moved that Bill , be read the second time and referred to a committee.
He said: Mr. Speaker, I am pleased to lead off the debate, at second reading, of Bill , which amends the legislative framework governing financial institutions operating in Canada.
This proposed legislation is significant for a number of reasons.
First of all, it will go a long way toward improving our entrepreneurial advantage in Canada, one of the five advantages at the core of our government's new long term economic plan for Canada, called Advantage Canada.
Advantage Canada sets out to create several advantages for our country: a tax advantage, a fiscal advantage, a knowledge advantage, an infrastructure advantage, and, as I mentioned, an entrepreneurial advantage for Canadian families, students, workers and seniors.
To gain an entrepreneurial advantage, we must build a more competitive business environment by reducing unnecessary regulation and red tape and improving services for consumers, so this bill is significant for another reason as well. It will have a positive impact on one of the most important drivers of our economy, and that is the financial services sector. This sector is one of the key foundations on which our economy, indeed any modern industrial economy, rests.
On a broader scale, this important sector plays a unique role in ensuring financial stability, safeguarding savings and fueling the growth that is essential for the success of the Canadian economy.
Moreover, the financial services sector plays a significant part in the daily lives of Canadians. Beyond those of us who use their services, the financial services industry employs about 700,000 Canadians in good, well-paying jobs. It represents about 6% of Canada's GDP and is a leader in the use of information technology.
We can no doubt appreciate the importance of ensuring that the framework governing this important and influential sector is current and effective.
Canada's new government is committed to doing just that with the proposals contained in this bill before the House today.
Before I outline the proposals in the bill, I would like to make a few remarks about the consultation process that led to this review of the financial institutions statutes and the legislation before the House today.
A representative number of stakeholders have shared their comments on the 2006 review of the financial sector legislation.
Overall, stakeholders generally agreed that no major overhaul is needed, but many believe, as we do, that some steps could be taken to refine the legislative framework.
Stakeholders also made specific proposals for technical amendments. Those submissions in the consultations resulted in a white paper issued by the Department of Finance this past June, entitled “2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework”.
For the most part, the white paper is the basis for Bill , which contains the government's proposals to amend the legislative framework for financial institutions. These proposals are aimed at achieving three key objectives: first, improving service for customers; second, increasing legislative and regulatory efficiency; and, third, adapting the framework to new developments.
Together, these objectives will contribute to a modern and competitive financial sector framework in which businesses of all sizes and consumers from every corner of the country will continue to be well served.
I would now like to briefly outline the intent of the three objectives contained in Bill .
The first is improving service for customers.
Consumers are taking greater responsibility for their financial affairs. At the same time, we are seeing an increase in the breadth and complexity of financial products, service providers and delivery channels. Clearly, this means more choice for consumers. At the same time, it makes it more difficult for them to make informed choices in the marketplace.
That is why Canada's new government is acting to ensure that services are improved and customers are adequately protected. The government believes that the best approach to improving services for consumers is through competition and disclosure.
On the one hand, competition provides more choices to consumers and allows them to find financial products and services that best suit their individual goals and needs, at competitive prices. Disclosure, on the other hand, ensures that consumers and businesses alike have the relevant information they need to make the best decisions in light of the choices available to them.
As we all know from newspaper and TV ads, the range of financial services and products offered to consumers continues to evolve. In order to assist consumers to make choices, the disclosure regime for our financial institutions framework needs to stay current to accommodate the different types of products and services in the marketplace.
The proposed changes to the framework contained in this bill reflect that principle.
One example of consumer protection measures in the bill is with respect to online disclosure. As we know, federally regulated financial institutions must disclose in their branches information on the products and services they provide to their customers and the public. Many Canadians today are opting for the convenience of the Internet to meet their banking needs and current disclosure requirements do not extend to the online world.
To ensure that consumers have sufficient information, the bill proposes, first, to harmonize online and in branch disclosure requirements to allow consumers to compare products more easily and, second, to ensure adequate disclosure is provided to customers conducting transactions online.
The intent of this proposed measure is to provide consumers with the information they need in order to make informed decisions.
The second major objective of the bill is to increase the efficiency of legislation and regulations governing the Canadian financial sector.
The regular review of the financial sector statutes allows this government to amend the framework as necessary so that financial sector legislation and regulations continue to be both effective and efficient.
Bill addresses a number of key areas identified in the review to achieve increased legislative and regulatory efficiencies.
One such area that is quite relevant to many Canadians is the area of residential mortgages. Mandatory insurance for high ratio mortgages was introduced over 30 years ago as a prudential measure to ensure that lenders are protected against fluctuations in property values and associated defaults by borrowers.
Of course, the marketplace has changed since then. Among other things, the risk management practices of lenders have improved significantly and the supervisory framework for federally regulated financial institutions has been strengthened significantly. This means that some homeowners may be paying more for mortgage insurance than they need to.
The proposed amendments to Bill C-37 reduce the cost of mortgages for some families by raising the loan to value ratio requiring mortgage insurance from 75% to 80%. This will lower the mortgage down payment consumers are required to make before the law requires the purchase of mortgage insurance. This proposal will create an opportunity for mortgage cost savings and ensure that more young families can realize the dream of owning their own home.
Another key area identified in the legislative review called for improvements to the regulatory approval regime. Ministerial approvals are currently required for a broad range of financial sector transactions related to market entry, structure and competition, as well as financial institution ownership.
There are, however, transactions that the minister reviews that are routine and do not raise significant policy issues. Bill proposes measures to streamline the regime to ensure that these transactions are dealt with more expeditiously.
As we know, the rate of change in the financial services sector has increased dramatically in recent years. Financial institutions must be able to respond to developing trends such as globalization, convergence, consolidation, and technological innovation. This adaptation to market changes often results in the creation of new products and services and innovative ways of doing business.
The government needs to ensure that the framework regulating financial institutions is up to date to allow them to respond to these changes so that they can evolve and grow. At the same time, the government is also committed to protecting consumers and small businesses adequately while maintaining the overall safety and soundness of the financial system.
Bill does that and more.
One way that this bill will improve our financial system is by allowing for the implementation of electronic cheque imaging. Currently banks process about one billion paper items, mostly cheques, annually valued at over $3 trillion.
The process of clearing a cheque includes the physical delivery of the cheque to the paying or issuing financial institution in order for it to decide whether or not to make the payment. This process is more labour intensive, time consuming and costly than necessary, particularly given today's developments in technology.
The proposal in this bill to allow for the implementation of electronic cheque imaging will result in significant efficiency gains, saving time and resources currently dedicated to the transport of cheques. This will allow banks to keep their costs down, a benefit that needs to be passed on to customers to ensure that the efficiencies derived from electronic cheque imaging will be shared by all users of the payment system.
