FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 20, 1998

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call this meeting to order and welcome everyone here this morning. As everyone knows, in accordance with its mandate under Standing Order 108(2), the committee resumes its study of the report of the Task Force on the Future of the Canadian Financial Services Sector.

I'd like to welcome everyone. Of course we look forward to your comments, and I'm sure you'll be very helpful as we try to come up with a report to the Minister of Finance as to what we see as the future of the financial services sector.

We have the pleasure to have with us this morning representatives from the following organizations: the Canadian Western Bank; Duchin, Bayda and Kroczynski, Barristers and Solicitors; the Federation of Canadian Independent Deposit Brokers; the First Nations Bank of Canada; the Insurance Brokers Association of Saskatchewan; the Lloydminster Credit Union; the Saskatchewan Action Committee on the Status of Women; Senior Power of Regina, and the Saskatoon and District Chamber of Commerce.

We will begin with the president and CEO of the Canadian Western Bank, Mr. Larry M. Pollock. Welcome. As you know, you have five minutes. At four minutes, I will give you a signal by raising my hand. That means you will have to wrap it up.

Mr. Pollock.

Mr. Larry M. Pollock (President and Chief Executive Officer, Canadian Western Bank): Thank you, Mr. Chairman.

The Canadian Western Bank is a schedule I bank with its head office in Edmonton, the only one headquartered outside of eastern Canada. It was formed in 1984 as an alternative to the big six banks. We operate only in the four western provinces. We did an initial public offering in 1984 for $40 million in capital. Our primary focus is to cater to medium and small businesses in five key lending areas, and we're not specializing in personal business.

Our loan size right now is up to $20 million. We have 23 branch locations throughout western Canada—the four western provinces. We have two subsidiaries, Canadian Western Trust and Canadian Western Capital. We have about 500 staff, and our funding is both internal and we use deposit agents across Canada to raise deposits. So we raise a lot of our deposits in eastern Canada.

We are listed on the TSE, the VSE, and the ASE. Our regulatory capital now is $230 million. We have assets of $2.4 billion. We have 9,036 borrowing clients, of which 4,327 are commercial entities in the medium and small business category. The total number of loans is 12,000, and we have about 4,700 personal clients as well.

We have always been profitable. Our key issues in financial reform are, number one, the present impediments to building a new Canadian bank. Frankly, we've lived through it. We started in 1984; we are 14 years into it now and there are some major impediments. Taxation is one of them, both capital and income tax when you are starting out. There is capital adequacy. In order to finance medium and small businesses, you need a large amount of capital. About 10% of your assets have to be in capital.

CDIC insurance is a necessity, we believe. The mergers we support, and we feel this will free up more room for smaller institutions, like ours, to prosper. We think the pooling issue on accounting should be dealt with. The ownership rules we favour as well. We favour concentrated ownership. We support foreign competition. We would like to see some changes on the regulatory process because we have two other subsidiaries, a trust and a capital corp. We are regulated by three different entities.

We feel the banks and other financial institutions in Canada should be allowed to do auto leasing. Insurance sales we feel will provide an incentive to keep bricks and mortar out there. It's another product that you can sell from the front door.

The holding company structure that's been proposed in the MacKay report doesn't do much for us, we're not sure how that really will affect us.

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I don't know how my time is doing. Should I keep going?

The Chairman: That was very quick. Thank you, Mr. Pollock.

We'll now hear from representatives of Duchin, Bayda and Kroczynski, Barristers and Solicitors. Bernard Duchin, welcome.

Mr. Bernard Duchin (Individual Presentation): Good morning, and thank you for the opportunity to speak here.

As time is limited, I won't go through the formalities as to why I'm here, but I just want to outline briefly a couple of issues in regard to the bank mergers.

First of all, I'd like to point out that I'm in favour of it. I want to just briefly explain how we need it, if they want to be competitive in the global market. Then I want to address briefly three arguments against the merger; one is being scared of change, two is that they're making too much profit, and three is about the elimination of choice. I know I have a short time, so I'll try to do it quickly.

The first one is that if banks feel they need to merge to be in the global market, we must allow them to do it. We're the ones who put them into that market. What it is is that when we opened the doors on free trade, we allowed other financial institutions to come down here. What it is is that competition is going to be fierce. If we're going to put restraints on how they're going to be able to conduct business, then they won't survive. Competition is actually here. Personally, I've been solicited once by telephone and twice by correspondence from foreign financial institutions.

As for being scared of change, as we get older we as individuals become more scared of change. We get into a comfort zone and we feel that we don't want anything to change. I was going to use an example, but time won't allow it.

Change is here. The banking industry five years ago was not the same as it is today and it's not going to be same as it is now in five years. Things are changing. It's obvious. We have the global financial institutions, computerization and the Internet. Things aren't going to be the same. We need to allow the banks to change with it.

In regard to the banks already making too much profit, if the bank was losing money at this point in time, the federal government would probably be approving the merger without a second thought and also looking at possibly a bailout. Here again, for some reason in our society profit seems to be bad. The more profit the banks make, it doesn't seem right. If anyone has a complaint about the profits the banks are making, then they should buy some bank shares and see what kind of profit they would have had in the last few months. I don't have any bank shares, but they've gone down substantially.

If you're concerned about the banks making too much profit, get in on it. Also, instead of looking at the total profit a bank makes, look at the ratio to capital and also the ratio to expense. Because they are a large financial institution, the numbers are going to appear quite large. You have to take into account the ratios.

The last point I want to make deals with choice. One big argument is that if we allow the merger, we're going to have less choice as to our financial institutions. I don't understand how that argument can be coming from the government. In the province of Saskatchewan we have a limited number of political parties, not a very big choice. All of a sudden, two of the parties decide they want to amalgamate. That's going to limit the choice even even more. There was no stepping in by the government to say, no, you can't amalgamate. We have to go with allowing the financial institutions to do what they are required to do to compete in this global market.

Thank you.

The Chairman: Thank you very much, Mr. Duchin.

We'll now hear from the Federation of Canadian Independent Deposit Brokers, Mr. Jack Rothenberg, committee member. Welcome.

Mr. Jack Rothenberg (Committee Member, Federation of Canadian Independent Deposit Brokers): Ladies and gentlemen, I would like to begin by thanking the MacKay task force for the time and energy that was spent in preparing its comprehensive report. I would further like to thank you for giving the Federation of Canadian Independent Deposit Brokers the opportunity to comment on and possibly add to the report.

The federation is comprised of entrepreneurs who recognized consumer needs in the late 1970s and early 1980s. We became known as deposit brokers. We primarily sought the interest rate market and identified the financial institutions with the best rates. As the years went by, we expanded to offer insurance products and mutual funds. Today, some of us are full-fledged financial planners and stock brokers who are registered with the Investment Dealers Association. As independent financial intermediaries, our role has been to find the best product and the best pricing and services available to to the consumer in the marketplace.

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In brief, deposit brokers provide deposits on a cost-effective basis to financial institutions, and provide Canadian consumers with complete financial products, regardless of where they live. We presently have in excess of $13 billion under our umbrella.

The federation of deposit brokers has been very conscious of limiting our investors' deposits to the $60,000 Canadian Deposit Insurance Corporation protection limit with each financial institution. We have become very distressed and apprehensive. Our distress and apprehension stems from two areas.

One, with the upcoming baby boomers' inheritances, the average consumer's liquid wealth has been growing by leaps and bounds. These dollars have been accumulated through sweat and toil over several generations. In the past, we were able to distribute these funds evenly with a number of financial institutions and thereby ensure the protection of the CDIC. This is no longer the case. With the demise of many of our trust companies, and with the amalgamation of others with the banks, the average consumer is placing more and more of his or her funds with fewer institutions, mainly the banks.

Two, as you are aware, the investment strategies of these institutions have changed dramatically over the last few years. Earnings are no longer predominantly generated from the spreads between interest being paid on dollars taken in and interest being charged on dollars lent out. Investment managers have been hired with the exclusive responsibility of generating above-average returns on the capital within these financial institutions.

Vehicles of investment that would have been considered taboo only a few years ago have become everyday transactions. Some major investment houses have fallen victim to the irresponsibility of their money managers, who have used derivatives, options and futures to enhance performance. As pressure mounts to continue to outperform the previous year's result, the consumer stands to potentially lose a lifetime of savings.

The view of the federation is that any consideration of mergers between institutions should address the twin issues of the safety of consumer deposits and of maintaining a competitive marketplace for such deposits. Merged institutions that do not maintain an equal number of CDIC-insured entities after their mergers as existed before their mergers will reduce the available alternatives for insured deposits.

Consumers may subsequently find that a portion of their savings will become uninsured within a merged institution. They will then have to decide whether to accept that risk, or whether to transfer the uninsured excess to another institution where they have not reached their maximum deposit limit, provided that such an alternative exists.

Conversely, if the number of CDIC-insured entities remains the same post-merger as existed pre-merger, the merged institution may have a disproportionate share of the market and thereby increase its competitive advantage.

Based on the foregoing, it is suggested by the federation that consideration be given to increasing the CDIC limit, not only to protect existing deposits of a merged institution but also to improve market competition with the non-merged institutions, which would ultimately be able to accommodate more deposits.

The federation believes that an increase in CDIC limits would lessen the inconsistencies that exist in the marketplace between federal and provincial financial institutions. As you are probably aware, the provinces of Ontario and Alberta both provide unlimited coverage of consumer deposits in their savings and treasury branches, which essentially offer the same services as do the banks and trust companies.

It is with this in mind that the Federation of Canadian Independent Deposit Brokers seriously recommends that the limit of CDIC protection be raised to unlimited coverage or, at the very least, to $150,000 for registered funds, that is RRSPs, and $150,000 for non-registered funds, for each individual, at each of the financial institutions.

Tied selling is another concern of the consumer that has been brought to our members' attention on numerous occasions. Branch managers of various financial institutions have been reported to offer capital business loans and lines of credit, conditional on RRSP funds being transferred to their branch. In addition, it is not uncommon for a consumer to be told that his or her loans must be covered by life insurance that must be purchased through the financial institution offering the loan. We are delighted to see the progressive stance of the House finance committee in amending the Bank Act to prohibit tied selling.

However, the federation recommends that the definition of tied selling be more clearly defined. We draw your attention to section 459.1 of the Bank Act, “Restriction on tied selling”, subsection (5), “Regulations”, which states:

(5) The Governor in Council may make regulations

(a) specifying types of conduct or transactions that shall be considered undue pressure or coercion We would like to see more meaningful definitions. We also encourage the task force to provide a mechanism for the consumer to remedy and address these concerns independent of the financial institutions.

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Confidentiality is a right that every consumer deserves. Nevertheless, time after time, financial institutions have taken advantage of information received indirectly. A particular case in point is that of a trust company that has used deposit brokers, such as us, as intermediaries to have their clients invest in this trust company's guaranteed investment certificates.

As required by the federation, direct deposit accounts are set up in order to deposit cheques directly to that trust company's bank account. The bank where the direct deposit account was set up photocopied these clients' personal cheques, which provided them with residential addresses and often phone numbers. The bank proceeded to call the clients and offer their GIC products directly.

This is a serious crossover of boundaries and confidentiality. The Canadian Bankers Association privacy model code is intended to help Canada's chartered banks develop, adapt and implement their own privacy code, specific to their institutions. We are extremely concerned about whether the privacy code is being adhered to in the strict sense of the word.

In this regard, the federation has two recommendations. First is to make sure the privacy model code is being adopted and practised by each bank, in addition to allocating an agency to monitor compliance of these codes. Second is that a privacy code be introduced by which all financial institutions must comply, not just the banks.

Heading into the new millennium, we hope, will bring with it a new corporate responsibility. The bottom line, as earlier mentioned, will continue to remain important. However, equally important is the security of the employee who has helped contribute to that corporation's profitability. The merging of behemoths for the sake of “bigger is better” is not good enough reason for thousands of employees to face both the threat and the reality of unemployment.

For example, it has come to our attention that corporations use the tactic of offering job relocation positions at the other end of the globe to encourage employees to accept early retirement. These corporations are extremely competitive in the international sphere, and continue to produce profits in the hundreds of millions and billions of dollars. The Federation of Canadian Independent Deposit Brokers believe that is a threat to the employees, morally wrong and without conscience. Hopefully, each of you here today will help implement the necessary measures to ensure the safety of consumer deposits, protection from tied selling, confidentiality and consumer privacy, sensible mergers, and moral responsibility.

Thank you very much.

The Chairman: Thank you very much, Mr. Rothenberg.

We will now hear from the First Nations Bank of Canada, Mr. David Ross, president, and Keith Martell, chairman of the board of directors. Welcome.

Mr. Keith Martell (Chairman of the Board of Directors, First Nations Bank of Canada): I'd like to give you our brief analysis of the report of the task force from the perspective of our bank.

This perspective is unique because the structure, ownership and objectives of our institution are quite unique. We are of the opinion that the report recommendations will allow for more institutions like ours that serve the niche market in Canada, which is not being served by the current banking establishment.

We were created as an economic venture with the Toronto-Dominion Bank, but we are on a self-imposed track to be an independent financial institution. We are also confident that recommendations of the report will enable our development stage, in partnership with the Toronto-Dominion, to be more successful. We believe it will allow for our independence after our partnership sunsets to allow for more opportunity.

I believe the first important part is for you to understand the structure of the First Nations Bank and why we are different from the majority of the other ten domestically controlled chartered banks in Canada.

The economy of the aboriginal people in Canada is very much in the development stage. Historically, chartered banks were created when a community or group of business interests saw the need for financial services that were not available to them from existing institutions.

As an example, one of the predecessors of the Toronto-Dominion Bank, the Bank of Toronto, was formed in 1855 by a group of flour producers who wanted their own banking facility to deal with the expansion of their industry. The Bank of Toronto, like the many other institutions formed at this time, grew and flourished, pacing the growth of the new nation created by Confederation.

First nations in Canada are at the point today where they see a need for financial institutions to grow and flourish with their economies. They believe their unique needs, distinct culture, pride of common ownership and accomplishment make this institution a necessary part of their future success in the growth of their economies.

We are a Saskatchewan-based chartered bank. We are one of the 11 domestically controlled chartered banks in Canada. The bank idea and concept was initiated and conceived by the Federation of Saskatchewan Indian Nations. We saw it was necessary to partner with a national institution to allow for the access to the marketplace our aboriginal people from across the country needed in order to participate in this institution. We see this institution as an important step in the economic self-sufficiency of aboriginal people. Economic self-sufficiency, as we all know, is a major step toward the political self-determination of any people.

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On the background of the bank, we ran an aboriginal capital corporation in Saskatchewan that took over programs for aboriginal lending to small business from the government. The government's history with this program was that they had an aboriginal loan-loss ratio of over approximately 80%. Our institution, the Saskatchewan Indian Equity Foundation, took over that loan fund and grew to be an institution that by 1991-92 had a loan-loss ratio of approximately 1%. Our people know how to serve our market, and through the strength of the Aboriginal Capital Corporation we went on to establish a chartered bank, which we believe will serve the financial needs of our members.

The structure is very unique in that the Toronto-Dominion Bank owns a portion of our bank and provides all the management systems, services and back-end services that allow for the security our customers require and the services they need. The profit sharing allows for the first nations owners of the bank to build their capital through the retention of earnings and through the attraction of other first nations investors from across the country.

Currently our first branch and headquarters is in Saskatoon and our second branch was opened in June 1998 in Chisasibi, Quebec. Through the partnership with the TD, our services are available through all 949 branches of the TD, as well as through the branches of the First Nations Bank directly.

The recommendations of the report, we believe, support the niche institutions that can best serve the needs of the customers—in essence, true competition. As far as mergers are concerned, the large banks can defend themselves on the merger decision, but from our point of view the mergers are positive for the growth of our institution. The new CIBC-TD merged bank will increase the coverage of our partner in Canada and allow us to access more of our people directly through the services of our branches or those of our partners. The merged banks give us some more compelling requirements to serve all communities' constituencies they cover.

