FINA Committee Report

SUPPLEMENTARY OPINION
BY THE BLOC QUÉBÉCOIS

TO THE REPORT OF THE STANDING COMMITTEE ON FINANCE ENTITLED LARGE BANK MERGERS IN CANADA: SAFEGUARDING THE PUBLIC INTEREST FOR CANADIANS AND CANADIAN BUSINESSES

TABLED WITH THE STANDING COMMITTEE ON FINANCE

In a spirit of co-operation and openness and with considerable interest, the Bloc Québécois was actively involved in the deliberations of the Standing Committee on Finance on the impact of the merger of the large banks in terms of the public interest.

The Bloc Québécois supports the general thrust of the report that the burden of proof lies with the banks, which have to prove that the mergers are necessary and in the public interest. However, we note that, while this notion is expressed in the text of the report, it is not given sufficient mention in the recommendations, and in recommendations 6 and 10, specifically.

Furthermore, the Bloc Québécois would have liked the report to be more explicit about public consultation. The requirement to evaluate proposed mergers as announced in debates on the bill entitled An Act to establish the Financial Consumer Agency of Canada (Bill C-8) in June 2001 must be not only retained but incorporated in the Bank Act.

Two recommendations in particular do not reflect the Bloc Québécois desire to protect public interest in the process of bank mergers.

Recommendation 6 

This recommendation makes timid reference to access to financial services for rural and remote communities, but ignores disadvantaged urban regions. We would have liked to see the Committee recommend the government establish a public consultation mechanism within the communities where a merger would result in the closure of branches, before such closure occurred, because the Bank Act is not sufficiently exigent in this regard. We would have liked the Committee to recommend to the government that it require banks to consult the public locally in the case of all proposed branch closings and to report their profits, losses and net income to permit an assessment of the merits of such closures. The consultation mechanism used by the Mouvement des caisses Desjardins du Québec, which allows its members review branch closings, could serve as an example.

As banking services are an essential service, we also consider that banks have a responsibility not only to serve the public, but to invest in the community. This is why the Bloc Québécois tabled a bill on community re-investment, an approach that will become all the more important in the case of mergers.

Recommendation 10 

In the case of recommendation 10, the Bloc Québécois is of the opinion that most of the Committee members missed what is probably the most important issue and the one most difficult to evaluate, namely the macro-economic impact of creating a Canadian mega bank through a merger. Determining a merger’s impact on the public interest requires a highly accurate evaluation of whether the benefits for the Canadian economy of a bank merger, specifically the new bank’s increased international activity, offset the increased concentration in the banking sector. No study on the economic impact of a bank merger was brought to the attention of the Committee, and, to our knowledge, none exists. Indeed, at the first meeting of the Standing Senate Committee on Banking, Trade and Commerce on the impact of bank mergers on the public interest, the Director of the Financial Institutions Division, Financial Sector Policy Branch of the Department of Finance, Gerry Salembier, responded in answer to questions that no document or study existed with regard to the examination of bank mergers other than the guidelines of the Minister of Finance.

Of the factors that must be considered in determining whether a proposed merger is in the public interest, the matter of risk and the various types of risk is material for both the institutions merged and the other financial stakeholders and, in the final analysis, for the entire Canadian economy. A merger could, for example, increase risk in management terms. Accordingly, the following questions must be answered.

What impact would the failure of computer systems have on the protection of privacy, for example?

What protection would there be in the event of bad management by the managers of a mega bank?

What effect would increased homogeneity have on Canada’s financial market?

Would the reduction in the number of players in the market not increase imitative behaviour thereby potentially increasing the volatility of economic and financial activity?

In short:

What impact could the merger of the big banks have on the Canadian financial markets?

In addition, however, the effects mergers might have on other areas must also be considered.

What impact could the creation of a mega bank have on monetary policy, the management of interest rates and on the Canadian dollar?

What threat to the Canadian economy is posed by the difficulties experienced by a mega bank in its international activities? For example, Jean Roy, professor at the school of Hautes Études Commerciales (HEC) suggested during Committee hearings that the provisions of the Act to establish the Financial Consumer Agency of Canada (Bill C-8) permitting the creation of financial holdings be used entirely to keep national and international activities separate as much as possible.

It is in response to these very legitimate concerns that the Bloc Québécois suggested to the Committee it include a recommendation to have the banks involved in a proposed merger demonstrate that the international activities of the new merged entity would be beneficial to the Canadian economy.

In addition, we would have liked the Committee to recommend to the Minister of Finance that he start looking now at ways to keep the national and international operations of a future merged entity as separate as possible.

In the opinion of the Bloc Québécois, the federal government has a responsibility to convince the public that its trust in the banks and their dealings as they affect the public interest is well placed, in particular, when the banks propose mergers.

Pierre Paquette
MP for Joliette

Pauline Picard
MP for Drummond