Another proposal in this bill relates to cheque hold periods. For most large banks, the maximum hold period on cheques deposited with tellers is 10 days. While the government recognizes the importance of cheque hold periods for risk management, a concern remains about the length of time that consumers may be subject to these hold periods. Cheque holds not only affect consumers who need to access funds to pay their bills, but also small and medium sized businesses that need to pay employees and operate their businesses out of the funds they deposit.
While the proposed legislation would be facilitating the establishment of a limit on the time that banks can hold a cheque, the government is finalizing the agreement with the banking industry. The agreement will reduce the maximum hold period immediately to seven days and reduce it further to four days once electronic cheque imaging is fully implemented.
This change will be a significant improvement over the current maximum hold period of 10 days or more. It is a major step forward for consumers and businesses. It will increase efficiency and free money up more quickly, having a positive impact on the Canadian economy overall.
In summary, the measures proposed in this bill will amend the legislative framework governing financial institutions in order to achieve three key objectives.
First and foremost, the bill proposes steps to improve services for consumers. Second, Bill would increase legislative and regulatory efficiency and contribute to a framework where financial institutions could grow and prosper in the global marketplace. Third, the proposed amendments in Bill C-37 would allow financial institutions to adapt to new trends in the industry by providing a framework that is up to date and, above all, dynamic.
I urge all members to give Bill careful consideration.
Mr. Speaker, I am happy to speak to Bill .
Last June, the Department of Finance released a policy paper on which much of the bill is based. The policy paper was commissioned by the previous Liberal government in preparation for the statutory five year review of the Bank Act.
The title of that white paper was “2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework”.
Given that it was inspired in large part by the white paper, the government's bill mirrors Liberal policy. The white paper stated that competition and disclosure are the best ways to protect the interests of consumers.
Consequently, we are seeing some positive measures in this area.
Bill would ensure that financial institutions provide greater and more timely disclosure to consumers in areas such as deposit type investment products and complaint handling procedures.
What these measures would ensure is that when a customer opens something like a savings or chequing account they are provided with all the information they require to make an informed decision. I think that little could be more important for consumers than ensuring that they have the appropriate information specific to the type of product they are purchasing.
The bill also makes some routine changes that need to be addressed every few years. The prime example of this is readjusting the equity thresholds that determine the size of financial institutions. When the Bank Act was last reviewed in 2001, it was determined that large institutions would be considered those that hold over $5 billion in equity.
Times do change, however, and as a result this bill proposes to increase that threshold to $8 billion to reflect growth in the sector and the general cost of living and inflation factors, small as they are.
Additionally, it would set a new threshold for what is considered to be medium sized institutions. These will be those institutions that hold between $2 billion and $8 billion in equity. As I said, these are some routine updates, but they are important nonetheless.
The bill also has a section devoted to electronic cheque imaging, something that we had asked to be addressed in the white paper. It would require banks and financial institutions to exchange electronic images of cheques, rather than physically exchanging them among themselves. Let us try to picture some five million cheques being transported from one financial institution to another every day, some of which must travel clear across the country.
Advances in recent technology means that this drawn out process is no longer required. Electronic images of the cheques can now be scanned, captured and transmitted in a safe and secure manner between banks. This saves time and it reduces the administrative burden. It is already used by several financial institutions and we have seen great results.
This measure will be very advantageous for both consumers and businesses because cheques will clear quickly. Once electronic cheque imaging becomes widespread, cheques will no longer have to be held for more than four days.
Our previous Liberal government was constantly searching for new technologies to make business and government more efficient. For instance, last year the Canada Revenue Agency began a move toward 2D bar coding for corporate tax returns which would allow tax software to generate a bar code that could be affixed to a company's tax return. When it arrives at the Canada Revenue Agency processing facility, all that is required of the CRA is to scan in the bar code and all of the data contained in the return is transferred electronically into the CRA's computers. This not only would allow for faster processing time but would significantly reduce the occurrences of human error that often goes hand in hand with manual data entry.
This was just a small aside, but I think it illustrates the point that we need to be cognizant of new technology and seize the opportunities that they present us with. I am glad that the Conservatives are following our lead on this particular issue.
I am also in favour of the section in the bill that would make it easier for credit unions to establish cooperative credit associations as a means of expanding their business opportunities. Currently, the Cooperative Credit Associations Act requires a minimum of 10 credit union members in order to form a cooperative credit association. This is a fairly high threshold that precludes many credit unions from forming cooperatives. I am happy to see that the minimum number will be reduced.
When our government reviewed the financial sector in 2001, there were key initiatives that we pursued when bank mergers were on the radar. We wanted to ensure that if bank mergers were ever proposed and were deemed in the public interest that there would be the opportunity for more competition and more products, services and choices available to Canadians through credit unions and foreign banks.
In questioning the minister earlier, I alluded to the fact that foreign banks, while they have an interest in doing business in Canada as the minister indicated, are doing well in certain areas. Most of their efforts are in the wholesale banking side because of the dominance in terms of retail branches across Canada that are maintained by Canada's chartered banks. However, I would encourage any measures in Bill that would create more opportunities for foreign banks to more aggressively enter the Canadian marketplace. This would give Canadian consumers more choice and more opportunities to shop around for different options and that is good for consumers and the Canadian economy.
I am glad to see that the minister is trying to deal with the credit unions as well. This is a great opportunity again for giving consumers more choice. I know the minister has indicated that there is no big appetite right now for bank mergers or cross-pillar mergers and I think that is a wise decision at this point in time. It is certainly providing clarity to the financial institutions with something that they were looking for.
However, at some point in time if the banks do come back, it would be important, for example, because certain branches of the credit unions would have to be divested and then perhaps foreign banks and others would be in a position to acquire those branches. In fact, the end result could be that consumers would have more choice, so I think it is important to try to build those institutions up in Canada so that Canadians do have more choice and more access to different products and services.
The minister talked about how the bill proposes to reduce the cost of mortgages for some borrowers by raising to 80% the loan to value threshold above which mortgage insurance is required by statute. The current threshold at which one requires mortgage insurance is 75%. Given changes in risk management practices and regulatory requirements, the white paper, which we commissioned under our government, made this exact recommendation. I am happy to see it included in the bill.
One area I am concerned about that did not receive enough attention in this bill is extending customer protection. Beyond the requirement I mentioned earlier that financial institutions provide greater and more timely disclosure to consumers in areas such as deposit type investment products, there is very little mention of helping other types of customers. The bill does not seem to offer similar types of protection for Canadians who take out a mortgage, for example.
June's white paper recommended that the government amend laws governing financial institutions to require them to give all consumers full access to their complaints process, either in their branches or online.