The basis for this conclusion starts with the assessment of the success of banking in the future, the low cost of delivering service, and market penetration in niche market services. Through our branches and our partnership with a major national bank, we believe we've covered both phases and the mergers will be good for our institution.

David Ross, president of the bank, will cover some of the other aspects of the report that deal directly with the operations and growth of the First Nations Bank.

Mr. David Ross (President and Chief Operating Officer, First Nations Bank of Canada): I'll just speak very quickly to some of the specific recommendations from the perspective of a tier two or niche player in the industry.

With regard to the MacKay report overall, we view the recommendations in their entirety as fair and balanced and a good basis from which to move forward. With regard to some of the specifics that pertain to a smaller start-up organization, there's a recommendation eliminating the minimum threshold of $10 million in capital. We certainly view that as a positive thing in terms of developing banks, particularly in the early years. We met that threshold initially, but you do incur start-up losses and you have to sustain that.

The proposed 10-year capital tax holiday is a very critical issue in terms of the development of new players. In our case, we will pay hundreds of thousands of dollars in capital tax before we make a nickel as a bank. The expanded functionality, the ATM network, would certainly be beneficial to small players such as ourselves. Lessening the regulatory burden commensurate with the size of the financial institution would be very positive for an institution such as ours.

There's also a recommendation that a widely held regulated financial institution may hold up to 100% of the shares of another regulated financial institution. This may have a direct impact on our bank, as TD currently owns 80%. We have a plan to take that down as we replace TD's investment with aboriginal shareholders over a period of 10 years. We are committed to that plan and we are moving forward. Certainly some flexibility in that regard might be helpful in the overall development of the bank.

Lastly, with regard to the two more general issues of the retailing of insurance and light vehicle leasing, we feel these recommendations are positive. The more products we are able to sell and deliver through our branches, the better able we will be to develop our own economically viable distribution system. With regard to the mergers, we do not view them as a threat to our business; in fact we see some positives for it coming out of that, if they proceed.

Thank you.

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The Chairman: Thank you very much, Mr. Ross.

We'll now hear from the Insurance Brokers Association of Saskatchewan, Mr. Randy Parker, Mr. Louis Lafrance, and Ms. Barb Ricard, president. Welcome.

Ms. Barb Ricard (President, Insurance Brokers Association of Saskatchewan): Thank you. Good morning, Mr. Chairman, and members of the committee.

We are pleased to have the opportunity to meet with you today. We are here to express our opposition to recommendations of the MacKay task force. The recommendations of concern to our members would allow banks to retail property and casualty insurance from their branches across the country. We believe consumers would be poorly served if the main access to property and casualty insurance in Canada came to be the branches of chartered banks.

The Insurance Brokers Association of Saskatchewan represents insurance brokers operating small businesses across the province. These brokers serve Saskatchewan residents by matching their property and casualty insurance needs with coverages offered by a wide range of insurance companies. Our members' businesses are located in 250 communities across Saskatchewan. These businesses are an important part of the Saskatchewan small business sector. They contribute to our province's economy through the purchase of goods and services and through the employment of more than 2,500 voting Saskatchewan residents.

The Insurance Brokers Association of Saskatchewan believes broker-based insurance delivery offers many advantages to the customer. Among those advantages are customer service provided by licensed brokers who are well trained and knowledgeable in all aspects of property and casualty insurance; the opportunity for customers to meet with brokers for face-to-face discussion of insurance needs; claim service advice and assistance provided by brokers who are familiar with both the coverage provided and the customer's situation; the independence of insurance brokers who act on behalf of the customers to find the best product at the best price; the competitiveness of the brokerage system where a customer has a choice of coverages, insurance companies and brokers; and finally, the track record of the broker-based insurance delivery, which has held the cost of property and casualty insurance at very reasonable levels.

Despite the effectiveness of property and casualty insurance delivery in Canada, the MacKay task force has suggested that banks should be allowed to sell insurance products through their branches. Our members believe that making this change will result in a significant drop in the business handled by brokers. It is our view that banks will attempt to gain market share with heavy marketing and below-cost product pricing.

Canadian banks are well positioned to take significant short-term losses in order to obtain a dominant market position. Brokers do not have financial reserves to counter a move by the banks to buy market share. Many brokers will not be able to continue in business. As the number of brokers declines, banks will be able to increase prices without fear of competition.

It is the position of the Insurance Brokers Association of Saskatchewan that if banks are allowed to sell insurance through their branches, the long-term effects will be a decline in the level of service, a decline in the amount of competition, a substantial increase in price, and a significant loss of jobs in Saskatchewan.

It is also our view that banks will not offer consumers the level of service now provided by brokers. We do not believe banks will have trained insurance professionals in all branches. We think it unlikely that banks will offer their customers a choice of insurers or products. We also believe, despite assurances to the contrary, bank managers will try to force customers to buy insurance as an implied condition of obtaining a car loan or a home mortgage. These business practices may help the bank's bottom line, but they are not in the interest of consumers.

It is hard to comprehend why banks need to expand their mandate into sales of property and casualty insurance through their branches. Banks are already hugely profitable. They also exert tremendous power within the Canadian economy. Banks have not shown they truly understand customer service or the role businesses can play in the development of a community. Banks have arbitrarily cut teller service despite the inability of many customers to effectively participate in electronic banking. Banks have closed branches and abandoned much of rural Canada in the interest of profitability over customer service.

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Insurance brokers in our province have worked hard to provide a high level of service to customers. Brokers have raised training and customer service standards. Brokers have continued to maintain their businesses close to their customers, offering the opportunity of high-quality, face-to-face service in many locations. Brokers in our province wish to continue to serve their customers and be part of their community.

It's the position of the Association of Insurance Brokers of Saskatchewan that the expansion of the mandate of banks into property and casualty insurance is not a good idea. It's not good for the customer, the economy of Saskatchewan, or the many brokers who have worked hard to build their small businesses.

On behalf of Saskatchewan insurance brokers, I would like to ask this committee to carefully consider our position. Thank you.

The Chairman: Thank you very much. I thank everyone on the panel.

We are now going to have plenty of time for questions and answers as part of the hearings. We'll begin with Mr. Epp.

Mr. Ken Epp (Elk Island, Ref.): Thank you. It's a great tradition that since we've become the opposition, I always get to work the hardest because I have to be ready to ask those questions.

Thank you, first of all, for coming. I appreciate your taking the time. You obviously have a good army of supporters behind you to communicate to the government what your aspirations are.

I would like to go in the order in which you spoke. I would like to begin with Mr. Pollock of Canadian Western Bank, an independent bank.

You talked a little bit about some of the issues that are before us with the MacKay report. Basically, if I hear you right—I just want to get you to confirm whether this is true—you agree pretty well with everything the MacKay report said. Is that true?

Mr. Larry Pollock: Pretty well.

Mr. Ken Epp: Do you have anything at all in that report that you questioned or would like to change? You didn't tell us, but there must be something.

Mr. Larry Pollock: Well, I would like to expand on a few things. First of all, we're not an independent bank, we're a schedule I bank. We're broadly held: no one owns more than 10%.

There are some things we're concerned about. One, where are you going to draw the line if you're going to have different rules for smaller financial institutions? Before, the line had been drawn between banks and other institutions. For example, credit unions pay less tax. They don't pay capital tax in some provinces, like Alberta and Saskatchewan.

So the line got drawn. We're a small financial institution. If we were a credit union, we would still not be the largest credit union in the country, but we would have to pay all the taxes that the banks pay and be governed under the regulatory system that they have.

There are some other impediments to being small. Consider the raising of capital. I think that's going to be a key issue in going forward. How do you raise it? How do you get the right capital mix? If you've got too much tier one or common equity, you're increasing your tax rates far higher than the big financial institutions are. In other words, the stronger you are because your capital base is higher, the more you're penalized for it. That's been a real problem for us in going forward.

When you're small, you don't have ratings. So you're going to have small banks forming that don't have credit ratings by DBRS and CBRS. They're going to pay more money in the market for doing subordinated debt issues and raising wholesale money. In fact, it's going to be very difficult. So that's going to be a real hurdle in going forward.

Mr. Ken Epp: With respect to mergers, you basically said that you support them. Don't you fear for the liability of smaller institutions like yours if there are going to be two or three large, overwhelming financial institutions in the country?

Mr. Larry Pollock: No. Certainly our view is that if small financial institutions like ours clear through the Bank of Montreal, then the Bank of Montreal can develop more efficient backroom services. We can benefit from that by having a cheaper backroom as well.

We also believe that if they merge, they're going to leave some market share behind. I don't believe that the Royal Bank and the Bank of Montreal, when they merge, are going to retain the sum total of the market share that they have individually. I don't think they'll have the total of Nesbitt Burns and RBC Dominion Securities after the smoke clears. I think what you're going to have is some part of that market left behind for the rest of us.

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If you don't let them merge, and then put more restrictions on them, you are going to have to weaken our existing banking system to create more competition. We just saw pictures on television of people in Russia trying to beat the doors down on the banks. We sure don't want that here. So I don't recommend that we try to weaken our existing banks.

Our banks are very, very small on a world scale. They're not that profitable. The ROAs for banks in Canada is about 0.6 of 1%. That's really small. You wouldn't start a business to make 0.6 of 1% of your invested assets. It's just because they're so large that the bottom line looks big. But nobody complains when General Motors makes $3 billion or something like that.

So we support it.

Mr. Ken Epp: As a small bank, do you have full access to the payment system?

Mr. Larry Pollock: Yes, indirectly, through the Bank of Montreal. We clear through the Bank of Montreal.

Mr. Ken Epp: So you actually have to use one of your competitors, in a sense?

Mr. Larry Pollock: Yes, we do.

Mr. Ken Epp: Would you like that changed? You didn't mention that.

Mr. Larry Pollock: Not necessarily. If it were cost-effective to do it ourselves, we would, but at the present time, our clearing volumes are not high enough to justify being a direct clearer.

Mr. Ken Epp: So you get along fine with them, and they tolerate you because you're so small.

Mr. Larry Pollock: Yes. We're really in a market that they're not specializing in. We've targeted western Canada.

If you read the strategies of the big banks, it's the global and U.S. markets they want to access. It's wealth management. Nowhere do you hear about western Canada being in that strategy, nor do you really see them serving, nor can they serve, medium and small businesses really well, as we do. We specialize in that, and we do a good job of it. I think that actually letting them become more efficient and bundling those services and selling them to others like us is probably a good thing.

Mr. Ken Epp: So you're basically saying that if I'm a small business person who wants a loan, I'm better off to come to you than to go to one of the others?

Mr. Larry Pollock: Well, first of all, you might get a faster answer. We don't do much internal training; we hire only experienced people. We tend to be able to give them larger credit limits. In only running 23 locations, we can put 23 very senior commercial lenders in those locations, whereas if you're the Royal Bank with 2,200 locations, you're not going to have 2,200 very senior commercial lenders.

Mr. Ken Epp: You get applications that are sent from A to B to C to D, and then they finally trickle back.

Mr. Larry Pollock: That's right. We specialize in a very limited number of product lines, so we can be good at what we do. We're not trying to do everything. We're not trying to be the best and cheapest mortgage lender on the street. Anybody will give you a mortgage. We're not specializing in corporate lending to Molson Breweries and people like that. We put a ceiling at $20 million. Most of our loans are actually less than $500,000. Our loan-loss experience over the last 10 years has been 0.2 to 0.3 of 1%, which is lower than that of the big banks.

Mr. Ken Epp: Yes, it certainly is.

Mr. Larry Pollock: The losses of big banks have not been on the small businesses but on O & Y, foreign lending to other countries, and defaults on major unsecured debt loans.

Mr. Ken Epp: I'm going to have to move on, but I find your presentation very interesting and I thank you for it.

Mr. Duchin, you're here as an individual, I take it?

Mr. Bernard Duchin: Yes, I am.

Mr. Ken Epp: You think that bank mergers are good. You're the first individual I've ever heard—

By the way, I should probably preface this. I should have said this before. I don't want any of you to take my line of questioning as a prior indication of my stand on this. I was an educator for 31 years, and I like to use the technique of asking questions that drive you to answer what you really feel. That may affect how I feel, but it doesn't indicate how I feel before I ask the question.

Mr. Bernard Duchin: Okay.

The Chairman: Does anyone want to change their answer?

Mr. Ken Epp: I want to ask you this as an individual. Almost every individual we talk to says that banks are too big, powerful, and strong. They say limit them, keep the legislation, and don't let them merge. There's all this fear out there.

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You, as an individual, are coming here and saying just the opposite. I find that surprising. Why do you not fear big, merged, behemoth banks?

Mr. Bernard Duchin: Because I'm a true believer in free enterprise. If the banks merge and they do not provide a good service to common Canadians, then that service will be provided by someone else and the banks will end up losing.

It's the small players who are going to benefit. There are already numerous other opportunities to do financing. You've got your leases that you can do, not only on vehicles, which is the most common, but as a business person I can lease any equipment; I don't have to go to the bank to finance it. But it depends on which is the best way and where I get the best service.

As an individual, I really believe that free enterprise is going to come to the top. If a merger isn't good for the common person, they're going to find somewhere else to deposit their money because something will come up. I don't know what that'll be, because we're in such a rapid pace of change in our society now that to be able to predict what will happen if they don't provide the good service is next to impossible.

Mr. Ken Epp: Okay, this is interesting. One of the people here said that the banks, because they're so large, can afford a short-term loss in order to—these are my terms, not hers—annihilate the competition. Then, when the field is clear, they can charge whatever they want. There will be less choice, less competition, and the costs will be higher.

Don't you also see that? You seem like an intelligent person.

Mr. Bernard Duchin: No, I disagree to some degree. If you look at the number of oil companies from which you can buy gas, it's very limited.

Mr. Ken Epp: They all charge the same.

Mr. Bernard Duchin: Yes, it's true, and it's too high.

It depends on the perspective. I agree that everyone says that no matter what you pay for gas, it would be too high. I can go to Alberta and buy it cheaper than I can here. Sometimes it's not necessarily just the cost of production that charges it.

But look at the current situation with mortgages. Of the five chartered banks, or the ones I see in Regina mostly, all of their interest rates are identical right now. But what has happened in our city is that a mortgage broker has come in. All of a sudden, he's giving interest rates that are substantially lower than what the chartered banks are offering because he's brokering it across Canada. All of a sudden, he's come into a niche market. There wasn't great competition on mortgage interest rates, so now the customer is benefiting because somebody saw a way to go and market it. I just say that this will be the same thing that'll happen with the banks.

Mr. Ken Epp: So you don't fear that the people who are now in good competition, as you just mentioned, are going to end up starving to death while the banks move in? You don't fear that?

Mr. Bernard Duchin: No.

Mr. Ken Epp: Do you think they'll survive and compete?

Mr. Bernard Duchin: You're talking about the small—

Mr. Ken Epp: Yes, I'm talking about small brokers like the ones you mentioned.

Mr. Bernard Duchin: A comment was just made that the banks have been pulling out of rural Saskatchewan. They've been closing branches and abandoning them. Now, here again, how are they going to compete in that marketplace if they don't have the branches there? If the branches are gone, the small brokers are going to have it because they're going to be the only game in town.

If they provide a better product and service, they're going to survive and flourish because people will move to the cheapest one for a short time, but if you don't provide good service and a good product, they aren't going to stay there.

Mr. Ken Epp: I hate to belabour this, but the banks have the financial backing such that they can take a short-term loss and not go broke, but there are hundreds of thousands of individuals who don't have that kind of financial backing. If their business drops out of sight, then six months later they're in bankruptcy. They're finished. They're no longer players.

Mr. Bernard Duchin: I can point to our profession itself. I'm a small businessman. There are three partners in our firm. There are some major law firms in this country that have started merging themselves. Now they aren't doing as well as they thought they were going to. The small businessman law firm finds his niche market and does quite well in it. Just because someone merges and gets bigger doesn't mean they are going to be able to take away the market share I have. Bigger is not necessarily better.

