gone up.
We have also heard from other witnesses saying that credit is available, at least from their institutions, but the cost of credit has gone up. They say their institutions are saying to them: you're in a sector, a market, or an area, so your costs will go up by two points. That's just the reality of the situation.
Even in their response to us, the banks said there are a couple of factors. There is obviously the cost of credit, which has gone up. But they are supposed to value individual cases and individual customers, and this is a real challenge for us to deal with.
I'd like to put the question to the Canadian Bankers Association. Is there a better way to deal with these small and medium-sized business owners?
:
We have spoken to many members around this table, and we also hear those issues publicly. This is a tough time for particular sectors. We've certainly been hearing about the auto sector.
The banks are analyzing these things on a case-by-case basis and they are obviously taking into account, as we've mentioned, the cost of funds. They are also taking into account the risk profile.
I was cheered, because the Federation of Independent Business appeared before the Senate banking committee yesterday and talked about their membership and how, among their membership—if I can summarize the results of their information—the difficulty was not so much with existing customers. It was new businesses trying to get additional credit or additional types of loans, when there is a new reality whereby they are asked to produce further collateral and so forth.
I certainly think the banks should be able to offer an explanation to the customers about why this is happening. Very often, someone thinks perhaps there is something wrong with them, but these are general credit conditions that are deteriorating.
Terry, do you have any further comment?
:
I was going to mention that. I do think, and I hope, this is temporary. I don't know what “temporary” means these days, but I certainly hope this is temporary--touch wood.
This notion of working on the BCAP, as it's called in the budget, the business credit availability program, is getting much more dovetailed with BDC and EDC.
I'm very encouraged by what I've seen so far in terms of the way our financial institutions are working with BDC and EDC. So I'm hopeful that rather than saying, well, sorry, that doesn't work for us, go see BDC, the institution will instead go with the customer and try to work something out. At the end of the day, I do think that is going to have an impact, but it obviously is going to take some time, as is this leasing facility.
As for the question, what is enough, Mr. Chair, I really can't answer that question. I don't think any of us can at this particular point.
:
I have a couple of observations, Mr. Maloway.
First of all, again, we have to be really, really careful not to conflate what's happening south of the border with what's happening in Canada. I do think that south of the border we saw a lot of underwriting problems and loose practices, and those have come back to haunt us.
In Canada, by contrast, we've always prided ourselves—and this has been the fact—that we are very prudent, careful lenders. And, quite frankly, Canadians are very, very careful borrowers; they pay back. Our lending standards, our credit adjudication, has not changed. As a result, we see in the Canadian marketplace a very solid, very secure set of mortgage conditions. We haven't had the problems of the United States—not even close. So when the cycle turns—and of course there is a business cycle, as you know—the strength of our system is that we remain prudent lenders. We don't change our credit standards.
Now, we have to take into account the much higher risk out there, and we have to be extra careful. But it's not a case of “slack before“ and “careful now”. I think the strength of the Canadian system going into this crisis is evidence of that.
:
Oh, I have lots of ideas.
Some hon. members: Oh, oh!
Ms. Ursula Menke: As I said, we have one course right now that we're offering for 15- to 18-year-olds. It's very much targeted at that age group. It's approximately 18 hours. It deals with financial basics. It starts with basic concepts like wants versus needs, budgeting, and so on, covering the gamut at a level appropriate to the age.
We're in the process right now of working on a second course, which we're tentatively calling “Financial Basics”. It's geared to a slightly older demographic—those 18 and above, so it's for adults—and it will be more focused, more detailed, but it will still be a financial basics course. That's only because there are a lot of people who really don't know these things. In an ideal world, we would see it all throughout the school system. I truly believe that financial literacy is a life skill that children should be learning from a very young age.
My next step after that is to try to develop another course aimed at younger children. I'm hoping to prepare a program that covers them through the school system—I won't necessarily say from kindergarten at this stage, as I haven't been that far yet—and that can be delivered to different groups or via different age-specific programs, so that eventually the schools will produce more financially literate students coming out of the system.
:
Thank you, Mr. Chairman.
Ms. Nancy Hughes Anthony, I just want to pick up where Mr. Rajotte left off, that is, on the business credit availability program, whereby the government is going to inject about $4 billion to $5 billion in the market.
My perception of what happens is that the banks usually evaluate the creditworthiness of a customer, or a potential customer, and decide, well, this might be too risky for us. And the history has been for them to say, well, perhaps you should go to see the BDC. I get the feeling that's what's going to happen here, that you're going to be referring business to BDC/EDC, which take on additional risk. There are additional costs that go with that risk. So BDC will take them on. Then, all of a sudden, if these companies do survive, they'll come back to you guys at a lesser cost, because it does cost more money to do business with the BDC. Then the BDC will go out and provide credit to somebody else, who will have more risk attached to them. Eventually, some of these clients or companies will go bankrupt, or will falter on their loan payments, and in the end it's going to be BDC and EDC who are stuck with the bad people, whether it be in good times or bad times.
So in the bad times, you'll probably refer bad clients, or clients you don't feel you can support, and they will come over to BDC and EDC. And even in good times you'll still refer to them the clients you regard as being risky.
So I just want to understand how that's going to work from a bank perspective. Are you going to share in the risk, or is this just going to be money the government is never going to recoup?
:
Thank you, Mr. Chairman.
Ms. Hughes Anthony, a few moments ago you said that one of the reasons why the banking system behaved better in Canada during recessionary times, in comparison with the United States, was that we had a very clear and very compact regulatory system, if we compared that system to the rather confusing rules in the United States. I'm repeating the words that you said, namely, that the rules were very difficult to understand and that there was a great deal of confusion.
You also said that you were in favour of the government's proposal to create a single securities commission. Basically, I don't understand why you are supporting this plan to change a system that has protected us, in a way, from the effects of the crisis, and has allowed Canada to do relatively well, all things considered. This plan will destabilize the regulatory regime, because there will be a period of uncertainty during which the provinces will be able to opt in or opt out. It seems to me that you are supporting an idea that will destroy something that has protected us. I just don't understand why.
Could you explain this contradiction to me?