One of the central pillars of consumer protection is providing them with the information required to make the right initial choice of product and the information required to properly lodge a complaint and seek compensation if that product is defective. Yet, the bill has largely ignored this recommendation from the white paper.
I do not think the majority of Canadians are very familiar with what the complaints process is at their local banks and legislating information in that respect to be readily available would have been a great idea and is still a great idea. My riding and I am sure many of my colleagues' ridings receive calls and complaints about banks, service charges and a range of other things. There is a bank ombudsman and there is actually an ombudsman of all ombudspeople. That is a very useful mechanism.
I would be willing to bet that there are a good number of Canadians who do not even know that there is an ombudsman for banking services should they exhaust all the avenues available to them. The banking services ombudsman and his office do fine work. I have worked with them before on a number of issues. I would have liked to have seen a requirement for information about the services of the ombudsman be made readily available.
The white paper called for the streamlining of the ministerial approval process. Currently, there are numerous ministerial approvals required for a broad range of important financial sector transactions related to market entry, structure and competition, as well as financial institution ownership. There are also many routine transactions that require multiple ministerial signatures. This could be dealt with in a more efficient manner and this bill would ensure that happens.
The bill also contains a few items that go beyond the white paper. For instance, the bill proposes to reduce the number of resident Canadians who are required to sit on the board of directors at a Canadian owned financial institution. Currently, two-thirds of such directors must be residents of Canada. The bill proposes to reduce this requirement to more than half of the directors being Canadian.
I know this issue comes up when financial institutions in Canada look to merge or acquire assets in the United States by way of example. When they try to merge, very often the U.S. enterprise will say it will merge but it would like a stronger representation on the board of directors. Frankly, I would encourage our financial institutions to grow north-south. This would give them options beyond just looking to cross-pillar mergers in Canada. This is a positive step.
The two-thirds requirement worked well in the past, but these days, our financial institutions have added a major international component to their activities. Relaxing these requirements would promote the growth and enhance the competitiveness of Canadian institutions on the world economic stage.
I brought up with the the question of data processing outside of Canada. The proposal in Bill says the approval of the Superintendent of Financial Institutions would be eliminated for the processing of information of data outside of Canada. While I appreciated the minister's remarks, I think that is in the domain of the Privacy Commissioner.
If a financial institution in Canada was proposing to outsource some of its data processing outside of Canada, keeping superintendent approval is probably still a wise thing to do because before the superintendent would give his or her approval, he or she would presumably ask whether the Privacy Commissioner had been consulted and whether the transactions would protect the privacy interests of Canadians. I am sure the superintendent and the Minister of Finance do not mean to pass this off to someone else to get out of a sticky situation. I am sure that is not the motivation.
Whatever the motivation, the government and perhaps a committee should look at whether this is a wise thing to do given the recent events where certain data processing activities in the United States came under the purview of the patriot act. The confidential information of Canadians was perhaps compromised.
As I said earlier, our government made changes to the financial sector framework in 2001 to set up the process where any bank merger would be required to pass a parliamentary committee test as to whether or not it was in the public interest. That was a good move.
However, in that period, the finance committee of the House of Commons did not review cross-pillar mergers. A cross-pillar merger would be, for example, when a Canadian bank wishes to merge with a Canadian insurance company. The minister has signalled that he is not interested right now in any sort of cross-pillar merger proposals, but if that day ever comes, the public interest criteria and framework that was set up for potential bank mergers needs to be looked at by the House of Commons Standing Committee on Finance because that work was not done for cross-pillar mergers.
Unfortunately, I am not at the stage where I could have proposed amendments to the Bank Act, but that may come one day. I just have to do more work on this particular issue.
An area of interest to me has to do with Internet betting. The Woodbine Racetrack is in my riding of , and it is expanding at an incredible rate. It is developing its property to include the concept of Woodbine Live, which will have entertainment, hotels, shopping, et cetera. One of the issues that is of great importance to Woodbine is the growth in Internet betting which is actually taking some of its market share away. The irony is that Internet betting is illegal, but no one seems to want to prosecute. As a racetrack, Woodbine is regulated very carefully by the provincial and federal governments. It would be happy to get into the game of Internet betting if everybody else was doing it, but it is reluctant to do so because of the regulatory regime that oversees its operations. It could lose its licence.
I have looked at this from a number of different angles. I have tried to engage the RCMP and the Ontario Provincial Police. No one seems to really be interested in seeking prosecutions in this area. One way to come at it is to do what has been done in the United States where it is illegal for banks to accept cheques, debit or credit cards for Internet betting activity.
Yesterday we debated a bill sponsored by my colleague from with respect to video terminals in bars and restaurants. Young people could become addicted, and not just young people, but many people do become addicted. The reality is there are some people who sit in their homes, go online and play poker on their computers at poker.com, et cetera. I have never done it myself but I am told that in order to do that, people have to use a credit card or a debit card to create some credit authority.
If there were changes made to the Bank Act that the banks would not accept debit cards or credit cards associated with online Internet betting, this might be a way of trying to limit some of these activities. It would make sure that the playing field was level for organizations in my riding such as the Woodbine Racetrack, which has a very proud reputation in Canada. It hosts the Queen's Plate annually. It is a great institution and I am very proud of it.
In conclusion, I think that all parties can agree this bill contains some much needed updates for our financial institution legislation. I personally do not think the bill contains anything particularly contentious. I will be happy to provide it with my support, with the caveat that if it is referred to committee, the committee should look at a couple of the issues that I have raised today.
I am very pleased to participate in this debate. It might seem very technical, but it is extremely important, especially for consumers and all of our fellow citizens. We do business with financial institutions every day, especially with banks and near banks. Although these are private enterprises, they are for all intents and purposes public services.
Bill introduces certain changes to the banking system while ensuring its stability. The government is required to undertake consultations every five years to update legislation governing financial institutions. October 24 was the deadline for consultations on legislation governing financial institutions, but the government extended the application of these laws to next April 24 to enable Parliament to study the issue more thoroughly.
Bill follows the June 2006 publication of a document entitled 2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework, as well as Advantage Canada, which was recently published by the government during the economic and fiscal update. A lot of work went into drafting this legislation. Bill would implement new mechanisms to make Canada's financial system more efficient. This bill is aimed at achieving three key objectives. As I said earlier in my question to the minister, those objectives are to enhance the interests of consumers, increase legislative and regulatory efficiency, and adapt the regulatory framework to new developments. This is a sector that has seen a lot of technological, financial and service development over the past few decades.
On the whole, we are quite happy with this bill, because it meets a real need. Obviously, a number of things will need to be discussed in committee, and I will talk about those in my speech. We will therefore vote in favour of Bill at second reading, but we reserve the right to improve the bill, with the help of the other parties in this House, so that it better meets its objectives, which the outlined earlier.