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I'm not saying the banks should merge. I'm saying if that's what they feel they need to do to be competitive in the global market, let them do it. I'm not saying that bigger is always better. I look at it and say, as a true businessman, business will prosper. Things are going to change. Every industry is seeing it. As a lawyer I've seen it with the Divorce Act changes, the no fault insurance changes. My industry has changed substantially. I have to change with it and move on and decide how I am going to be successful as a lawyer. The insurance brokers have to look at it and say “How am I going to be a successful insurance broker with the changes that are coming?”

Mr. Ken Epp: Well, with your totally unmitigated faith in free enterprise and competition, maybe I should invite you to follow me from Saskatchewan to Alberta, because that's where I went. There's more freedom for it there.

Mr. Bernard Duchin: Put it this way. If it weren't for my wife, we might be moving.

Mr. Ken Epp: That's a little political statement that I probably shouldn't have made.

The Chairman: That's also your final question.

Mr. Ken Epp: Is it really?

The Chairman: Yes.

Mr. Ken Epp: But you'll get back to me?

The Chairman: Of course.

Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Coming from the same city as you do, I find it very surprising that you believe in absolutely pure and unfettered free enterprise. I wonder if you really do. You advocate that big is better and so on. Look at the United States, with the big hedge funds, long-term capital— they ran into trouble. The minimum investment in that fund, by the way, is $10 million. It's a bit beyond my means. It may not be beyond your means; I'm not sure. All of a sudden, when they run into trouble, they're bailed out, and they're bailed out by the public purse. Is that unfettered free enterprise? I suppose you support that as well, as well as welfare for the rich—all the bailouts, all the subsidies that business has in this country from the federal government.

Mr. Bernard Duchin: Can I answer a couple of points you have made?

Mr. Lorne Nystrom: Sure.

Mr. Bernard Duchin: One is, no, I do not necessarily say bigger is better. I'm saying that if the financial institutions feel they need to merge to be competitive in the global marketplace, I don't want to restrict it. I'm not saying they're going to be. They may flop on their face by merging. I'm saying we shouldn't restrict it.

I'm trying to think of the second point you were making that I disagreed with. I've lost it. If you ask one question at a time, I'll answer them.

Mr. Lorne Nystrom: I made a reference to the hedge fund in the United States, where all of a sudden this fund for billionaires is bailed out by the federal reserve.

Mr. Bernard Duchin: I totally disagree with that.

Mr. Lorne Nystrom: If it was free enterprise, why would they be bailed out?

Mr. Bernard Duchin: I totally disagree with any bailouts. I totally disagree with any handouts that we give. I even totally disagree with the banks when they donate $100,000 to our medical system in Saskatchewan.

Mr. Lorne Nystrom: You would disagree with medicare and government insurance too, because that's interfering with the private marketplace. Maybe it amounts to about one or two percent of the population of our province.

Mr. Bernard Duchin: I disagree with the way it's run.

Mr. Lorne Nystrom: I see. So you like a little bit of socialism in there and not all free enterprise.

I want to start by asking a couple of questions. I get the feeling from some of the bankers here this morning that they think the merge is a fait accompli; it's a done deal. It's not a done deal. That's a decision made by the Parliament of Canada on the advice of the Minister of Finance.

I want to ask both of you why you would support these mergers. Do you not have a conflict of interest? You go through the Bank of Montreal, with respect, and you go through the Toronto Dominion Bank. They're both part of the lobby in terms of the mergers. Certainly public opinion is galvanizing in opposition to it. There's a real fear among a lot of people that these banks will be so large, they will be what you would call too large to fail. In other words, if there is a failure it would affect the entire financial services system in our country. If that's the case, as Mr. MacKay said, there are two options: either the federal government bails them out if that were to happen, or else you open the doors and let a big bank in the United States like Chase Manhattan or whatever purchase them.

Now that they are so big that they can't fail, doesn't that put the smaller financial institution at a real competitive disadvantage? I know if I go to this big mega-bank and there's a real problem and for some unforeseen reason they fail, they're going to be bailed out. But if you fail, there's no guarantee that you'll be bailed out, because you're a lot smaller. Your collapse would be unfortunate, but it wouldn't affect the entire Canadian financial system. That's a real concern to us in Parliament in terms of whether or not this would be the creation of an unlevel playing field.

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Mr. Larry Pollock: That goes on automatically.

I'll try to remember all your questions, because you asked quite a few, but first of all, I don't believe the mergers are a done deal, and I don't necessarily believe they'll both happen.

One view I do have, though, is if they get a conditional yes, the government can maintain control of the process. If you provide them with an unconditional no—just “no”—I don't think you'll prevent the laying off of people, and I don't think you'll prevent the closing of branches in rural areas.

What I'm trying to say is, if you say “Yes, but you can't close more than so many branches per year and you must maintain a staff level at the level you have today”, by saying yes you can control the process, and you can also accomplish the other goal of having a world-scale financial institution. I don't think you're going to see Citibank or somebody come in, because under the Mackay task force the 10% ownership rule has been maintained.

I think the other way to prevent failure is to make sure that— and I agree with the deposit brokers that we need to take a look at CDIC insurance and make sure it's competitive with that in the U.S. and other countries and also reflects the current times. I don't believe the rate of $60,000 has been raised for many years. There has also been discussion and some suggestion from the big banks that CDIC insurance be co-insurance, which means that the individual depositing must understand who they're depositing with and be able to read their annual report and understand the risk. I don't believe that's going to happen, nor is it a good process to follow.

I don't think eliminating CDIC insurance, which has been suggested as well, is a good idea. But I think we should standardize the insurance process right across the country, which would really open up the market and put the credit unions under the same insurance scheme. Now they're insured by each province. Some credit unions have very, very low capital bases. They're a real risk to the depositor or the province that's insuring, especially in Alberta, and they have been bailed out before.

Mr. Lorne Nystrom: I don't understand why big is better in terms of the global market. The Scotiabank does very well outside this country, and even with the merger of the banks, if it goes ahead, they're still going to be small players, relatively speaking. The Bank of Montreal/Royal Bank will still be nineteenth or twentieth in the world. Why does that make them better, and then what's in it for the man or woman on the street in Kamsack? Why is it better for them? If you put on 100 pounds, are you a better man?

Mr. Ken Epp: Yes.

Mr. Larry Pollock: I'd be a lot slower.

On the credit card business of the federal government, is it all through a Canadian bank, or is it with a foreign bank?

I believe it's with Citibank, and the reason it's with Citibank is because the Royal Bank bid on it, but their cost was higher than the Citibank bid. It's just one small indication that being big will allow you to become more efficient in the backroom, especially.

It also has an effect on the underwriting side of the capital markets, where you can bid on an underwriting. If you're big, you have a stronger capital base. You can lead these big underwritings and get the lion's share of the fees. That's partly what's driving big.

For the consumer on the street, unless that bank can provide more efficient backroom services and therefore deliver the products cheaper, is it good? No, not necessarily.

Mr. Lorne Nystrom: I'd like to now turn to the arguments made by the insurance brokers and say that my concern about the MacKay task force in terms of the recommendation they're making—and I support your point of view—is that it's not just the banks going into rural Saskatchewan, and so on, and selling insurance, but if the banks are allowed to do this, then there would be pressure on all the provincial governments to allow the credit unions to do the same, for obvious reasons, to create a level playing field and create fairness between the banks and the credit unions. Therefore, you do have these financial institutions all across rural Saskatchewan. The credit union movement here is very, very strong, and I certainly support credit unions in terms of a financial institution.

I want to know what the response of the bankers this morning is to the very strong arguments you've laid out, and also what your response to the bankers is, so we can have a little bit of a cross-debate between the two of you during the remainder of my time here.

Ms. Barb Ricard: All right.

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Mr. Lorne Nystrom: Maybe you can respond, first of all, Randy, to the bankers' arguments that this is the panacea or the beautiful world that's going to unfold if the banks can sell insurance and squeeze you out of business. What's your response to our bankers?

Ms. Barb Ricard: First of all, I would like to point out that in the P and C industry today there is a substantial amount of competition already. The banks, however, have very little competition.

I want to point out to Mr. Pollock that he was saying that larger would be better, and I wonder who will regulate. Who will watch these people? When it's your football, you can go home; you can change the rules. We won't have the ability. None of us will have the ability to change their minds, in any circumstance.

I'd like to ask the lawyer friend who's present how he would feel if it were open season on lawyers. Let the banks offer lawyer services out of their front door. See how you would feel.

The Insurance Brokers Association of Saskatchewan does not have a position on bank mergers at this time. However, we choose not to be the consolation prize, in any circumstance.

Randy, if you want to add anything—

Mr. Lorne Nystrom: I wonder if we have a response from the bankers or the bank sympathizers.

Mr. Bernard Duchin: On the question to the lawyer, I'd like to reply to that, because that is actually happening.

Canada Trust is now not hiring lawyers to do their mortgage documents on refinancing and lines of credit. They are actually having a title insurance company out of the States do it and charge a fee.

Part of the problem I look at is not the competition, that they're doing it that way. What I look at is that they're incorporated; they pay at a different tax rate than what I have to pay. As a lawyer, I cannot incorporate and I cannot compete on a level playing field. So I disagree.

I hear you in regard to the competition. It's there. They're doing it. But I want to level the playing field. Take the regulations off me, too, so I can compete there.

But to answer your question, yes, they're already doing it.

Ms. Barb Ricard: I'm afraid you're missing the point.

The point is, when the banks are allowed to progress and stamp out all of us— they can manage to take short-term losses and they can wipe us out in a heartbeat, my friend, and then we don't have the ability to come back. The jobs will be lost and they will be lost forever, yours included if their lawyers are allowed in that situation.

Mr. Lorne Nystrom: I wonder if Mr. Pollock has any response.

Mr. Larry Pollock: Yes, I actually am on the board of a P and C company in Canada that's foreign owned by Assurance Générale de France. It's being taken over by Alliance. We own a string of brokers in that company, and we've spent a lot of time analysing what's going to happen with the brokerage industry.

The view of those huge companies, which are bigger than the Canadian banks—Alliance is bigger than any of the Canadian banks—is that the brokers would be a good delivery system for the insurance industry in Canada, and that they might end up being owned. A lot of the independent brokers have been bought up. There are public companies being formed to buy up independent brokers now. But the major insurance companies have actually been buying up some brokers as well.

So you're going to have an evolution. First of all, there are away too many P and C companies, underwriters, in Canada—a hundred and some. There are lot of brokers, and I think somehow they will find a way to survive, because the public is going to demand better service than the banks will provide.

I opened the Financial Post today, and out fell a Scotia Insurance brochure, a great big one.

I guess, from our bank's standpoint, we're not interested in the insurance business.

Mr. Randy Parker (Past President, Insurance Brokers Association of Saskatchewan): In answer to that, I'm a little confused. In one breath you're saying it's okay for the banks to merge and make less competition, and then you want— We're giving the competition right now in the insurance industry, and being on the board, you're saying let's eliminate all that competition now.

Mr. Larry Pollock: I agreed with the mergers. I did not say I agreed with the banks marketing insurance.

Mr. Randy Parker: You just said there are too many insurance companies.

Mr. Larry Pollock: P and C companies.

Mr. Randy Parker: Yes.

Mr. Larry Pollock: There are.

Mr. Randy Parker: Is competition not good?

Mr. Larry Pollock: Oh, it's good, excellent. Did you look at their bottom line? If they're not making money, they're not going to survive.

Mr. Randy Parker: So then why do the banks want to buy them all up and take over our business?

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Mr. Larry Pollock: I don't think the banks want to buy them all up. Certainly this bank doesn't. I think you should remain independent. I agree with you.

Mr. Lorne Nystrom: But you're a small mosquito compared to the Royal Bank.

Mr. Larry Pollock: Exactly. But we don't want to be in all businesses. And certainly the insurance business is one that requires a great deal of expertise and capital. We appreciate that.

Ms. Barb Ricard: Exactly. The property and casualty insurance industry is a very unique business and it is hard to understand for people. That is why we train ourselves professionally and keep that training ongoing. We work with our clients side by side to make sure they are properly covered, and we are there for them when they have problems.

I would highly doubt that at 2 a.m. a 1-800 number is going to suffice, like the arm of a broker around their consumer when they've lost their house in a fire.

Mr. Lorne Nystrom: You don't think Mr. Cleghorn would do that?

Mr. Randy Parker: I don't think so.

The Chairman: I want to ask you a question. Do you say that people don't understand how the system works?

Ms. Barb Ricard: They understand because we have worked hard with them, with our customers, in our business. But I'm afraid what is going to happen, if it heads off into the banking industry, is you're going to have telemarketers doing the initial calls. And I'll tell you, I don't care who you are, any time you're given the opportunity to speak on something that you're not quite sure of, you often tend to elaborate, embellish, or whatever.

I would say those people are not going to be licensed, they are not going to be trained properly, and they are going to be doing sales. They won't have to follow the same kind of regulations as we do. We are the ones who have been training ourselves so we can sit side by side with our consumers and explain it to them clearly. There's no way a telemarketer, who probably will be hired through a States thing from the bank because that's the way they'll work, will be able to offer the same kind of service and knowledge to our customers as we are.

The Chairman: What stops telemarketing from happening now?

Ms. Barb Ricard: They are happening now.

The Chairman: They are?

Ms. Barb Ricard: Yes.

The Chairman: So what are you doing about it?

Ms. Barb Ricard: We're fighting it. That's why I said earlier we are already facing immense competition in this area. And the problem is that there are not proper regulations put in force right now on those situations. I guarantee you that.

Mr. Lorne Nystrom: At least now you exist as a counterforce to the telemarketers. If banks get into the business—

Ms. Barb Ricard: Exactly. If banks get in, I would be gone, because I cannot afford to last long enough with the kinds of forces that they have, the financial forces they have, as an independent business owner, a small business owner, myself. It's not only the federal impact, but as Mr. Lorne Nystrom stated, it's also the provincial impact, because it most certainly will follow that the credit unions will be allowed to have that same level playing field. I would be wiped out.

The Chairman: What's your argument? Are you protecting your job? Are you protecting consumers? What are you saying?

Ms. Barb Ricard: I'm protecting the consumer, because I truly believe the consumer is not going to be served as well by anyone other than the brokers who are in their own communities, supporting their own communities.

The Chairman: Let me ask you a question. I'm a consumer. I'll go to the bank. I want to buy insurance from them. Why don't you leave it up to me? Why don't you give me the choice?

Mr. Louis Lafrance (Insurance Brokers Association of Saskatchewan): Could I comment on that?

The Chairman: Of course you can.

Mr. Louis Lafrance: I think, first of all, the MacKay report presents a problem for me because I believe one of its mandates was to discuss increased competition in the four pillars. It looks like what the MacKay report did is take the pillar of the insurance industry, which is already probably the most competitive of the four pillars, and basically throw it to the wolves, or to the banks. They didn't really look at the banking pillar itself to try to make it more competitive within its own realm.

We feel very threatened by this report and the recommendations it makes. You can see this is real by the number of people who are in this room. There are a lot of brokers in this room because the concern is very real. It is a threat to my business, to answer your question specifically.

We cannot compete with the business of lending and taking deposits. The business of lending and taking deposits is a special business. The Bank Act has been in force for a long time for those reasons. When you start mucking with that, it eliminates some of the players who have to compete with that.

Just as an example, this is a copy of a policy document. When you take a mortgage from a bank, my lawyer friend phones me and says “Send me confirmation of insurance.” I have to provide a certified copy to that lending institution every year, if they so demand, and they keep it on file because they are checked and audited for those things. This document says who the customer is, who the policy is with, the amount of insurance, the amount of the premium, and the renewal date. Isn't that nice? If they want to compete with me, they have in their files all the information they need. Add to that, Mr. Chairman, the fact that as a business person, when I go to the bank and borrow money, I have to provide to that lender probably a client list, my game plan, my strategies, where I'm going, and what I'm doing. I cannot compete with that. I honestly believe that if the recommendations of the MacKay task force report are implemented as they stand, most of us will be toast.

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In the context of what the federal government tries to do with economic development, you spend huge amounts of money and you have a federal department to do regional economic development to try to promote and grow small businesses in this country, and here you have an opportunity to try to preserve some of that.