I spoke earlier of three key objectives. The first is to enhance the interests of consumers. This includes three main elements. The first consists in improving the system of disclosing information to consumers; the second consists in amending the regulatory framework to provide for the introduction of electronic cheque imaging; the third consists in reducing the hold period on cheques.
The first element of this first objective consists in improving the disclosure regime. As the minister has said, the intent is to help consumers make informed decisions about investment vehicles by providing them with more specific, more extensive, more easily accessible information. The government is therefore proposing higher standards for disclosure of charges and penalties that apply to various accounts and investment vehicles. It will also require institutions to clearly disclose this information on the Internet. Today, many Canadians use the Internet for their financial and banking transactions, paying bills and looking for information. Of course, not every household has Internet access yet, so this information will be available not only online, but also in all branches. That way, anyone who needs information will have access to it.
The second element of this first key objective of enhancing the interests of consumers is amending the regulatory framework to provide for the introduction of electronic cheque imaging.
Bill will establish a legislative framework for electronic imaging in order to facilitate cheque processing by financial institutions and to reduce the hold period on cheques. I believe that the technological developments to which I referred earlier, particularly in the area of financial management, make it possible to use this new tool.
The third element in the first key objective of enhancing the interests of consumers also results in shorter hold periods by financial institutions on cheques.
As we know, following the publication of the 2006 Financial Institutions Legislation Review, the government undertook to reduce hold periods on cheques in order to make life easier for everyone, particularly SMEs and the public.
A hold on a cheque makes our life very difficult. When we receive a cheque, we deposit it and have bills to pay or debt payments to make. We realize that our money or our assets are on hold. They are frozen, in today's language, by the bank for 10 days, even in the case of cheques from major companies or the government. The solvency of the issuer of the cheque is not in question. To manage risk and security, a hold is placed on these cheques for 10 days.
With Bill , the Superintendent will have the authority to establish the hold period on cheques. In the white paper, it is recommended that the hold period be reduced to a maximum of seven days, and then five days once electronic cheque imaging, about which I spoke earlier, is implemented.
Cheque holds not only affect consumers who need to access funds to pay their bills and make debt payments or simply to do their everyday shopping, they also affect small and medium-sized businesses that do not always have a large cash flow margin. They need that cash flow to pay their suppliers and employees and to operate their businesses from day to day. They often do this out of the funds they deposit into their bank accounts from day to day.
I think that this is something that everyone will be pleased to see. As I said earlier, the 10-day maximum hold period for funds deposited is a source of irritation to virtually everyone.
As well, the government would like to ensure that the efficiencies that will be gained through the Canada Payments Association initiative to change the payments system to facilitate electronic cheque imaging will be shared by all users of the payments system, including consumers.
We certainly cannot object to this first objective and the corresponding elements, but in our view it does not go far enough.
I am sure that some of my colleagues in all parties in this House regularly receive letters from consumers these days, as I do, saying that they have been victimized by the practices of banking institutions, and in particular the big banks, and who feel that they simply have no recourse. Starting a legal battle against a financial institution that is a billionaire several times over is something that most of our fellow citizens cannot do. We need to find solutions for this problem so that consumers have some assistance in seeking remedies against financial institutions.
A few minutes ago I proposed that an ombudsman be appointed who would have more power so that he or she could take on a case and go to bat in court for consumers who have been harmed—or who think they have been harmed—by banking practices, so that consumers would not have to use their own funds to defend themselves.
I think that we need to consider, in committee, how we can achieve the ultimate goal of giving consumers more power in their dealings with financial institutions, in terms of compliance with banking legislation but also their rights as consumers.
I would add that the minister’s answer was not what I was looking for. Helping consumers to make informed choices involves more than just handing out more information.
Financial institutions are more familiar with the ins and outs of the financial system and the money market than consumers are. That is in fact why we have given consumers specific rights, to protect them, because the seller always has more information about what it is selling than the buyer does.
I think that the committee will have a lot of work to do in this regard. As I said earlier, we will be voting for the bill on second reading precisely so that we will be able to do that job. In recent days, I have assured some of my fellow citizens that the Bloc Québécois is eager to do this.
The second objective deals with increasing legislative efficiency. Obviously, this is a motherhood issue. There are three key elements. The first involves reducing the regulatory burden placed on foreign banks to facilitate their entry into the Canadian market and stimulate competition; the second is to streamline the by-law approval process; and the third is to refine the federal legislative framework for credit unions.
The reason I am interested in the first element of this second objective, increasing legislative efficiency, is that this measure, which will reduce the regulatory burden, is a response to the concerns expressed during consultations on the review of the Financial Institutions Act.
The Canadian market, as we know, is extremely concentrated and dominated by five major banks. Any legislation that aims to promote competition is desirable, in our opinion.
I know that, in the past, laws have been passed to promote competition, but we have to acknowledge that they have not produced many results up to now.
Moreover this is what caused the Standing Committee on Finance—I do not recall exactly in which month—in its report on bank mergers in 2004, to be extremely reluctant to lift the moratorium on bank mergers. A market that is already concentrated, with a merger of two large banks from among the five largest, would end up being even more concentrated. And when you have concentration, you have an oligopoly, and an oligopoly means that consumers are extremely short-changed.
This is the present situation in the Canadian banking system. I could give my region as an example. In the Joliette region, there are relatively few banks, so we are more or less at the mercy of those that are there. We do not have an unlimited choice.
Therefore a measure that would promote the introduction of foreign banks into the Canadian market is welcome. In that regard, as I mentioned, Bill would clarify the measures applying to foreign banks operating in Canadian territory by refocusing the regulatory framework on the chartered banks and simultaneously excluding the near banks.
I do not need to define near banks but for the benefit of our audience, I will say that they are companies that offer financial services of a banking nature. Unlike chartered banks, near banks cannot change their basic money supply, that is, they cannot borrow money from or lend money to the Bank of Canada to make new deposits or loans.
So this is an interesting measure. We will get a better idea, as the committee studies the bill, of the scope of these measures designed to increase competition in the Canadian market. As I said, previous legislation did not produce many results.
The second element is the streamlining of the regulatory approval régime. This measure is designed to simplify the process pertaining to routine transactions not having any effect on public policies. So Bill wants to transfer the power to approve or refuse certain operations or transactions from the minister to the Superintendent of Financial Institutions.
This is one aspect of the bill we would like to address in committee and study in depth because we have to ensure that only decisions that do not impact public policy, as provided for in the legislation, are in the hands of the superintendent. From that perspective, the criteria and characteristics will be extremely important. How do we define a transaction or an operation that has no affect on public operations?
The Bloc Québécois will not allow the minister to depoliticize operations that will have an impact on public policy. Those have to stay in his hands and also be subject to a democratic debate.