I hope you don't go for it, but it is a big threat to us.

It's not like the banking industry is in dire straits. I don't believe there are insurance consumers across the country coming to your committee and saying “We are not well served by the existing system.” To the contrary, I think most consumers would feel they are reasonably well served and they have a lot of choice, including the banks.

The Chairman: I just want to make sure what argument you're presenting. What I sense from you is that you're more concerned about the issue of concentration of power to a single entity, namely the banks. If it's an issue of quality of service, price, and convenience, then I submit to you that the Canadian consumer is quite intelligent to figure out by himself or herself which entity is going to provide the best service. That's for us to decide. It is not for you to tell us that you're the best and there's nobody else who can do your job.

Quite frankly, I think if your argument is corporate concentration, that's a solid argument because of the question of power. But don't come here and tell me that if I want to buy insurance at a bank, I shouldn't be given that choice, because I think it's a choice I should be given, whether I'm buying groceries or whatever service I want.

Mr. Jack Rothenberg: Mr. Chairman, may I speak as a consumer?

The Chairman: Yes.

Mr. Jack Rothenberg: I have nothing to do with general insurance. I've found that when you give almost a monopoly to an institution like the banks, they will review your business loans and then tell you that because they reviewed your line of credit they will now charge you a fee of $500 or $1,000. As a consumer you have absolutely nowhere to go. Once upon a time, the banks did business and they were happy to either lend you money or not, because they made money by charging you interest. Now they charge you a fee.

When you take out a mortgage—remember back in the fifties when the banks were allowed to get into the mortgage area. They didn't dominate, of course, as they do today, because they absolutely dominate the entire mortgage area. They charge tremendous application fees for a mortgage. It's no longer just on the interest. I can imagine having to buy my general insurance, my house insurance, my office insurance, my car insurance, and they'll tell me there's an application fee.

I'd like to feel that I have a choice. If the people beside me no longer exist—and I really am talking as a consumer—I fear that I will have to go to the banks, because I see them becoming more and more a cartel.

If you make a deposit, they're charging you money for a deposit.

The Chairman: But that's concentration of power when you talk about cartels. You're not talking about quality of service, price, and convenience, because the consumer determines that.

Mr. Jack Rothenberg: There is no quality of service. I'm speaking as a consumer now.

Ms. Barb Ricard: Mr. Chairman, might I add one more comment to your question?

I know you have probably been in a situation where you've gone to request a loan. At a point in time when you're doing that, you are already feeling as though you're at an unequal level. You are going in to ask for something from somebody else.

You were talking about choice. What if I'm in a position of being unequal to someone, and I feel there's someone above me putting pressure on me? If you want that loan, you can have that loan, but it requires you buy our insurance.

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In fact, I have documentation of this very thing. You can have this copy. It happened to me, and I've got good documentation here. I went in for a loan and I was told that in order to get that loan I had to purchase their life insurance. It was on a sheet of paper right on their desk. So you can't tell me it's a choice thing that would happen.

The Chairman: Did you purchase it?

Ms. Barb Ricard: I did, because I had no choice.

The Chairman: Choice. It's a power relationship.

Ms. Barb Ricard: It's a power relationship.

The Chairman: Okay.

Mr. Randy Parker: As we said before, the banks have the finances and the backing to undercut and do all those things—you were talking about pricing and all that—to eliminate any competition. They've proved this over time.

The Chairman: I just wanted to make sure. I mean, the corporate concentration issue is a very important issue.

Ms. Barb Ricard: Yes. I understand.

The Chairman: As far as marketing is concerned, you use this strategy as well as anyone else. I think it does come down to the quality of service consumers receive—the price and the convenience, for example. These are determining factors when you're marketing a product. You are aware of this. That's all I'm saying.

Ms. Barb Ricard: Yes. I understand.

The Chairman: Mr. Nystrom.

Mr. Lorne Nystrom: Now, where was I? I think the main thing you're trying to say is you want a level playing field. I think there's a growing movement in the mood of Parliament and the public not to allow the mergers for reasons we've been talking about this morning—the very size of them, the whole competition argument, the service in terms of job loss and closures of branches, and so on. And what you don't want to be is the consolation prize in all of this.

Mr. Randy Parker: Not a chance.

Mr. Lorne Nystrom: The other one, of course, is the auto leasing question. But I think you can mount a tremendous lobby on this issue. You have brokers all over the country and you're involved in the communities. You can be talking to members of Parliament at the local level.

I, for example, don't think I have received one phone call or letter from a consumer saying let the banks sell insurance. Do you know what I mean? There's no pressure on the other side, except from the big banks themselves. So I think you have an opportunity there. But again, you could get caught in their crossfire, so my advice would be to do what you can to make your arguments across this country. But don't think for a minute you've won the battle already, because you have powerful forces on the other side.

Ms. Barb Ricard: Thank you.

The Chairman: Okay.

Mr. Valeri.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman. I just want to pick up on a comment that—is it Ricard?

Ms. Barb Ricard: Barb.

Mr. Tony Valeri: Barb, did you do anything about that situation? There's a self-imposed system in place, a self-regulatory approach to consumer problems. Did you go to the national ombudsman? What happened?

Ms. Barb Ricard: Actually, I sent the letter off directly to the Minister of Justice and Attorney General, Mr. John Nilson, bringing the issue to his attention. I sent a copy to the Superintendent of Insurance in this province, as well as to my MLA and MP, and the brokers' association.

I then received a letter back from the Superintendent of Insurance, Mr. Jim Hall. He stated he would review the incident further with the institution that did this to me. He contacted the general manager. The general manager admitted to it, but said this isolated incident—in the middle of RSP season, you know—was the only time this happened, and yes, the clerk did make a mistake, and what not. So I have it in writing that they made the mistake, although, to be honest, I find it truly hard to believe that in the midst of an RSP season this was an isolated incident.

Mr. Tony Valeri: So you didn't take advantage of the ombudsman system that's in place within the banking industry.

Ms. Barb Ricard: No, I did not.

Mr. Tony Valeri: Was this a conscious choice on your part?

Ms. Barb Ricard: This was a credit union.

Mr. Tony Valeri: Oh, it was a credit union.

Ms. Barb Ricard: It is provincially regulated.

The Chairman: So it was not a bank.

Mr. Tony Valeri: Okay. So it was not a bank.

Ms. Barb Ricard: Well, it's a financial institution. I beg to differ.

Mr. Tony Valeri: I mean, as we've been travelling across the country talking about MacKay, there's been a real distinction between credit unions and banks. I am quite surprised to hear this is a credit union issue. From the way you described it, I assumed incorrectly you were dealing with one of the chartered banks.

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Ms. Barb Ricard: No. That is not correct.

Mr. Tony Valeri: Okay. I have just a couple of other points. Hopefully you resolved that issue, by the way.

On page 2 of your brief, you say brokers do not have the financial reserves to counter a move by the banks to buy market share. I'm somewhat familiar with the property and casualty industry, but I've never found a broker who has the ability to buy market share. My understanding is it was always the property and casualty companies themselves that, if they desired to get into a certain market, might provide incentives to pick up market share. You're saying brokers here.

Ms. Barb Ricard: Exactly. I'm talking about small business owners, taxpayers in every community, for whom there will be no way to survive as independent business owners in any community in this province.

Mr. Tony Valeri: Right. But you acknowledge that some of your suppliers do go into markets and buy market share. There may be a company or a particular territory somewhere out in southern Ontario that may be attractive to a property and casualty company. That company may say, “Our penetration is quite low there, so let's get in with some really hot rates and get our brokers out there to drum up some of our business.”

Mr. Louis Lafrance: Yes, to answer your question, I believe that happens all the time. It usually doesn't sustain itself for a long time because the insurance company, after having huge underwriting losses from buying the business, will have to adjust its rates or get out. Our point is that the banks, with their huge capital resources and concentration of capital, would be able to do this for a long time and, in effect, wipe us out by being able to absorb those losses, which, relative to their size and their concentration, are fairly minor. They would be able to absorb losses for two, three or five years, or whatever it takes. When it comes to the advertising strategy of the banks, as a direct writer they spend huge amounts of money. We just can't play in that league.

Mr. Tony Valeri: Okay. The other point that came out—I don't think it was in your brief—was about the telemarketers out there that the banks would be bringing in. In fact, they are out there now. CIBC and Royal do business over the phone; they hire telemarketers to call. But isn't it also true that in terms of telemarketers, in the property and casualty business the direct writers are engaged in the very same way?

Now, this is something I'm not quite sure of, so I wonder if you could answer the question. You argue that the banks would not be licensing these telemarketers the way independent brokers are licensed. Are the telemarketers with the direct writers licensed the way you are as brokers?

Mr. Randy Parker: Are you referring to direct writers like the Co-operators, one of the largest in Canada?

Mr. Tony Valeri: Yes.

Mr. Randy Parker: The majority of the direct writers like the Co-operators are more on a level playing field than the banks are, because they do have a sales force out there, and they are licensed and regulated. The CIBC and CDI just use call centres and they hire people.

Mr. Tony Valeri: Okay. I just want to understand your argument. If you had a bank that was going to be retailing insurance, and they set up call centres and telemarketers who were not licensed, but they supported this call centre with licensed people on the ground, then you wouldn't have a problem with that?

Mr. Randy Parker: No. In your sentence, you said that if the banks want to retail, and then you said telemarketing. That's the whole thing. For the reasons Louis has already stated, the retailing of insurance out of the bank branches is a distinct disadvantage to anybody out there trying to compete against that business.

Mr. Tony Valeri: Yes, but part of your argument was based on the fact that banks would not have the same quality of individual to do the face-to-face interaction with the consumer. In the existing system, direct writers do business through telemarketing with individuals who may not be licensed the way the brokers are, but those property and casualty companies do have licensed individuals on the ground. If that same thing developed with the banks, would your argument, in terms of having qualified personnel to deal with consumers, still hold?

• 1220

Mr. Louis Lafrance: I can't speak for what they would do, but I'm not sure the banks would be in a position or prepared to train their frontline people, such as their tellers, to become experts or licensed salespeople in insurance—

Mr. Tony Valeri: I just want to paint a scenario here. And again, I don't want to be like Mr. Epp today—

Mr. Louis Lafrance: It's a different level of professionalism. I just don't think they would be able to do it. They might have the experts somewhere at some call centre.

Mr. Tony Valeri: My ultimate goal is to be like Mr. Epp.

I just want to basically say this is not in any way reflective of my position, but I want to understand the argument. The argument that you're making, and to pick up on the point the chairman was making, is that if the concern is the quality of service and product to consumers—and as Parliamentarians, even Mr. Nystrom is of the opinion we're here to try to help protect consumers— If those are our objectives, and if the scenario that's painted is that you have a situation where the banks, you're saying, would not go out and train their tellers to be property and casualty retailing individuals, but they may go out and hire your neighbour, who is a licensed broker today, to go and work out of their branch—

So now you have a call centre with individuals who are not licensed making the calls, and then you have a system that's supported through a local branch, which may be a neighbour of yours who is licensed the way you are licensed to support that. In terms of the question of quality and support for the consumer, how does that square with your argument?

Ms. Barb Ricard: I want to make it clear to you that in Saskatchewan right now there are provincial regulations that we are governed by—

Mr. Tony Valeri: Like in Ontario. It's RIBO in Ontario.

Ms. Barb Ricard: We have to be licensed. We have mandatory education—

Mr. Tony Valeri: Absolutely.

Ms. Barb Ricard: The federal and the provincial regulations have not been harmonized, so we're talking about federal banking that would be entering into our business and not be regulated the same. What I'm saying to you is if the regulations are exactly the same for them as they are for me—

Mr. Tony Valeri: But that is what MacKay is saying, though. MacKay is suggesting that if in fact retailing of insurance product would occur in bank branches, there should be the same type of licensing requirement put on those individuals as there is in the property and casualty insurance brokers, regardless of what province you're in.

Mr. Randy Parker: But that is what he's saying. He's saying they should be licensed; they should be educated; they should do all the same things that we as insurance brokers now do. But it still isn't the level playing field when they're able to retail right out of their bank branches.

The education part, yes, we're pushing for that. We're pushing for the licensing, the level playing field, the education, and all that stuff, just as you had said. But they still have the power when they're able to retail out of their branches.

Mr. Tony Valeri: Okay. So your argument is not so much the quality of service for the consumer, it's the potential power they would have to drive you out of business. I just want to make sure I'm able to differentiate between the arguments, because MacKay is calling for the same type of licensing and educational requirements you have to comply with.

Mr. Randy Parker: Basically, they start out with the same qualifications, the same education, and all that kind of stuff, and they're retailing out of their branches. And when all the independent business people across Canada are eliminated, then where's the quality control?

Mr. Tony Valeri: It would be the same as before, because you have provincial regulations—

Mr. Randy Parker: There's no competition.

Mr. Tony Valeri: Are you saying the provinces would then stand up and say, well, the insurance brokers are no longer around, so forget about all that education and stuff and just go out and screw the consumer?

Ms. Barb Ricard: As I said before, when you have the football, you can make the rules.

Mr. Tony Valeri: Well, okay, but— That's fine. I'm not here to sort of— I just want to put some facts on the table.

Mr. Lorne Nystrom: —

[Editor's Note: Inaudible] —

Mr. Tony Valeri: Something like that.

• 1225

Mr. Pollock, you talked about not being able to enforce certain things with respect to these mergers, that you're not going to be able to stop rural bank branch closures and lay-offs and all that, and yet MacKay talks about legal undertakings.

Are you disagreeing with that aspect of MacKay?

Mr. Larry Pollock: Yes. Again, I think the marketplace should dictate whether the banks can actually make a profit in some of these places or not, but my suggestion was that a conditional yes would afford the government more control in the process, as opposed to an outright unconditional no, which would leave the environment more or less the same as it is today, with some minor tweaking in the regulations.

If the regulations are then restructured in such a way as to create more competition from others, you'd have to weaken those banks, and I don't think that's what we want to do in Canada. We certainly do not want to weaken the excellent banking system we have.

Mr. Tony Valeri: No one would argue that we have an excellent banking system.

As a general question, perhaps, and a response from the panel, MacKay also talks about the doctrine that's there now, that “big shall not buy big” should be done away with. Are there any exceptions to that rule? Do we leave this just to market forces?

As Mr. Pollock is basically saying, if it works and if you can make money— But is there no role for public interest here, or is it just as Mr. Duchin talked about, that the private sector has a role to play, and that's to make profit in shares? Is there no role for the public interest with respect to the future of the financial services sector?

Mr. Pollock?

Mr. Larry Pollock: I'd respond to that.

It doesn't necessarily mean that a big bank can't provide good service. I think some of the big banks provide excellent service in many communities. In many small communities you can go into, there will be a Bank of Commerce and it's the only bank there—some of the ones in the Northwest Territories, for example.

But I think you have to provide an environment for other competitors to be able to prosper.

Let me give you an example of why it's very difficult to start a bank up. I've been through it for the last nine years, and these guys are going to go through it too, and they touched on this. It's the tying of competition and taxation together.

We're in the medium-small business, so somebody comes through our front door and wants to finance a D6 Caterpillar tractor, and our competitor on that loan is GE Capital, far bigger than the Royal Bank in the province of Saskatchewan. So we want to start up our business in Saskatchewan, which we did, and we did a subordinated debt issue in this province and paid 6 3/4%. That subordinated debt qualified as capital.

Then the province introduced capital tax, and they added 3 1/4% for that debt issue. So 6 3/4% and 3 1/4% adds up to 10%. That's coming out of the chute. To break even, I have to lend my capital to this customer at 10%. I can't do it.

GE Capital, operating out of New York, pays no capital tax, has no requirement to have capital in Saskatchewan, and has no requirement to have any staff here or any bricks and mortar. So I'm being penalized for operating, for opening three locations in this province, hiring staff, investing in premises and leaseholds, and making a long-term commitment here, and then getting slapped with that tax.