The third aspect has to do with relaxing the federal framework governing credit unions. This is a request that has been made a number of times by the Standing Committee on Finance. In order to facilitate the opening of new credit unions, the government would lower to two the number of institutions required to constitute a credit union. At present, a minimum of 10 credit unions is needed to establish an association under the Cooperative Credit Associations Act.
However, in light of the new commercial possibilities offered by retail associations and the continued consolidation in the credit union system, the current requirement places too high a threshold for new entry. A lower requirement would add flexibility to the federal framework for the credit union system, improve the system’s capacity to adapt to new developments and enable it to better serve consumers and SMEs. As I was saying earlier, the major banks are in the process of leaving several regions in Quebec and Canada and, generally speaking, credit unions are picking up the slack. In Quebec, we are well served, but this is not the case in all the Canadian provinces.
The last objective includes all the other measures—and there are three. The first is to increase from 75% to 80% the loan-to-value ratio for which insurance is mandatory on residential mortgages. The second is to readjust the equity threshold above which a bank is required to be widely held and below which it can be more closely held. The third consists in increasing the limit, from one third to a minority, on the number of foreign members of the boards of directors of Canadian banks.
I will quickly outline what these measures entail and what the Bloc Québécois thinks of them. We agree with the first measure, which consists in raising the loan-to-value ratio requiring mortgage insurance from 75% to 80% for residential mortgages. The mortgage market has changed dramatically and is now much better known. Mandatory insurance for high loan-to-value ratio mortgages was introduced over 30 years ago as a prudential measure to ensure that lenders are protected against fluctuations in property values and associated defaults by borrowers. The last time the threshold was increased was following the Porter Commission in 1965, when it was raised from 66.7% to 75%. The market place has changed since then. The risk management practices of lenders have improved significantly. Regulatory risk-based capital requirements have been implemented. Capital markets have changed and matured. The supervisory framework for federally regulated financial institutions has been strengthened significantly
The restriction may therefore no longer serve the same prudential purpose. As a result, a statutory requirement for insurance set at 75% loan to value ratio may mean that certain consumers are paying more for their mortgage than is justifiable on a prudential basis. It is also preventing some Canadians from owning their own homes, whereas they could afford to own a home if the ratio were increased to 80%.
The second measure adjusts the equity thresholds that allow banks to be wholly owned or force them to be widely held. In 2001, a new sized-based ownership regime was implemented. Under the new regime, the equity threshold above which a bank is required to be widely held—I will come back to this definition—was set at $5 billion to capture the largest banks whose potential failure would have the greatest impact on the financial system and the economy. This was another fear that the Standing Committee on Finance had expressed in its report on bank mergers.
If a major bank were to go bankrupt in Canada, in such a highly concentrated market, how would the Canadian economy be affected? To ask the question is to answer it. The result would be disastrous. We therefore have to make sure that these banks are on extremely solid financial ground.
Under the 2001 regime, medium-sized banks with equity between $1 billion and $5 billion can be closely held, but are subject to a 35 per cent public float requirement (unless a ministerial exemption is obtained). Thus, there is at least some distribution of assets. This ensures that, if one of the shareholders is having difficulties, the financial institution itself can overcome the difficulties. Furthermore, the threshold for small banks, which can be wholly owned by a single shareholder, was set at $1 billion to encourage new entrants.
The intent of Bill is to change the equity thresholds in order to adjust to the new reality of the considerable growth in the banking industry since 2001. Thus, the equity threshold for sole ownership, that is, a single shareholder, would be raised to $2 billion. Furthermore, banks whose equity varies between $2 billion and $8 billion, rather than between $1 billion and $5 billion, must henceforth have a minimum of 35% of their voting shares listed on the stock exchange. Lastly, banks whose equity is greater than $8 billion, rather than $5 billion, as in 2001, must be widely held. Of course, this is nothing new to anyone here, but once again, for our viewers, a widely held company means that no one shareholder can hold more than 50% of the voting shares.
Finally, to account for the reality that Canadian banks are purchasing more and more foreign banks, the minority would be increased, which means that the voting majority on the board of directors must be Canadian citizens, not necessarily by birth or nationality, but Canadian citizens, nonetheless.
Mr. Speaker, this is an interesting debate for Canadians. This is a very major policy area that requires thoughtful deliberation and thorough debate.
I want to start by saying that we on our side of the House have no intention of speeding up the process around deliberations on this bill. Bill is a momentous moment for us, so to speak. This is the culmination of a review of our financial institutions that happens every five years. This is the moment when we actually reflect on how we are doing in terms of the Bank Act, what problems are outstanding and where we can still make a difference.
This is not a routine matter. This is not a quick overview and a resolution of a few outstanding issues. This is the time when we consider what is going on in the banking world and how we fix it. How do we change it? How do we make it better from the point of view of Canadians?
We are here today to talk about Canadians and whether or not they are served well by the Bank Act, whether they are served well by financial institutions, and let me tell members that coming from a community that has seen most of its banks up and leave in the space of less than 10 years, I can say that Canadians are not served well.
We look to this process and this legislative review opportunity to make changes that are necessary, so the first thing I want to do today is take some time to go over some of the situations my colleagues and I have experienced and that need to be addressed. I will say at the outset that while the issues in the bill may be necessary and while we may support them, my question is, just as it was for the last bill, where is the rest of it?
Where are the issues that Canadians have brought to the table? Where are the solutions to the problems that Canadians have identified? Why are we in slow motion in terms of an area that is so fundamental to the life of communities everywhere and to the health and well-being of Canadians?
This debate is not meant to be a boring, staid sort of dry discussion over technical details. This debate should be about whether or not the bill reaches out to deal with problems that Canadians have raised with the government and whether or not the government, once and for all, in fact is prepared to deal with some very serious situations.
We are at a moment when Canadians are feeling that their needs and concerns do not matter one bit and that all this government, like the past government, wants to do is defend the big banks, the big financial institutions and their profits.
Speaking of profits, let us look at the final quarter bank profits this year. Let us look at the fact that, by all accounts, on average we are dealing with record level profits for all major banks. Looking at some of the statistics, I see that for the Royal Bank in the last quarter profits were up by $1.4 billion, I believe.
Ms. Judy Wasylycia-Leis: Oh, my colleague from the Liberals asks if that is not terrible, in a mocking way.
No one is saying that it is terrible to make a profit. We are talking about whether or not those profits are then used to serve Canadians. Surely the Liberals have some interest, finally, in serving Canadians. Did they not get a lesson at the polls? Did they not realize from the spanking they got that in fact it was time to start listening to Canadians and stop ignoring the everyday needs of Canadians right across this country?
I do not expect much from them. I have tried in the House on numerous occasions to get the former parliamentary secretary for finance to listen to these concerns so that he might get through to the former minister of finance, but it was impossible. We tried on numerous occasions to get the former government to actually address the concerns of enormous profits in the face of absolute negligence at the community level, but to no avail.