We are very seriously considering withdrawing our services from this province because of the capital tax. It's so high here, at 3 1/4%. In Ontario, it's 0.6 of 1%. I don't operate in Ontario, so I can't be like the Royal Bank and take my loans and bulk them in Toronto from Saskatchewan.

Then you have to ask yourself, why would the Royal Bank or any of the big banks want to close in the small communities? Well, give your head a shake. If they're going to pay that kind of tax, why would they want to make a commercial loan in this province? They're going to make loans in jurisdictions where they don't have that high tax rate and have to compete with the Americans.

GMAC can lease all of the vehicles in Saskatoon, pay no capital tax, foreign-owned, can have an office, which is located in Calgary, do it all by telemarketing, as you're suggesting over there, and not have to pay the onerous taxes.

So you want more competition, but then you fine the people who are coming in here, the Canadian investors, for doing it. We are trying to do medium and small business loans, and we can't make money at it in this province because of the onerous tax conditions and capital conditions that we have. I don't disagree with the capital. You need to have capital and you should have capital, but don't fine us through a capital tax. That certainly came out loud and clear in the MacKay report.

• 1230

Mr. Tony Valeri: Anyone else? Should the “big shall not buy big” doctrine be dropped? Are there any exceptions to that? Maybe you can comment on the whole merger review process, as MacKay has outlined it. Is it adequate? Is there a role for the public? Is there a public interest concern here that we should be pursuing, as parliamentarians? Or is it as simple as Mr. Pollock and Mr. Duchin seem to feel?

Mr. Jack Rothenberg: What about the concern for the many employees who will lose their jobs? I've always been a really staunch capitalist, but I'd like to think, as we're heading into the new age, so to speak, corporations might have a responsibility where you're not just let go. I can understand letting employees go when you have to let them go. When you're running a business and you're just not profitable you have to do something, as much as you don't want to do something. But to let good people go for the sake of increasing that bottom line when that bottom line is good, you are competitive and growing, and you are big, I have trouble justifying it.

The Chairman: Do you remember during the agricultural revolution when the tractor came on the farm and people were really concerned that when this guy with a tractor showed up 500 workers would lose their jobs?

Mr. Ken Epp: I was in the middle of that.

The Chairman: From an economic efficiency point of view I think we've benefited, and every evolution throughout history teaches us something. Whether you're moving from agriculture to industrial-manufacturing to the information age we're in now, aggregate numbers of jobs have always gone up, and new and usually better jobs have resulted.

I'm not minimizing. When you lose your job it's a serious thing, don't get me wrong. I'm just saying there are forces in the economy that always bring about change in economic circumstances.

Mr. Jack Rothenberg: I agree with you. That happens and is happening now, and there will probably continue to be more employment. It'll be the computer age, the new technology age. It's happening and our youngsters are benefiting from it. It's incredible to see. But 50-year-olds are considered to be old, which is quite remarkable. I'm 53 years old and I don't feel old, but if I were working for a bank that was merging, I'd lose my job tomorrow and have nowhere to go. But it's not an either/or situation.

The Chairman: What happens very often in public policy in Canada is that people try to make the debate an either/or situation, and it really isn't. I often use the example of people who are illiterate in our society, but that doesn't mean you stop producing books. Do you understand?

Mr. Jack Rothenberg: Of course.

The Chairman: You continue to produce your books and people continue to read. The responsibility of those who know how to read, according to me, ought to be to help those who can't. I think conditions have to prevail where your 50-year-old factory worker, who may have lost his job because of free trade, is factored into a workers' readjustment program, just to cite an example.

The challenge we face here is that the MacKay task force goes above and beyond changes and speaks to a different vision. I'll give you an example. If you have the consolidation or merger of two firms—I'm not talking about the mergers, and by the way, this committee's not the only one to propose mergers, just so you know; we're dealing with the MacKay task force—this type of consolidation frees people up. If I were starting an insurance business, probably the first thing I would do, after a consolidation, would be to see if there were people willing to start a business with me, whether it was insurance or banking. This is the sort of entrepreneurial system MacKay is also speaking about.

• 1235

I think it's possible to have major banks, but also to have entrepreneurial-based firms in that new environment. We can't just pick and choose topics we like or dislike. We need to ask what will the future look like and where do we want it to go? What are some of the characteristics of that future? What exactly do we want? Do we want a world-class, competitive financial services sector, or do we want to retrench and just build a very strong and vibrant domestic financial services sector? Is that possible, given some of the commitments we may have abroad and the fact that we are indeed part of the global economy? These are all questions I think we need answers to.

Mr. Jack Rothenberg: There is nothing wrong with looking at the global universe, and we must, but we mustn't do it with blinkers. Some very serious points were made today. If some of these behemoths merge and then run into problems, we will have something worse than an Olympia and York taking place, and we the community will pay for it. Our taxes will bail them out, and we'll have to bail them out.

The Chairman: And what if they succeed?

Mr. Jack Rothenberg: If they succeed, they'll be— You know, I love this business about the shareholders. I personally happen to own a stock brokerage firm, so when you talk about shares, I'm a capitalist and I buy shares. But my bank says to me, “We do it for the shareholders, Mr. Rothenberg, and that's why we just sent you this $1,000 fee when we reviewed your credit line.” I didn't want them to review my credit line, and they say “But, Mr. Rothenberg, we have to”, and then they send me this $1,000 fee. It nauseates me. I think I'm getting off track.

The Chairman: No, you're not off track.

Mr. Jack Rothenberg: They keep telling me they're doing it for the shareholders, but how many of us in the population really own those shares? I bet very few take part and own the bloody shares, but it's the majority who are paying the bloody fees.

The Chairman: Who do you think owns the banks?

Mr. Jack Rothenberg: The shareholders.

The Chairman: Who are they?

Mr. Jack Rothenberg: You and I, absolutely.

The Chairman: Some statistics say that one out of two Canadians is somehow an owner of a bank.

Mr. Jack Rothenberg: I'd be hard-pressed to believe those statistics, but nonetheless— okay.

The Chairman: It must be a myth that is repeated by all the authorities, then, because that's what they're saying.

Mr. Jack Rothenberg: Maybe that's a fact. Okay. But that's important.

The Chairman: Aren't public education and facts important in this debate?

Mr. Jack Rothenberg: Then why do the consumers feel the way they do? Why do I feel the way I do, if we're all shareholders?

The Chairman: Let me ask you a question—

Mr. Jack Rothenberg: I'd rather not be a shareholder and have better consumer treatment, better choice. I'd like to know I can leave the Toronto-Dominion Bank and go to the Royal Bank, but I know I can't because I will get the same fee there, and they've probably already talked to each other. Their fee is exactly the same.

The Chairman: Mr. Rothenberg, you're advocating what Mr. MacKay is saying. Basically we should make it easier for start-ups to occur, so if a bank or a financial institution opens up that will only charge you $100 to review your loan, you'll probably move your loan somewhere else.

Mr. Jack Rothenberg: I'd love it.

The Chairman: There you go. So you're in support of opening up a new financial institution.

Ms. Bennett.

Ms. Carolyn Bennett (St. Paul's, Lib.): I want to just go back to the insurance issue. I am worried, in terms of what you're saying. I think all of us have experienced what Ms. Ricard has said. In this loss leader approach, which is what we're hearing from the insurance brokers across the country, the banks would be in a position to sell property and casualty insurance at a very low price, if not free. They would say “If you take out your car loan or mortgage with us, we'll throw in the insurance for free.” I guess I'm also very cognizant of your television advertisements and what you do for consumers.

When does a person find out whether they have chosen their insurer well? Is it only when they have a claim? They might have had a policy for 10 years, thinking it was bargain basement and a good idea, until they make a claim and have a problem.

• 1240

What I want to know is should this recommendation go forward and banks be allowed to sell P and C insurance, particularly in their branches, might there be a serious time lag before the consumers find out it maybe wasn't a good idea? It's a concern for the public's interest that we in government must have. What you feel is that if you can't track it out over a certain amount of time, consumers may think they have choices and their choice is to go to the cheapest, but they might not know that wasn't really a bargain until they actually try to make a claim.

Mr. Randy Parker: It's not necessarily at the end of the claim that you find out whether you have a good product or not. The banks right now, CIBC and CDI, sell a packaged thing. Then you're going along for a year with this insurance they've given you because you've gotten your mortgage, and then you go out and buy a Jet Ski for your kids. You phone up your bank and say you want to add this Jet Ski. They say we don't write those. Or I've just bought a cottage at the lake or I've got a rental home. It's with some of these things that you find out that maybe you didn't get the best thing. Even though you got it for free, is it the best for you as a consumer?

The other issue is that the banks traditionally cover themselves. If I give you an insurance policy or sell you an insurance policy, what am I covering? I'm covering the money I just loaned you. When I sell it to you as an insurance broker, an independent person, I'm protecting you. I'm looking after what you've invested your whole life into, and that is the house.

Ms. Carolyn Bennett: I think we've heard that before, particularly with respect to a natural disaster or something like that. The insurance companies are very clear about having to make sure that the worst possible scenario is covered, where the banks may not want to do that.

I once rented a car and was covered by their own insurance, and I wasn't a happy camper when I ended up with an accident fee.

Mr. Randy Parker: Yes, but ultimately it is the claim. That's when you find out. If your house burns down to the ground and you find out that you should have had $150,000 coverage and you only have $50,000, it's kind of late then.

Ms. Barb Ricard: But you only owe the bank the $50,000 that's left. So they grab that $50,000 and they say “See you later.”

Ms. Carolyn Bennett: Would you see that the banks would only be selling their own products, or do you see Mr. Valeri's scenario, where people like you would be subcontracted by banks to go out and sell everything?

Mr. Randy Parker: The way they're doing it right now is that they're selling their own product. Right now—and you guys hear the same things through the MacKay report and other reports out there—their intent is to sell their own products. They're already in the business. They have the right to own insurance companies. They can telemarket as they are right now.

Ms. Barb Ricard: They just can't retail it through their branches, but otherwise they're already in the business. We already compete against them.

Mr. Randy Parker: But they do sell their own product. So if you go into the—

Ms. Barb Ricard: CIBC.

Mr. Randy Parker: —CIBC, you're buying CIBC insurance.

Ms. Barb Ricard: They own the company.

Mr. Randy Parker: When you sign that piece of paper, that's what you're buying, CIBC insurance, whereas we represent hundreds of companies.

Ms. Carolyn Bennett: What we've heard time and again is they don't think Mr. MacKay's sorted out the difference between life and P and C quite as well as—

Ms. Barb Ricard: Exactly.

Ms. Carolyn Bennett: Is that what your members are feeling?

Mr. Randy Parker: They're not even close. They've lumped us both together and we're two completely different industries.

Ms. Carolyn Bennett: Okay.

Mr. Tony Valeri: I have a follow-up question to that. Let's say everything stays the same, the way it is now. There's no retailing, and no teller can sell insurance or anything like that, the call centres are in place and all the rest of it. I walk in and am asked, “Do you want to buy insurance?” I say I might be interested. They pick up the phone and call the call centre and say, “Call Joe Smith. He was in today.” In other words, they'd just be providing leads. Is that a problem?

• 1245

Mr. Randy Parker: It's still not a level playing field. I don't know what you'd call it, a guaranteed market or a built-in market.

Mr. Louis Lafrance: What would stop that telemarketer from going through the files and saying, “Here's a policy for Mr. Tony. Let's phone him up. It renews next week. The premium is $381 so we know what we have to beat.”

Mr. MacKay seems to address those issues with regulations. We strongly believe that those issues would not work, as in the example of maybe a credit union. But what do you do with that after it's happened, after it's been happening for eight or nine months? What do you do with those regulations? Do you say, “Gee, I guess they're not working. Now what? Those businesses are gone.”

Mr. Tony Valeri: Okay.

The Chairman: Ms. Bennett.

Ms. Carolyn Bennett: Mr. Rothenberg, Mr. MacKay recommended that CompCorp and CDIC be brought together. Would you comment on that.

Mr. Jack Rothenberg: Right now there's CDIC, which really is a government body, protecting the banks and some of the trust companies. CompCorp is really something that has been put together by all of the insurance companies. It's not government-backed in any way. It says that if an insurance company fails, the others will come in and try to protect the depositors up to $60,000, to emulate CDIC. I'm not sure of their capability of course, but I think that when the consumer understands the difference between CDIC and CompCorp, he doesn't believe there's an equality there. He feels much more secure with CDIC naturally. But I think the real point is that CDIC is too little.

Ms. Carolyn Bennett: That was in your brief.

Mr. Jack Rothenberg: Really, it's amazing if you deal with the consumer, as we do, how they feel things are guaranteed because it's a bank. They go into a bank and they buy a mutual fund that invests in the stock market and they think it's covered up to $60,000. It's amazing the naivety that exists. I think that naivety will continue to persist as our overall financial climate changes, and it's changing so dramatically with investments, as I mentioned earlier, in options and so on where the banks are now making money in a different way.

What happens when you and I inherit our parents' money and we go blindly to this institution and we have it there, and then we wake up one morning and this is going to be a reality? It's going to happen, and it will happen probably in the next five years. We will find that all of a sudden there are tens of thousands of us who have lost our money, and the government just might not be able to bail us out.

Ms. Carolyn Bennett: So as the four pillars coalesce, it's less satisfactory to have a different way of backing the pillars so that you would— except that MacKay feels that it should be one for everything.

Mr. Jack Rothenberg: Let it be an equal playing field of course, but more importantly, raise the protection limits, especially when you're taking away, if you allow these mergers, the number of institutions that you can divide your funds up in and pay protection.

Ms. Carolyn Bennett: Okay.

Mr. Pollock, I was interested to hear your comments that MacKay's recommendations on holding companies were really not too interesting or relevant to you. We all heard the same thing from Trimark. I want to know who would they be interesting to.

Mr. Larry Pollock: I think the proposal was originally generated from the Laurentian Bank in Quebec, which could probably form a holding company and acquire other financial institutions and keep them separate, thus retaining their independence and uniqueness in Quebec.

It happens in the U.S. all the time as well. Banks are usually holding companies owning many smaller banks. It works reasonably well down there, so they buy these community banks that operate the Bank of Saskatoon, and that bank would then serve that market, but it would be owned by this huge, big banking holding company.

Ms. Carolyn Bennett: But this isn't something that's of interest to Western Bank.

• 1250

Mr. Larry Pollock: No, not necessarily. I think the playing field has to be levelled.

Ms. Carolyn Bennett: What about the First Nations Bank? Would the holding company provision be of any interest to you?

Mr. David Ross: Not at the present time.

Ms. Carolyn Bennett: On ownership rules, you supported concentration. Do you support the threshold that is laid out in MacKay?

Mr. Larry Pollock: They appear to be reasonable. Certainly from our standpoint, we'd be in play right away. We'd be on some people's menus immediately. But in looking at starting new smaller financial institutions, you might have a small bank started up whose parent might be a telephone company or some other entity like that, almost a credit union concept, where they could actually start a small bank in a community or in the areas where they operate. Then you would have a very strong owner that would supply capital and expertise and backroom support and that sort of thing. I think it would be good from that standpoint.

We would definitely be in play. We would probably end up having an insurance company try to buy us and use us as a delivery system because of the branch network. You might have a GE Capital or somebody like that.

So you have to think very carefully about ownership structure in Canada, and I think the big banks have to be broadly held. Canada Trust, which operates and competes with all of us, is closely held. So what you have is kind of a dog's breakfast right now. I think what MacKay is saying is let's sort this out.

Ms. Carolyn Bennett: But the $1 billion, $5 billion equity threshold makes sense?

Mr. Larry Pollock: Yes, it seems to make sense.

Ms. Carolyn Bennett: Okay.

Again, on the pillars coming down, one of the things we kept hearing was—and if anybody wants to comment, that would be great—that with the fact that securities are regulated provincially, with banks being regulated federally, there seems to be some concern. I would like to know, if we rolled out Canadian financial institutions over the next five or ten years, what people's comments would be.

Maybe we'll start with Mr. Rothenberg, who had a concern about banks investing in securities. Would you support a national securities commission with ties to OSFI to prevent the potential risk?

Mr. Jack Rothenberg: I'm not sure I understand the question. Are you saying basically—

Ms. Carolyn Bennett: It's not only the derivatives conversation that is worrying all of us, but I think there is some feeling that there has been a call for a national securities regulation, all in the same office as OSFI, or a way that you would just have a more even approach— and also people not being regulated in a province within the same institution.

Mr. Jack Rothenberg: Sure. I think that goes without saying.

We have tremendous problems being regulated by the IDA, the Investment Dealers Association, on one hand, and we have offices in Quebec and out in Alberta, and I find the discrepancies between the two provinces are tremendous.

So I would love to see an even playing field across the country, but Quebec still sees itself as a country unto itself, unfortunately.

Mr. Larry Pollock: I think I understand the question. We own a securities firm as well. We're dealing with two different regulators. What you've seen is the pillars collapse, so one institution, one bank, owns both types of the industry, but you're dealing with two different regulators.

• 1255

Yes, I would strongly support having a common regulator for both, because you have branches of the banks now marketing the securities right off the main floor.

I agree. The people who come through the door don't understand that those securities they're buying, mutual funds or whatever, are not CDIC insured.

You might even consider keeping that separate. In the U.S. and in Japan, the securities industry and the banking industry are separate.

Ms. Carolyn Bennett: When we listened to Mr. Mackenzie, the previous superintendent, last Friday night, he talked a lot about timing and taking MacKay as a whole or cherry-picking all the concerns that you have, regardless of what this committee recommends. He sort of suggested that you could give things and take them back, and I want to know whether you think—particularly the insurance brokers—if it didn't work you could take it back from the banks one day, or co-leasing, or any of these things. Do you see the recommendations that come out of this committee as permanent and irrevocable? Or do you see that any of these new things could be tried, and then you could take them back if it wasn't working for Canadians?

Mr. Randy Parker: If all the competition were still there, in a futuristic world, yes, you could hand it all back again to the small players out there, the small independent banks and the small insurance brokers and the small lawyers and that. But it ain't going to happen, because the competition is going to be gone.

The Chairman: Does anybody else wish to comment?

Mr. Pollock.

Mr. Larry Pollock: I think you should maintain a regular review of the Bank Act, and I think that would be a way of policing. If some of the things you decide to do now might not work, it gives you an opportunity down the road to change them.

The Chairman: Mr. Valeri.

Mr. Tony Valeri: I was thinking when you were making that comment, a general question we've often asked is, do we have to move on MacKay in its entirety, or are you suggesting, Mr. Pollock, that we can sort of pick a few areas that we can move forward on now, review how they're going, and then just—

MacKay talks about the urgency of this, that we shouldn't sit on this thing, that we should move forward. But I thought your comments seemed to indicate that whatever you move on now, just make sure you review it on an ongoing basis and move towards this particular vision.

Mr. Larry Pollock: I'd very, very strongly support moving fast. I'm sure everybody around this table would agree with that recommendation in the MacKay report. Don't drag it out, because we're all sitting here having to produce business plans for our shareholders.

What do you put in a business plan? We don't know what the business is going to be yet, so you're going to have to tell us first.

If there's some heartburn in the MacKay report, don't deal with it. Leave it out. I think you can probably cherry-pick it. I don't think you have to take it all or leave it. I certainly think there are some areas in there that are very sensitive to a lot of people, and there are some areas in there that should obviously be done and dealt with. Prioritize them, and deal with the obvious ones first.

The Chairman: We're going to take a break here in the question and answer session. This break is brought to you by the Saskatoon and District Chamber of Commerce, Mr. Smith-Windsor.

Mr. Kent Smith-Windsor (Executive Director, Saskatoon and District Chamber of Commerce): Thank you for the commercial. I really just have a verbal presentation. It will be brief.

Thank you very much to all of your administrative staff for allowing us to get into this session.

I had an opportunity to do some bedtime reading over the weekend, courtesy of the MacKay report, so the commercial is also brought to you courtesy of his work.

I was very impressed with the work that was done. It was comprehensive in nature; that goes without saying.

I might have some hesitation on what sort of cherry-picking you might do within this report. I think it has attempted to provide a framework that is capable of addressing the kinds of challenges that all of the providers of financial services in this country will be faced with over the next number of years. I would strongly support an active, ongoing review process of these findings as they are implemented, with a disciplined approach to review not dissimilar to what you've done in the past in terms of regular banking service or financial service reviews.

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There are a number of items I'd like to endorse specifically, in terms of some of the challenges that were identified just as I came in, in terms of harmonizing provincial and federal rules, with particular attention to capital tax harmonization rules. I think that has real implications as small and medium-sized players, be they credit union driven or smaller banking institutions that seek to evolve, have common playing guidelines relating to their capital tax.

I support broader access to the payment system and support for service providers. I thought that was a particularly important point in terms of allowing for specialization of support providers to the industry that could allow small or medium-sized enterprises, be they trust companies, small banks, or credit unions, as they seek to evolve, to have a support agency that wouldn't require them to provide a full service within their own corporate structure.

Of particular interest were the remarks relating to Rabobank, as they apply to Saskatchewan. As we've seen in the post-Crow era, there are significant changes as to the kinds of industries our province is going to have to be involved in. And having the particular expertise of companies like that, not only to provide specialized service but potentially augment and enhance the competitive environment and improve the local expertise in this area, could be particularly useful.

One of the things I noted over the last while in terms of the issue of mergers is whether we should or should not allow this to occur, and I think Canada is fortunate to be in the circumstance where we have the luxury of thinking of this outside of an overruling imperative.

We just look to Japan, where there is significant pressure to consolidate banking. There is an expectation that they may well have significantly less in the way of nationally chartered banks in Japan in the future because of financial pressure, even though their economy is significantly larger than ours. I think providing that framework to allow our businesses to find their niche or continue to attempt to provide a full-service array, not only in the Canadian stage but also in the international stage, is important to remember. I think we should look at that scale. If Japan is saying they might need ultimately in the order of four to five banks when their economy is eight times the size of Canada's, we should be pretty reticent to say we're not going to provide a framework to allow our businesses to do similar kinds of actions should they be necessary.

I think the other element to this in terms of protection is that there was a very good chapter on arming the consumer, disciplining on tied selling, and providing service disclosures in a much broader way to address some of the comments that were made relating to what is and is not protected by things like CDIC. These are very important features of this, and that's why I'm reticent to take pieces out of the equation in terms of what is intended here. I think it's designed to be comprehensive in nature.

It's a very difficult task for your committee to deal with in its entirety, but I think the whole financial industry will say they're all faced with very difficult tasks with the kind of electronic competition they foresee occurring in this economy in the next 12 to 15 years.

The Chairman: Thank you very much.

Now we'll move to the question and answer session. Mr. Epp.

Mr. Ken Epp: Thank you, Mr. Chairman.

Mr. Smith-Windsor, what's your position in the chamber?

Mr. Kent Smith-Windsor: I'm the executive director of the Saskatoon Chamber of Commerce.

Mr. Ken Epp: I'm going to start right out with a question for you, then I want to get back to some of these other people.

You indicated there should be more competition or more availability of competitive specialized services. Could you enlarge on that at all? Why would you say that?

Mr. Kent Smith-Windsor: Well, you have kind of asked two questions, one in terms of competition. I think there are three major thrusts here in terms of disclosure, strict rules relating to tied selling, and a final aspect relating to, if I can just refer, looking at the mergers in the context of the international experience, and I think there are some models from other countries.

With regard to the service provision, what I was referring to is that there were notes in the report relating to experiences in the United States where there have been specialized service providers that would fulfil functions such as bank audit and the like in the United States, which would allow small or medium-sized financial players to continue to meet with the discipline of a regulator, at the same time not having to build that infrastructure within their organization. I think that's quite attractive for organizations that see themselves expanding their activity base, but looking at the kind of infrastructure they have to build internally.

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I think it would be too dramatic to call this kind of thing a barrier to entry. However, I think it does fall into the kinds of things that give hesitation to organizations as they might expand their activities in terms of what sorts of services they need to provide internally to sustain proper control and service their deposit-takers, investors, and regulatory requirement.

So I think there are some elements of what the American experience has been in terms of external agencies that might provide those specialized services under a contractual arrangement that might be very attractive.

Mr. Ken Epp: This is my last question to you. Does your local chamber here have a stand on expanding the field of bank activity into leasing vehicles and selling insurance?

Mr. Kent Smith-Windsor: Yes, we would endorse that, but I think that's where we get back to the comprehensive nature of the MacKay report in terms of expanding those options for other providers such as the insurance industry having access to the payment system.

Again, let's remember that those will be business decisions based on the regulations you set forth. It doesn't mean that all the people who have access will necessarily invoke that privilege. I think that giving them that option allows for a much broader base of potential services available to the business community, which is my particular sphere of influence, and to consumers as well.

Mr. Ken Epp: In your debate on this, did you discuss at all the implications to present businesses that are selling insurance and leasing vehicles? I would think that those you represent in your community would generally be against that.

Mr. Kent Smith-Windsor: Well, some are, but I don't think that would be a broad view. Look at the auto industry, for example. There's a substantial local profit generation as a result of the leasing industry for example, but I'm not sure that's a good reason to have what may be artificially high costs. I think if they're providing a good-quality service, then they've got much closer access to the potential consumer compared with other potential providers. As long as they're cost-effective and have that innate advantage, there are real potentials for them to do very well and probably overcome some of the uncertainties of people who deal with leases in terms of whether or not they're getting good value for their money.

Mr. Ken Epp: You didn't contemplate the negative impact of wiping out the competition by the huge banks such that when they have the playing field all to themselves, competition is less, service is down, and prices are higher.

Mr. Kent Smith-Windsor: I think there are two things I look at. First, we are seeing significantly more potential access points to the consumer, whether that's e-commerce, the Internet, and the like, that gives people a much broader array of choices. That becomes a challenge for the whole country, not just this committee, in terms of making sure that people remain informed citizens.

I think there were some allusions to the importance of having a strong advocacy group on behalf of consumers relating to banking services. So first, you make sure there's broad access of potential service providers. Two, you have an informed consumer.

If someone were to take an approach to be usurious at one point in terms of their approach to the customer there is, first, good information available, and second, alternate providers.

Mr. Ken Epp: Are the local banks members of your chamber?

Mr. Kent Smith-Windsor: Yes, as are the auto and insurance industries.

Mr. Ken Epp: So you cover the whole spectrum.

Mr. Kent Smith-Windsor: Yes. We find ourselves in a situation not dissimilar to what you might find in terms of whether you want to gore anyone in particular in this.

I think that's what struck me as being particularly attractive about the MacKay report. Its comprehensive nature did attempt to address this. A very daunting undertaking was put here, and I'm quite impressed with the framework that's been put in place.

• 1310

I'd strongly endorse a similar kind of undertaking five or seven years down the road when we've had a chance to see what exactly the implications of these findings might be. That's presuming, of course, you're in a position to actually implement these in the next period of time. I also would hope to see some real progress quickly in terms of the findings.

Mr. Ken Epp: Thank you very much.

I'd like to go back now to the First Nations Bank of Canada. I didn't get to talk to them too much, so I'll give them a little opportunity here.

I'd like to know what the source of your capitalization is. You said you were owned 80% by TD Bank. Do you also take deposits? That would presumably be just a very small part of your capitalization?

Mr. Keith Martell: No, we're a full-service chartered bank. We're open to aboriginal and non-aboriginal customers across the country. In terms of our capital, 100% of the common shares are owned by first nations investors from Saskatchewan. We're doing a private placement with first nations investors across the country. TD owns 80% of the capital through a special preferred issue, which has a limited lifetime in a scheduled buyback period. So TD's involvement is only during the creation and development stage of our bank.

Mr. Ken Epp: How much money do the taxpayers have in your bank?

Mr. Keith Martell: Taxpayers?

Mr. Ken Epp: Yes.

Mr. Keith Martell: You mean the Government of Canada?

Mr. Ken Epp: Canada and Saskatchewan.

Mr. Keith Martell: As I said, first nations are allowed to have money in capital, and they have chosen to invest it directly in our bank.

Mr. Ken Epp: So some of the money that would have come through the department would have been channelled into your bank.

Mr. Keith Martell: Well, first nations people do have money that's not just government money. I would hate to characterize it by saying that all their money comes from the government.

Mr. Ken Epp: I'm just talking about that portion. Some of it would have found its way into your bank.

Mr. Keith Martell: Federal government programs run by first nations usually are balanced programs with negative bottom lines, so if any of them have acquired capital, it's through their own work, hard toil and savings, not through federal government grants.

Mr. Ken Epp: With respect to your loans portfolio, are you really emphasizing and pushing small business loans?

Mr. Keith Martell: The majority of our customers are small business people. First nations are not major players in the economy in general. That's really the impetus behind setting up our bank. We are very specialized. You talk about the Canadian Western Bank and their specialized market within a region. We're talking about specialized markets across the country within regions. The need for our bank was because we identified that we were very unique in a lot of circumstances and situations in terms of economic development as well as culturally and socially. We act differently from a lot of other mainstream Canadians.

So we fit our service to match that market. We think we'll be more successful than others will be.

Mr. Ken Epp: Now, I wonder about the title on your door. I walked by your building here just down the road the other day.

Mr. Keith Martell: Right. Did you go in and open an account?

Mr. Ken Epp: I didn't, no, because I'm currently broke, and I didn't think I'd have enough for you to give me a loan.

Even though the sign says First Nations—by your admission, you're targeting first nations people—you're saying also that ordinary guys like me could come in and bank there as well?

Mr. Keith Martell: Absolutely.

Mr. Ken Epp: It's not restricted?

Mr. Keith Martell: We're currently a schedule II chartered bank under the Bank Act. We're open to customers.

Our market, of course, is geared specifically to first nations customers. We're not going to open a branch at King and Bay in Toronto, because that's not where our market is.

Mr. Ken Epp: One of the problems I've heard from other banks is that they have difficulty loaning money to first nations people because they're not able to accept collateral that's on reserves. Does that apply to you as well? How big is that problem?

Mr. Keith Martell: Yes, it does. As everybody knows, first nations reserve land is not held as individual fee simple but as commonly held land that is basically held in trust by the government for the first nations people who live in that territory. So it becomes more challenging, for example, for a first nations person to build a home on that land because it's not able to be mortgaged in the traditional sense.

Some very unique but very disruptive solutions have been found to that. Actually, there's one bank in eastern Canada that offered first nations people mortgages as long as the house was movable. You could come and get it and move it.

But like every other bank, we're not in the business of real estate. We don't want to own that house at the end of the day. So to get around the specifics of requiring security, we've found methods, for example, within our own first nations. The first nations themselves take responsibility for the resale of the house, for having a liquid market within their first nations. So if there is a default, somebody is there to back it up, and the community basically takes responsibility for their own housing. So that's something for which, because we know the market, we're able to put products in place that meet the needs of those people.

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Mr. Ken Epp: I would like to really have a sense of your proportions. What proportion of your loan portfolio would be for individual housing as opposed to start-ups of businesses or operating loans for businesses? What would be the proportional numbers, approximately? Do you have any idea?

Mr. David Ross: Yes, at the current time our loans to individuals for homes or for other personal requirements represent approximately one-half of our portfolio. The other half would be the small businesses and the first nations directly. We think over time the growth of the latter will probably be greater than the former, but that will take time for this bank to expand its market across the country.

Mr. Ken Epp: I commend you for what you're doing. I had no idea that this bank existed. When I saw it yesterday, first of all I did a double look and of course I had the thought about whether or not this was an exclusive bank and whether that was right in our society, and I'm glad for your assurance that it's not.

Is there anything you would like to do beyond what you're doing? Are you also thinking of getting into selling insurance and leasing vehicles and leasing office equipment?

Mr. Keith Martell: We don't have current plans to get into those businesses, but just like the Canadian Western Bank, we don't see it as something that the banks should be restricted from doing. We see the economics of running an institution, of setting up our shop in downtown Saskatoon, opening the doors every day with staff and lights and providing service to customers. If you look at the competition from the U.S., for example, that does not have bricks and mortar in our country, they are not facing the tax situation we are facing as new institutions and they can cherry-pick a lot of the major clients from first nations and non-first nations people across the country.