We are starting fresh. We are hoping that the Conservatives understand this issue. I am not going to give up just because the Conservatives and the Liberals so often seem like two peas in a pod. I am not going to give up, because there is too much at stake. What is at stake, in fact, are the health and well-being of communities that desperately need access to financial services.
My colleagues on the Liberal benches seem take some glee in the profits that banks make. The Royal Bank's total profits for this year are over $4 billion, as I understand it. The question we are asking is whether there is any way we can keep some of those profits in this country.
Why does so much of those bank profits go off to tax havens in the Barbados where banks do not have to pay any taxes on them? We have just dealt with that debate. Why are some of those profits not put back into the communities that were loyal to the banks over the years, instead of the banks up and abandoning communities?
I do not know if the members in the House who are smiling and laughing during this debate have any understanding of what it is like when an entire community loses every one of its banks, of what it is like to see 10 bank branches close in the space of a decade. I am not talking about just one riding, I am sure, but I can sure talk from personal experience, from the point of view of people in , a community of older, inner city neighbourhoods.
I am talking about a huge area, if anybody knows Winnipeg, from the tracks to Inkster Boulevard in the north end and from Red River to McPhillips Street. If people know Winnipeg at all, they will understand that I am talking about a large, populated area, which has many small businesses, many families that are not wealthy, and many seniors who are not wealthy, who do not have cars to drive to the suburbs, who may find it difficult to access buses, and who do not have computers in their tiny apartments. Some of the people in my constituency do not even have phones, so access to a bank branch is a rather important necessity. It is a bread and butter issue that is part of one's day to day living and working experience.
We have seen communities like Winnipeg's north end deserted by banks. I want to see that addressed in this bill. I want the government to care about that situation. I would like to see some attention given to this matter.
This is the opportunity.
Back in 2000, when we agreed on the bill that set in motion the five year review with the opportunity to make changes as necessary, we put in place in that legislation, and we agreed with it, the Financial Consumer Agency of Canada, its purpose that of overseeing financial operations from the point of view of consumers, protecting consumer interests and speaking up when necessary. It was a place for consumers to take their concerns and have them addressed and it had some powers to oversee bank decisions in terms of branch establishments and closures.
We discovered through this whole process of bank closures that in fact the bill we supported back then did not have enough teeth in it to ensure that the Financial Consumer Agency of Canada could actually hold a stick over big banks to make sure they were following some due democratic process in terms of communities they were serving. Those communities were loyal to them for decades, sometimes for over 100 years, before the banks up and abandoned entire communities. When the last bank branch turned off its lights and closed its doors in this particular area of my riding, Winnipeg's north end, the community had to do something.
I want to say that one big bank left a branch at the edge of that geographic area I described, and that is the Bank of Nova Scotia. We continue to work with that bank to make sure there is a good liaison between the bank and the people so that in fact that relationship stands us in good stead and that no corporate decision from Toronto will lead to the closure of that bank branch as well.
For this huge area, there are no banks. There are no branches. When faced with that alternative, the community did the right thing. The people of community stood up and said, “If the banks are not loyal to us, then we will not be loyal to them, and we will take things into our own hands”. Thank goodness for that kind of determination, perseverance and community spirit, because over the last several years that spirit, that perseverance and that determination have allowed for the establishment of an alternative community financial services centre.
That development occurred just a few weeks ago and officially opened on November 16, and in fact it is one way in which our community has been able to overcome this kind of neglect and abandonment by the big banks. I am here today first of all to give kudos to people in my community who made this happen and to actually acknowledge the fact that it did not happen because of some decision from government. It did not happen because of largesse from either government or the business community. It happened because local community members decided to fight back. They fought back until they got something, not everything, but something that will take the place of all those banks.
I want to acknowledge all of those people who fought so long and hard to get this centre, which is something that needs to be said in the context of this review of the Bank Act. It happened because of people like Jerry Buckland from the Winnipeg Inner-City Research Alliance. It happened because of his work and his studies, repeating the information over and over again and producing studies, including “The Rise of Fringe Financial Services in Winnipeg's North End”, “Fringe Banking in Winnipeg's North End”, and “There Are No Banks Here: Financial & Insurance Exclusion in Winnipeg's North End”.
Those studies clearly show that as the banks left, payday lenders moved in, and people were left at the whim of an unregulated sector. Fortunately, I believe and I hope, the government is moving on the legislation to actually close the loophole with respect to payday lenders and fringe financial services, but the point needs to be made that in fact there are still so few alternatives for people who have been left high and dry by our financial institutions.
It is important to recognize the work of a community like my own when it fights back and wins, so I want to acknowledge the work of Jerry Buckland, who helped produce all these studies, along with Nancy Barbour, who has since passed away and to whom we owe an enormous debt of gratitude.
We had hoped that in this legislation today there would be some amendments to put some teeth into the agency that is there overseeing consumers' interests. That does not appear to be in this package.
We had hoped that somehow the government would have realized the importance of emulating an initiative in the United States. We often point to initiatives from across the border, but in this case it is one that we should look at and consider seriously, and that is a community reinvestment act that requires big banks that choose to leave a community to put money made from that community back into that community to help with economic and social development.
That is an innovative proposition that needs to be seriously considered in this country. We need to ensure that there is some way to give back to the community that which has been taken out of it through long time loyalty to banks and the contribution to the kind of enormous profits we are seeing today.
Study after study has talked about consumers' interests in this regard. I want to reference a speech by Murray Cooke, who is with the Centre for Social Justice. He writes:
In terms of finance, we need to ensure that not only business has access to capital, but we need to ensure that all Canadians, including those living in rural and small town communities, including disadvantaged groups no matter where they live, have reasonable access to finance and basic financial services. While this is an issue of social justice, I think you could appreciate that there are also wider economic benefits involved in allowing and encouraging everyone to be economically active rather than economically marginalized.
On that note, it is important to point out, again, the impact of the government's decisions in closing Status of Women offices and shutting down programs that were helping in this regard. I refer specifically to a program entitled “Money & Women” , which was organized by the North End Women's Centre in Winnipeg in the heart of my constituency. It works on a daily basis with women to ensure they have the financial knowledge, information and expertise to handle their own banking, to access banking services and not to become dependent on payday lenders.
This is a valuable service that is no longer available because of the government's heartless cuts. This is a case of government money helping a community to help itself. It was a case of money going through a program and an organization to women directly to help them manage their finances and put themselves on a stronger financial footing.
How in the world can that be described as money for bureaucracy and money for administrative purposes? This is money that goes directly toward the benefit of women, and the government has totally denied women that opportunity. Shame on it for that kind of heartless, disgusting cutback that gets at the very soul of the community and the very heart of an individual's desire to play a meaningful role in society today.