I must personally get a couple of mailings every month, all offering a $100,000-limit Visa card with an interest rate that equals a line of credit I can get from a local bank. With that capability to cherry-pick customers across the country, it's going to get more and more difficult to have a domestic financial industry in Canada.

The MacKay report I think is a balanced report that levels the playing field and ensures that we have a competitive industry in Canada. If you look at the United States, there are 9,500 banks currently. They pay twice the service charges that Canadians do, which is surprising to many Canadians. They pay twice the service charges that we do and they're very regional. They have banks in some four states that are larger or as large as any of our large Canadian banks. They have less of the cost of delivering those services. Their population is much more dense. Eighty percent of our population live within 100 miles of the border.

From a small bank's point of view, we look at this and we see that if don't want to be partnering with Citibank out of New York—and first nations, for example, would be totally irrelevant to Citibank—if we want to be dealing with the Canadian industry, we have to ensure they're viable. As I said, we benefit from the cost reduction of the Canadian banking industry by their getting more competitive, getting into other services and being able to be of a size that allows their capital to be used efficiently.

So we see a benefit to this, and that's why we're not scared of the mergers. I was in the chartered accounting industry for many years, and for every merger that happened with the big firms, I saw five little firms created locally that dealt with the local market, the local niches, and could deliver better product at as good or better a rate.

So that's where we see the MacKay report provides the environment for banks like ours or other banks. You look at the credit unions; they're ethnically or community oriented. You look at women's banks or small business banks. There are a lot of issues that have been discussed and brought forward in past years but have not got off the ground because the environment wasn't there to allow them to compete with the payment system or taxes or whatever. We think that the MacKay report addresses those and creates a strong, viable industry that we're going to lean on and allows us to exist.

Mr. Ken Epp: So you feel very comfortable, for example, with their recommendations on greater access to the payment system?

Mr. Keith Martell: Exactly. As a friend from the Canadian Western Bank mentioned, we would never be large enough, and in our own mind would never want to put together a business plan on how we'd set up our own clearing system. Even Canadian banks without mergers have realized that; there are three or four banks that are pooling together to have clearing services, where they used to all have their own services. It's economies of scale. As somebody mentioned, the federal government themselves tendered credit card services, and Citibank won the contract because their tender was below the costs of the domestic banks.

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Mr. Ken Epp: I have one quick question for these other people. Thank you very much.

In your report, Mr. Rothenberg, you have an interesting little parenthetical phrase. It's right in your second paragraph. I want to see how your neighbours to your right react to this because I don't know if they heard it.

You started out as deposit brokers in the early eighties. You identified a market and moved into it and you're very successful. You're providing basically deposit brokerage for the big banks. Then it says: “As the years went by, we expanded to offer insurance products and mutual funds.”

Ms. Ricard, are you threatened by that? Here's a deposit broker selling insurance. It's too bad you're sitting right next to each other. I don't want to start a fight, but you seem very threatened by the banks getting into it, and here's someone whose original purpose was far from selling insurance and he got into it. Fight it out between the two of you.

Ms. Barb Ricard: I'd like to ask if it was life insurance products or property and casualty insurance products.

Mr. Jack Rothenberg: That's an excellent question. I wouldn't dare think of getting into house, car and office. This is strictly life insurance products that go along with financial planning, along with the GICs and term deposits. We're also not opening up our own insurance company. We're just acting as a distributor for the existing insurance companies.

Mr. Ken Epp: So you're a broker in insurance, then, as well as in searching good deposit locations.

Ms. Barb Ricard: Once again, it just points out the uniqueness of the P and C industry as opposed to the life industry.

Mr. Ken Epp: Yes. We don't have anybody from the life insurance industry here at the table or behind you? These are all general brokers?

The Chairman: Mr. Valeri was.

Mr. Tony Valeri: In another life, Mr. Epp.

Ms. Barb Ricard: Just to add to that, there are enough potential conflicts and differences in our P and C industry that we, too, feel we should be separate and apart from this report and be left alone.

Mr. Ken Epp: Just left alone to do your thing, and you're doing it very well, thank you.

Ms. Barb Ricard: We are doing it very well. If it ain't broke, it don't need to be fixed.

Mr. Ken Epp: Yes, if it ain't broke, don't fix it.

Mr. Louis Lafrance: I don't know if it's proper for me to ask you folks a question, but as you've gone across the country, have you heard an outcry from the Canadian public about being served badly by our industry?

Mr. Ken Epp: Yes, pretty well everyone.

The Chairman: Actually, only one person said nice things about you, remember?

Mr. Ken Epp: Was there someone?

Voices: Oh, oh!

Mr. Randy Parker: You asked the gentleman from the Saskatoon Chamber of Commerce a question. Would I be able to ask him a question also with regard to his comments?

Mr. Ken Epp: Sure. If it would add to the debate, do it.

Mr. Randy Parker: I find it very odd that the chamber of commerce that speaks for the whole business community of Saskatoon would endorse the selling of insurance and leasing of vehicles out of the banks when it would close down small businesses in the community of Saskatoon. I wanted to know who would endorse this? What members of his would actually endorse this when it would do this to the community?

Mr. Kent Smith-Windsor: I think there was one comment raised relating to the experience in the chartered accountancy industry, where mergers took place and there were rationalizations. In fact, at the end of the day, the industry was potentially much larger.

Mr. Randy Parker: But the banks aren't retailing CAs out their front door.

Mr. Kent Smith-Windsor: But you're suggesting that banks are somehow different from any other industry in terms of the potential for new issues to emerge?

Mr. Randy Parker: They have a captive audience.

Mr. Kent Smith-Windsor: With expanded competition I don't think that's true. We heard quite extensively about the First Nations Bank and its attempt to serve a client base that was, in the view of the investors, substantially underserved. I think you'll find opportunities like that emerge.

I'll go back to the title of the report, Change, Challenge and Opportunity. Without question, all Canadian industry is going to be faced with a substantial amount of change and challenge and opportunity. In many ways, you have to look at it in terms of where do the opportunities for my business lie in that context?

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Ms. Barb Ricard: Again, we just ask you who in your membership endorsed that.

Mr. Kent Smith-Windsor: Our executive committee.

The Chairman: Are you a member of the chamber of commerce?

Ms. Barb Ricard: I am not.

The Chairman: You're not.

Mr. Randy Parker: You are within your own community.

Ms. Barb Ricard: In my own community, I am.

The Chairman: Oh. And are you from—

Mr. Randy Parker: I'm from Swift Current. I'm not from Saskatoon.

Ms. Barb Ricard: I'm from Kindersley.

The Chairman: Is there anybody from Saskatoon here?

Mr. Ken Epp: Mr. Chairman, just hearing this—and I raise it for a reason—I think the chambers across the country are facing the same dilemma as we face in this committee, and that is how you balance the competing interests here. They're very real, and we do want to do what's best ultimately for the consumers and for the taxpayers of the country. But to really balance this off, how do we achieve this? How real are the threats of the banks killing off everybody else and then having the field all to themselves? I have a suspicion that with the kind of people in this industry, even if the banks did get into it, these people would come back so vigorously in their competition with the banks that the banks would find it very, very tough to do business against them because these guys provide much better service, or whatever tack they choose to use.

So it's a difficult balancing act, and for me, at least, the jury is not yet in.

With that, I end this intervention.

The Chairman: Okay. Mr. Nystrom.

Mr. Lorne Nystrom: I wanted to ask Mr. Smith-Windsor about the decision-making process. You said that this policy was endorsed by your executive. Was it discussed by the membership? You have a lot of brokers in the Saskatoon Chamber of Commerce, I assume.

Mr. Kent Smith-Windsor: No, we did not do an extensive consultancy process internally.

Mr. Lorne Nystrom: Really? Why wouldn't you do that? What do you say to these 75 or 80 people right behind you—in fact, you can talk to them now—when you don't do a proper consultation process with your membership? Most of these people belong to their local chamber of commerce, and yet you take a position that can throw them out of work. I want you to respond directly to them. Why do you do that? You, sir, with respect, are in a position of—

Mr. Kent Smith-Windsor: Do you want me to turn—

Mr. Lorne Nystrom: Because, sir, with respect, you are in a position of real influence in this community. You represent the business community, so please answer my question to them.

Mr. Kent Smith-Windsor: I go back to the report itself in terms of Change, Challenge and Opportunity, and for us to somehow think that we can not embrace competition—

Mr. Lorne Nystrom: But, sir, with respect, this is not Soviet Russia. You're not a Stalinist. Why do you make such an important decision without proper consultation with your membership? I think these people deserve an answer as to why you take that position, on behalf of the business community in this city, without proper consultation. You said you didn't do the consultation that was necessary. Tell them why you didn't do that.

Mr. Kent Smith-Windsor: You said that; I didn't. If you look at the protocol for our organization, we will often take policy decisions at the board or executive committee level, and that is a normal course for our approach to many business activities. In many ways, when we deal with very localized issues, we will do direct consultation with members through questionnaires and the like. I would suggest it's rather difficult for us to communicate four or five hundred pages of MacKay report to a thousand businesses and expect a timely response.

We were given a letter concerning the opportunity to present to this committee some two weeks ago, with an indication that someone could speak, if we were successful in finding the phone number. We sought to find the phone number as to how to make this inquiry. We spoke to our executive as to what our position might be and had an opportunity to review the findings of the MacKay report with them, and we came forward with a decision on that basis.

There's no question that we are caught in terms of being put in a position of potentially picking winners and losers in our own community. I'll go back to what I said before in terms of the Japanese circumstance. I don't think we can operate in isolation. Our executive committee doesn't think we can operate in isolation. And if—

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Mr. Lorne Nystrom: That precisely, sir, is my question. Why did you operate in isolation? Tell these people why they were not consulted.

Ms. Barb Ricard: I would also like to know the names of the people on your executive board of directors. I would be interested to know what type of work they're in.

Mr. Kent Smith-Windsor: Well, if you like, I can certainly give you my card, and if we can do a card exchange, we'd be happy to forward a copy of the members of our executive committee. If you're asking if any of our executive committee is a member of a bank, the answer is no.

Mr. Lorne Nystrom: Do you have an insurance broker on your executive committee?

Mr. Kent Smith-Windsor: No.

Mr. Lorne Nystrom: Will you now undertake to go back and consult the insurance brokers in the city?

Mr. Kent Smith-Windsor: I'm certain a couple of them are going to be speaking to me after this meeting.

Ms. Barb Ricard: Just one other note. I'm sorry, I'm not familiar with your name.

We were faced with the same timeframe and we have been working around the clock discussing those with our total membership at our annual convention, which we held just last week. So we made it our business to make sure our total membership was informed and had their input.

Mr. Kent Smith-Windsor: If I remember this correctly, there was someone— I'm going to say while receiving insurance originally, who offered to make a presentation to our members, and we endorsed that and invited them to make that presentation. There was a change in the speaker and the speaker had to back away. Certainly in terms of being able to place that case in front of the business community of Saskatoon, we would be more than open to doing that, to hopefully add that context to our discussions.

Mr. Lorne Nystrom: I wonder if I can ask how many Saskatoon brokers are here in the audience today. Do you want to turn around, sir? Would you be willing to meet with these— Do you want to stand up?

Now, when would you be willing to meet with these people after the meeting, since you didn't consult them before the meeting and took a position on behalf of the business community?

Mr. Kent Smith-Windsor: I'd be more than happy to meet with the members of the group.

Mr. Lorne Nystrom: Thank you.

I'd like to ask Mr. Martell—

Mr. Ken Epp: I think he's out of order doing this to the witnesses.

Mr. Lorne Nystrom: Witnesses are coming here and advising us about what we should do, and I want to know whether they're speaking on behalf of their membership or not, and what kind of process they went through. It's one thing to express your own point of view. We've had Mr. Rothenberg at times say “Well, I'm speaking now as a consumer”, and he's made that distinction in terms of how—

The Chairman: Mr. Nystrom, with all due respect, when you asked the question, how many of you are from Saskatoon— How many of you are from Saskatoon and members of the chamber of commerce?

A voice: There would be several.

The Chairman: Okay. So these are the people he's supposed to meet with.

Anyway, we run our own consultations. The issue has been made clear, I think. You've made it clear as well. So now let's move on to other things.

Mr. Lorne Nystrom: I'd like to ask Mr. Martell a couple of questions.

You say a number of the owners of the First Nations Bank are first nations people. Is this through the FSIN or through tribal councils or through various first nations individually? Then, what is the business plan in terms of expanding that ownership, and what structure would it take?

Mr. Keith Martell: The owners of the common shares are the Saskatchewan Indian Equity Foundation, which is owned in common from all the 72 first nations in Saskatchewan. So technically they directly own it through a holding company now.

The plans are for it to be a widely held financial institution by first nations people—aboriginal people, actually, because we've include the definition of Métis and the people of the north, the Inuit people. It will be a widely held institution by first nations people from across Canada. We're doing a private placement as we speak—it's in progress—to a number of first nations groups from across the country and some of those groups are already represented on our board of directors.

Mr. Lorne Nystrom: Would this be groups and individuals in the future or would it be a combination of both?

Mr. Keith Martell: You could probably put all rich Indian people in a small room. There are not a lot of individuals with a lot of capital at their disposal. Most of the capital in first nations communities, as many people know too, is held in common. A lot of the investment activity is not entrepreneurial investment but community development. So a lot of the first stage of development is for larger groups. In the long run, though, our objective is to grow the entrepreneurial classes in our first nations. That's something it does lack right now because of a lack of access to capital and a lack of access to the banking services in the communities wherever those people live.

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Mr. Lorne Nystrom: Over the past, I've worked closely with some of the people at FSIN and the tribal council in particular at TFHQ, which is Touchwood File Hills, with Perry Bellegarde. About a year or so ago, I was at the opening of an insurance brokerage in Standing Buffalo. My understanding is that there's some real feeling now in the FSIN to try to get into the insurance business in a traditional way. Has the FSIN taken a position as to how we should handle this problem we're dealing with this morning? I know you don't speak for the FSIN, but—

Mr. Keith Martell: There are lots of businesses in which we are a consumer, a large player, such as property and casualty insurance, but we have no say on boards. We're not large shareholders in some of these groups. The businesses we've set up so far have only been brokerages. Again, we know our markets and we're successful at getting to them, so that's what we've set up to date.

Mr. Randy Parker: If they are actual insurance brokerages, the people in them are licensed and they go by all the regulations that all the other insurance brokers go by. They're not retailing out of their branch.

Mr. Lorne Nystrom: I was wondering if your association is involved in trying to get more aboriginal people and first nations people involved as brokers and offering any assistance, and if so, what kind of assistance?

Ms. Barb Ricard: Yes, in fact, we have held private fundamentals of insurance courses for them, specialized courses for them, hoping to bring them in and spend some more time with them and get them educated and licensed so they can have businesses and prosper.

Mr. Keith Martell: I have one comment. As I understand your line of questioning, it leads to some of the recommendations in the MacKay report that require Canadian banks or financial institutions to deal with the Community Reinvestment Act type of activity that happens in the U.S. right now.

Mr. Lorne Nystrom: Yes.

Mr. Keith Martell: I'm a founding director of an organization called the North American Native Bankers Association. It has two Canadian-owned first nations banks and eight American tribal-owned banks. The American banks are more than happy to do business in Canada through Internet and through electronic access because they don't have to comply with the Community Reinvestment Act. They can basically go into communities and cherry-pick activity within Canadian communities and not have to worry that they take all the deposits and maybe don't do any of the lending, and they don't have to deal with retail banking. First Nations Bank is very supportive of that aspect of the MacKay report.

Mr. Lorne Nystrom: My last question is what is your vision for ten years from now? How large will your bank be, and do you have a game plan in terms of the number of branches you want to establish? Do you want to establish in every province and territory, and how much of your business at that time do you think will be aboriginal business and so on?