People in my community and everywhere do not want to be a drain on society. They do not want to stay on social assistance if they do not have to. They do not want to be dependent on anyone. They want to be independent and they want to manage their own affairs. Surely the most important thing government can do is provide the resources to help people help themselves, to give them the tools through literacy, through bank projects, through volunteer initiatives that help people to help themselves.
I cannot think of a single reason, from the civil society point of view or any perspective from a civilized society, why the government would take that program away. I cannot understand why the government wants to resort to the law of the jungle and the survival of the fittest. I thought it was against people staying on welfare and being dependent on the state. I thought government was about giving people the tools they needed to help themselves. Yet it is taking away the very things people need in order to participate fully in our economy so they can get a job, pay taxes and contribute to this country. It is beyond any kind of understanding and comprehension.
Let me get back to the Bank Act. Another fundamental issue for people around the Bank Act has to do with disclosure. It has to do with access to information and accountability and transparency. I know the bill touches on this issue of trying to deal with some of the numerous briefs that were presented during the development of the white paper.
Bill falls far short of what is needed. It by no means addresses the real concerns of Canadians. Let us remember, we are talking about a very complex world that provides to citizens a dizzying array of products, choices and services, yet we are doing nothing to ensure that people get the full information they need.
Some very important suggestions were made on that front. I think about the role of Democracy Watch. I think about the role of the consumer advocacy groups and others that have tried to get the now government, and the one before it, to consider the idea of citizen participation, citizen boards as a vehicle for ensuring the proper flow of information between big financial institutions and consumer groups and individuals so people would be fully aware of what was happening and would have some say when there were those possibilities for decision making.
Bill fails Canadians on some key issues. We need to stop and reflect on what is missing in the bill, what Canadians heard during the process and how we can make a better bill.
Mr. Speaker, I am pleased to address the House on the subject of Bill , which we are debating today.
Every time it has to decide whether to support a bill or not, the Bloc Québécois considers its value for Quebeckers. If the bill offers real benefits for them, the Bloc Québécois supports it; if not, it does not.
We have examined Bill closely and, after weighing the pros and the cons, we have concluded that we support the principle underlying the bill.
What factors did we take into consideration in our analysis? There are several. First, the bill would implement mechanisms to transmit information to consumers, which would enable them to make more informed choices about banking services. Second, the bill would implement a regulatory framework to permit electronic cheque processing, which would reduce the time during which institutions hold cheques, thereby addressing an issue our citizens have often raised. I will come back to this later on.
Third, this bill would reduce the regulatory burden on foreign banks, credit unions and insurance companies, thereby making the regulatory approval régime more efficient.
We have also found a fourth advantage: Bill would change regulations governing mortgage loans, thereby enabling more people to take advantage of that financial tool. That is very good.
Last, the government would increase the equity threshold from $1 billion to $2 billion, thereby making it possible for a single shareholder to wholly own a bank, thus encouraging new entrants and promoting competition.
The Bloc Québécois supports the bill in principle, but we have some reservations. As members of the Standing Committee on Finance, my colleague from and I will work to ensure a number of things.
We will begin by ensuring that the regulations are changed, and we will make certain that those changes do not allow the kind of uncontrolled mergers and acquisitions we have seen before in the banking sector.
We will continue to insist that any change to the moratorium on bank mergers be in the best interests of the public, and not made just to satisfy the financial market. To that end, the Bloc Québécois will be ensuring that the Standing Committee on Finance will hear the appropriate witnesses. We will also be proposing the amendments that are needed for this bill to pass.
The Bloc Québécois will also be stepping up the pressure on the federal government to adopt the necessary measures to protect people’s savings, in particular by appointing a federal ombudsman for the financial sector. The ombudsman will have the powers needed to defend the public based on Canadian banking law and thus enable members of the Canadian public to exercise their rights without having to go through the endless and tedious legal battles that the banking institutions wage. We therefore believe that this is a flaw that must be remedied, and we will be working to persuade the federal government to create such an ombudsman position.
That is our stand on the bill that is before us. Nonetheless, it might be worthwhile to consider the context here and recall why we are dealing with this bill today.
Every five years, to ensure that the banking system has a degree of flexibility while remaining stable, the government must hold consultations leading to the review of the financial institutions statutes.
October 24 was the date on which the financial institutions legislation expired. The government extended the sunset date for the legislation to April 24, 2007, so that Parliament could examine the matter.
Bill follows on the document entitled “Proposals for an Effective and Efficient Financial Services Framework”, released in June 2006, and the document entitled “Advantage Canada” published by the government at the time of the latest economic and fiscal update. Unfortunately, that document says nothing about the fiscal imbalance. We understand, of course, that this is not the topic of debate today, but I find it hard not to mention this serious omission in the economic update.
The object of Bill is to put in place new mechanisms to improve the efficiency of the Canadian financial system. There are three main components to this bill. The objectives of those components are, first, enhancing the interests of consumers; second, increasing legislative and regulatory efficiency; and third, adapting this regulatory framework to new developments.
I would now like to analyze the bill in more detail. Of course, I will come back to the three components I have listed.
The first component is enhancing the interests of consumers. This bill provides for a set of measures, the first of which is to improve the rules for disclosing information to consumers.
In order to allow consumers to make informed choices among their investment vehicles, the government will raise the standards concerning disclosure of charges, obligations and penalties relating to different accounts and investment vehicles. That is important because people often make that comment to us, as well as people with savings who are making choices. Later, when they realize the consequences, the charges and the penalties associated with their choice, they are often angry and feel that they have been betrayed by their financial institution. In fact, they were not in a position to have the full details of the information that would have allowed them to make proper choices.
The government will require those institutions to clearly disclose that information by means of the Internet, in all their branches, and in writing for any person who makes that request.
In the same vein, there is a second measure. This one will change the regulatory framework to enable the introduction of electronic imaging in the processing of cheques.
This bill will establish a regulatory framework to enable the introduction of electronic cheque imaging to facilitate processing and reduce the hold time in banking institutions.
That is a good example—I mentioned it previously—of the necessary evolution of the Banking Act. It is understandable that with the development of new technologies, the regulatory framework must also evolve to enable the use of digital imaging in processing cheques. We will have a legal financial framework for that, thanks to this bill.
Another measure involves the reduction of the time that banking institutions can hold a cheque. Following publication of the 2006 financial institutions legislative review, the government made a commitment to reduce cheque hold times to make life easier for small businesses and other Canadians.
Bill gives the superintendent the power to set cheque hold times. The white paper proposed an immediate reduction of the maximum hold time to seven days, and to five days once the digital cheque imaging system is in place.