Mr. Keith Martell: Our business plans are based on 100% activity from aboriginal clients, but that's not been our experience to date; we've picked up other business. In fact, we feel there's a real opportunity for us to pick up some business from the banks. Especially if you merge, somebody always falls through the cracks, and we think we may be in communities where we can offer the best service.

Our objective for the long term is to be a national bank. We know our population in Canada is about a million people, and that's our traditional customer base, so we're not of the mind that we'll be one of the big four banks in Canada—although if they keep merging, we may end up being that just by default. We look at our market and we want to be relative to the size of the market, competitive, and we believe we'll likely always have some kind of relationship with the larger banks because of the cost-effectiveness and the access to the systems they can offer.

Mr. Lorne Nystrom: I have one more question, then. You are called the First Nations Bank, but you're talking about aboriginal people. What is the relationship you're trying to develop—or do you have one already—with Métis, non-status, Inuit, and other aboriginal people?

Mr. Keith Martell: I think it would be safe to say we have customers from all those aboriginal groups already.

Mr. Lorne Nystrom: But in terms of the ownership, are you approaching them to purchase some equity, just as you do with various tribal councils and so on?

Mr. Keith Martell: Absolutely.

Mr. Lorne Nystrom: Has that happened yet?

Mr. Keith Martell: Well, we're only in the process of beginning our private placement now.

Mr. Lorne Nystrom: But you'd expect that after the private placement there might be some other non-first nations equity—

Mr. Keith Martell: Yes, we've talked directly to a number of Inuit groups for a long period of time and they're one of the first markets we'd be looking at.

Mr. Lorne Nystrom: Good. Excellent.

The Chairman: Thank you, Mr. Nystrom.

Mr. Valeri, do you have a final question?

Mr. Tony Valeri: Thank you, Mr. Chairman.

I wonder if I can take this approach with the panellists. It was mentioned this morning by Mr. Pollock and some others that GMAC is competing and GE Capital is competing, but is this debate about mutual funds and those types of companies competing, or should the debate be about the core banking services—the personal transactions, the deposits, the ABMs, the core franchises that are completely dominated by the banks?

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Everyone agrees that there needs to be more competition in the financial services sector, but if there is any change in legislation to allow foreign banks to come in, they're not going to compete at the retail level. Wells Fargo is here, and you have some foreign banks here competing for the small and medium-sized market. But I believe you are not going to see the kind of competition most people are talking about when you refer to the core banking services Canadians are talking about.

So how long before we can expect competition at this level? Can we even expect competition at this level? Are we being realistic when we say let's allow the consolidation of the financial services sector?

Things need to be done with respect to competition, but how long before you actually get competition at the core banking level? You're going to get competition in monolines—credit cards, small and medium-sized business loans, this sort of stuff—but what about the core banking services that exist today and are completely dominated by the chartered banks? If consolidation goes forward, do you see any competition there? If you do, how long before we see real competition there? Should there be some type of protection as we move forward?

Mr. Larry Pollock: I think the reason you won't see the American banks come in and do branch banking in Canada is that they look at Canada and say it's over-banked now, and it's probably extremely well served on the retail side.

So I could almost guarantee you these guys will probably support that. They won't come in and open branches here. But there will be monoline players like MBNA delivering credit cards. You'll have the Bank of America delivering loans. They'll cherry-pick the Canadian market and try to avoid paying the same sort of taxes we have to pay when we actually open, bricks and mortar.

The delivery systems are going to change. You're seeing this. The activity in banking machines is just going through the roof. Canadians are one of the biggest transactional users of banking machines in the world, and the whole environment is changing. So I don't think you can look at just the traditional core banking business, because it's evolving into something quite different through the Internet and all these sorts of things. I think you have to look at the whole financial environment.

Mr. Tony Valeri: True.

The Chairman: I think Mr. Valeri raised an interesting point. All the things Mr. Valeri spoke about really speak to the issue of innovation—how services are delivered. What's interesting is that the major banks speak to mergers as an answer to those issues.

I'm just wondering whether the issue really isn't size, but rather giving and providing more innovation to the existing system. What do monolines have to do with size? I know there is capital that can back up the loan, but the issue becomes why the existing banks don't become more innovative with what they have already.

Mr. Larry Pollock: Yes—

Mr. Tony Valeri: They don't have quite the—

Mr. Larry Pollock: —and fight the monoline competition.

The Chairman: Exactly.

Mr. Larry Pollock: The monoline players have critical mass in those products that they deliver.

The Chairman: Basically, you're telling me existing banks can't develop call centres, or can't send us credit card applications or whatever other innovation system is coming from the United States. Wells Fargo provides loans, but it's not a great deal. In that sense, they might not even be competitive, right?

Mr. Larry Pollock: I've never run into them on the street. We've never competed with them.

The Chairman: So, the issue then becomes how do you deal with innovation.

Mr. Larry Pollock: Well, you can make the choice, like the big six Canadian banks have done, to try to be all things to all people. Frankly, I don't think it will work. There's no rule or law right now that prevents the banks from owning brokerages, for example. They could buy them if they thought they wanted to be in that business. If we thought we wanted to be in that business and I wrote the cheque today, I'm sure one of the brokers in the room would accept it. This is just adding more zeros to it.

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The Chairman: But wouldn't they just say mergers are the response to these issues?

Mr. Larry Pollock: Not necessarily. I think the response of the smaller banks and other financial institutions to that strategy is to look at what's left in the market and try to be very good at it. In our case it's medium and small commercial lending, and we're very good at it. We can compete with the big banks. They're easy competition. In first nations business, I'm sure the big banks will be very easy competition because you're specializing in something that's unique. Where will the client go to get better served? It will be to the people who know that business.

Mr. Jack Rothenberg: It would be wonderful if numerous other small banks could get in to be players, but look at what's happened over the last ten years with all of the small trust companies. They just couldn't compete. I'm not sure why, but they just couldn't make it. It's a shame. With the fewer institutions we have now, I feel more captive as an audience with the large players. It would be wonderful if somehow you could have that happy medium and say “Okay, merge if you want to merge. Do whatever the hell you want.” Let's somehow make it easier for competition to exist.

Mr. Tony Valeri: What do you feel captive about? That's the point I'm trying to get at. You don't feel captive—correct me if I'm wrong—about your choices with mutual funds and perhaps credit cards, let's say. But are you saying you feel captive about the core banking services that are available today? Is it your fear that as the industry consolidates even more and we don't get competition in the core bank, you will feel more captive?

Mr. Jack Rothenberg: Mr. Valeri, perhaps I can explain it to you so you'll see it from my point of view. Again I'm talking as a consumer. It bothered me that banks were getting into the playing field with mutual funds, but again, so what? As long as all of the others are there, the Mackenzies and the AGFs, there is competition. It's wonderful. I still have the choice.

As a businessman I really feel trapped. I love my bank and I hate my bank. I have to love my bank because without it I'd be out of business, but whenever I get irked over something I have nowhere to go. I really feel I have nowhere to go. I go to my accounting firm—it's one of the largest firms in the country—and I say to them “I feel I have no choice here. I don't like what they're doing to me. I want to leave them.” They tell me not to bother, because their experience is that wherever you go you will have the same thing.

I've been dealing with the same bank now for 25 years. It is so frustrating that every eight months the guy looking after my account leaves and they put somebody else in his place. I have to go through the same story all over again of how my business dies during this month, that month and the other month, and in October, November and December I have great months so I can survive again. I have this little 25-year-old kid telling me how to run my business and saying “Well, why don't you just cut your staff over here?” He doesn't realize what I go through to train my staff so they understand all the products, and that I have to live with them during the slow periods and have them there to support my clientele during the busy periods.

I'm very frustrated with the banking situation as it is. If I have a line of credit of $1 million and I go over it, they charge me $5 for every cheque that goes through. My cheque could be for $3.50 but they would charge me $5 for it. I'm at their mercy. There's nothing I can do, because when I go to the other bank they're going to do the same thing to me.

Right now I have another bank that's romancing me. I gave them a little bit of my business. We opened up in Alberta and I said “I'm not staying with the same bank, I want to diversify.” So I opened up an account with this other bank and they're pleading with me to move all of my business there. But I know the moment I do it, I'm finished.

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Mr. Tony Valeri: MacKay does make some reference to manager turnover, although that's an issue that has been ongoing with the industry committee.

Mr. Jack Rothenberg: Yes, it has, and it's wonderful that they have been looking at it. They're addressing the tied selling issue. Being a deposit broker is one of my businesses. I had money, my own term deposits, with various different institutions, including the Canadian Western Bank, to which we give millions and millions of dollars.

Mr. Tony Valeri: That's a bit of a commercial there, I think.

Mr. Jack Rothenberg: My banker says he wants collateral, okay? Here's the perfect example. I give him $250,000 in collateral in other institutions' term deposits. The manager leaves or gets promoted, and the new guy comes in and says he doesn't accept these term deposits as collateral because they're not with his bank. Do you know they virtually made me, over time and as those certificates came due, renew with them? They implied that if I didn't, I would have my line of credit pulled.

Not only do I lose there, I'm dealing with them and they're giving me a lower interest rate. If I say to them that the Canadian Western Bank is giving me a higher rate, and I ask if they will match their rate, they say they won't match it. Furthermore, because we're brokers, we get a commission from the Canadian Western Bank that this particular bank isn't going to give us. Mind you, we happen to represent all six banks now and they do pay us a commission, but they wouldn't give me a commission on my particular deposit when using it as collateral. That's nonsense. That's not competition, it's really a cartel.

Mr. Louis Lafrance: It just seems the MacKay report didn't get into the competitive aspect of the basics of the banking business. It should have addressed those issues, maybe, but I'm not sure it was capable of that. It just seems that some of the aspects of the MacKay report seem to be for the sake of change, just to have change.

The banks obviously feel very threatened by the foreign banks, but if all these things were to happen, I'm not sure what the little person who lives in Kindersley is going to feel. Is he better off because the Royal Bank is now better able to compete in the U.S., in foreign loans, or in some of those things?

Mr. Jack Rothenberg: That kind of change doesn't help them at all.

Mr. Louis Lafrance: No, it doesn't. Your example about the bank putting pressure on you for your investments would be the same thing with the insurance companies once they're in that business. That's our very point. We cannot compete with that.

Mr. Jack Rothenberg: You have to address this coercion or tied selling. My best friend, who was my customer and who just opened up a little franchise, came to me and said he was sorry but he couldn't deal with me any more. We're best buddies, but I have to understand that he's forced to move his RRSP to his bank now.

The Chairman: We dealt with the tied selling issue. We were the committee that actually asked the government to proclaim section 459.1, although it was stated it didn't go far enough.

The issue of global competition does become important in the sense that you may or may not know that around 40% or so of bank revenues come from abroad, and 80% of the taxes and employment are generated here in Canada. “Paying taxes” means those individuals you're talking about, and how it affects the individual on your street. Those taxes are precisely the taxes that pay for health care, that pay for all sorts of other issues. If you want to know how global competition affects people on the street, that's precisely how it affects them. The more revenue you can generate abroad and bring home, the better off will be the country. So I think we have to expand the debate above and beyond our own boundaries, because this is very much a globally sensitive sector.

Mr. Jack Rothenberg: Are you saying the banks will become even more profitable due to the merger, will therefore have to pay more taxes, and will therefore help the little guy out in Chibougamau? I really and truly doubt they will become more competitive globally by merging. Why can't they continue to do what they are doing now globally? They're just doing it smaller.

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The Chairman: I'm not addressing that issue of the merger. What I'm saying is that it's important for our banks to remain globally competitive because that has an impact on our bottom line as a government and on you as a citizen. What I'm saying is that we have to take measures that will facilitate the growth of Canadian banks to allow them to become world-class banks.

As I said earlier, this committee is not looking at the two proposed mergers. Take that right out of your mind for a second. We have to make sure that conditions are set so that we continue to generate the types of revenues abroad that are needed to keep our health care system, to keep our education system, to do all sorts of things. When you're paying $1 billion in taxes, for example, that could be the amount of money—it is the amount of money, more or less—that we could use to increase the transfer payment in the budget so that we can have health care.

Mr. Louis Lafrance: But the independent brokers across Canada pay taxes as well, sir. A lot of us pay a lot of taxes, so that's true for our industry as well.

Ms. Barb Ricard: Don't forget it.

Mr. Louis Lafrance: From an economic development point of view, I just think having a lot of small businesses in small towns and cities across the country benefits the average citizen in those little communities. I would that the person in Kindersley would be more affected.

The banks becoming more competitive on a global scale should not be a condition of their getting into my business. I'm not sure of the extent to which allowing them to retail insurance contributes to their being more competitive. If those things evolve and we lose businesses, or if a small town in Saskatchewan loses its one branch of the bank because the big bank is becoming more efficient, I'm not sure the consumer is well served.

The Chairman: So, Mr. Lafrance, you're saying that if a business case can be made at any point in time that if banks are retailing in auto leasing and/or insurance we can get productivity gains, if they can provide lower prices, and if they can generative greater wealth, then we as a nation should go ahead with it.

Mr. Louis Lafrance: We don't think they can do that.

The Chairman: If such a business case is made, then what's your point?

Mr. Louis Lafrance: We're saying we don't think they could do that, because they will do it at our demise and the consumer in the long run will not be better served by it. We honestly believe that.

Mr. Barb Ricard: It's a power issue.

The Chairman: That is your issue, by the way. It's a concentration of power.

Mr. Tony Valeri: It goes back to my original question. MacKay talks about increasing competition in the banking and financial services sector. He does this by setting a framework that would allow smaller institutions to be formed in order to compete with the big banks. Those smaller institutions would presumably focus on some core banking services, knowing that there's competition today in those other sectors, in the monolines. There is competition today in the monolines, but there is not in the core banking services.

Do you agree that what MacKay is putting forward as a framework to allow these smaller institutions to be formed to compete is actually going to happen? Do you think there is enough there to allow for competition in the core banking services? We're not going to have the U.S. come in, but do you believe there will be an opportunity for credit unions to set up a national banking system? Do you believe Wal-Mart may decide to set up a bank within its stores so that you can go in and do your deposits and your cheques? Do you believe the framework is being set from that perspective? Can what MacKay is advocating occur?

Mr. Jack Rothenberg: I would like to believe that would happen, but I'm afraid to believe it because of what happened to the trust companies that developed in the 1970s and went down in the 1980s.

The Chairman: Why did they go down?

Mr. Jack Rothenberg: They probably went down because of poor loans. We all got carried away with real estate never going down but always up. Why did banks lend to third world countries? They should have gone down in the early 1980s too.

Mr. Tony Valeri: Let me restate this question.

Do you believe there is enough competition today in the core banking services? Yes or no. If you don't, do you believe what Mackay is proposing would allow for greater competition in the core banking services as we look to the future of the financial services sector?

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Mr. Jack Rothenberg: The answer is no to the first one, and yes to the second one.

Mr. Tony Valeri: Okay.

Ms. Barb Ricard: Yes. I reiterate.

Mr. Tony Valeri: So you believe what MacKay is proposing will in fact provide Canada with greater competition in the core banking services.

Mr. Jack Rothenberg: Yes.

Mr. Tony Valeri: Yes. Anyone else?

Thank you.

The Chairman: Thank you very much, Mr. Valeri.

I want to thank you. This has been a very interesting panel. Now you have a taste of what we have to deal with as we make recommendations to the minister.

We are trying to assess the challenges and choices we have and we try to remain as loyal as we can to the framework developed by Mr. MacKay—namely, to enhance competition and competitiveness, to empower consumers, to deal with Canadians' expectations and the corporate conduct, and to improve the regulatory framework. That's what we're looking at.

I also want people to leave today with one clear message, and that is that the public and consumer interest will provide the basis for all decisions we make as we try to define a 21st century financial services sector.

On behalf of the committee, thank you very much.

Before I adjourn, I have a housekeeping item for members of the committee. The flight is at 4:15 p.m. to Winnipeg and we have to be out of here no later than 2:45 p.m. Is that clear? Thank you.

The meeting is adjourned.