Cheque holds affect not only consumers who need to have access to those funds to pay their bills, but also small and medium businesses that must pay their employees and keep the business operating out of the funds they deposit.
In addition, the government wants all users of the payments system—including, obviously, consumers—to benefit from the increased efficiency resulting from the Canadian Payments Association initiative that involved changing the payments system to facilitate electronic imaging of cheques.
In my opinion, this need for faster processing of cheques may be seen quite concretely in the explosion of small businesses that cash cheques quickly and that are proliferating throughout our towns and villages. This clearly shows that there is a need and that people want to use the money available to them quickly, but that they cannot do so in the standard banking institutions, because their money is held for several days.
Probably everyone has already experienced something like this. It has happened to me personally to make a withdrawal and for it to be drawn on my line of credit instead of on my regular account, even though the money was in my account. The money was simply being held while waiting for the necessary checks to be made. It is a bit frustrating when we pay interest on funds that are already in our bank account. This is a real problem and if these delays can be reduced, it will be to the great advantage of consumers. So I was talking about the first objective, pertaining to consumers.
The second objective is to increase legislative efficiency. In this section, a first measure consists of lightening the regulatory burden on foreign banks so as to facilitate their access to the Canadian market and stimulate competition. This measure arises from the concerns expressed during the consultations pertaining to the review of the Financial Institutions Act. The Canadian market is already fairly open to foreign competition in the banking field. But certain problems were raised concerning the regulations governing foreign banks doing business in the Canadian market.
Bill aims to clarify the measures applying to foreign banks operating in Canadian territory by refocusing the regulatory framework on the chartered banks and simultaneously excluding the near banks. The near banks are companies that offer banking-type financial services. Unlike chartered banks, near banks cannot change their basic money supply, that is, they cannot borrow money from or lend money to the Bank of Canada to make new deposits or new loans.
Still in the same section, a second measure aims to streamline the regulatory approval regime. This measure is designed to simplify the process pertaining to routine transactions not having any implication for public policies. Thus the power to approve or refuse certain operations or transactions will be transferred from the minister to the Superintendent of Financial Institutions.
The Bloc Québécois is really concerned about this and it is a part of the bill that will need further study in committee to ensure that only decisions that have no public policy implications are put in the hands of the superintendent. In other words, we will not agree to any hint that the minister is allowing operations with public policy implications to be de-politicized.
The purpose of the third measure is to loosen the federal framework governing cooperative credit associations. In order to make it easier for new associations to emerge, the government will reduce the number of establishments needed to constitute a cooperative credit association to two.
At the present time, 10 cooperative credit associations are needed to form an association under the terms of the Cooperative Credit Associations Act. However, in light of the new commercial possibilities offered by retail associations and the continued consolidation in the credit union system, the current requirement places too high a threshold for new entry. A lower requirement would add flexibility to the federal framework for the credit union system, improve the system’s capacity to adapt to new developments and enable it to better serve consumers and mall businesses.
That was in regard to the second aspect.
There are a number of measures as well in the third aspect. The first consists of increasing from 75% to 80% the loan-to-value ratio for which insurance is mandatory on residential mortgages.
Mandatory insurance on mortgages with high loan-to-value ratios was instituted more than 30 years ago—quite a while ago—as a precautionary measure to ensure that lenders were protected against fluctuations in property values and possible defaults by borrowers.
The threshold was originally set at 66.7% or a two-thirds ratio. It was then increased to three-quarters or 75% following the Porter Commission in 1966. Markets have obviously continued to evolve ever since and we know, first, that lenders’ risk-management practices have improved considerably and second, regulatory risk-based capital requirements have been implemented. Financial markets have evolved and stabilized, and the supervisory framework for financial institutions under federal government regulation has been strengthened considerably.
It seems that restriction no longer plays the same prudential role it once did and, accordingly, a legal requirement by which borrowers must contract mortgage insurance at a fixed loan-to-value ratio of 75% could mean that some consumers are paying more for their mortgage than is justifiable on a prudential basis.
I know that because this summer I bought a house in Verdun—which is one of the most beautiful places in Quebec, and even Canada, as everyone knows.
Some hon. members: Oh, oh!
Mr. Thierry St-Cyr: Not all my colleagues agree, but that is a matter for discussion.
This experience allowed me to learn a little about the mortgage market. People are being given mortgages at increasingly lower rates—with a 5% or 10% down payment, and less in some cases. It is easy to get a mortgage. One might wonder why insurance would be mandatory with a down payment of up to 25% when the minimum down payment might now be decreased to 20%. This is only normal evolution.
The purpose of the second measure is to readjust the levels of equity capital to allow sole ownership or to force wide ownership. In 2001, a new size-based ownership regime was implemented. Under the new regime, the equity threshold above which a bank is required to be widely held was set at $5 billion to capture the largest banks whose potential failure would have the greatest impact on the Canadian financial system and the economy.
Medium-sized banks with equity between $1 billion and $5 billion can be closely held, but are subject to a 35% public float requirement, unless a ministerial exemption is obtained. The threshold for small banks, which can be wholly owned by a single shareholder, was set at $1 billion to encourage new entrants.
Bill would therefore change the equity thresholds in order to account for the new reality of the considerable growth in the banking industry since 2001. The equity threshold allowing sole ownership would be raised to $2 billion, or doubled.
Banks whose equity varies between $2 billion and $8 billion must henceforth have a minimum of 35% of their voting shares listed on the stock market. Banks whose equity is greater than $8 billion must be widely held, which means that no single shareholder can hold more than 50% of the voting shares.
The last measure in this section involves increasing the limit, which is currently one third, on the number of foreign members permitted on the board of directors of Canadian banks. As announced in the Advantage Canada plan—which, I would remind the House, says almost nothing about the fiscal imbalance, but that is not the topic of my speech here today—Bill amends the Bank Act by proposing a new measure that would make the boards of directors of Canadian banks subject to a new Canadian quota.
At present, a minimum of two thirds of board members of Canadian banks must be Canadian residents. However, Bill would lower that threshold to a simple majority.
To justify this measure, the Conservatives argue that this new standard will foster the creation of international ties and open the Canadian banking sector to the rest of the world. Following the moratorium on all bank mergers in Canada, Canadian banks soon began acquiring foreign banks in order to increase their growth. Thus, a greater foreign presence on their boards of directors would allow Canadian banks to continue in that direction.
In closing, the Standing Committee on Finance still has a great deal of work to do on this. The Bloc Québécois will help with this work. For now, we support this bill in principle.
Mr. Speaker, I am pleased to have this opportunity to enter the debate on Bill . I thank my colleague for answering my questions and clarifying the view in the province of Quebec on some of these issues.
This is a massive piece of legislation affecting many consequential amendments and many pieces of legislation and acts. I may be proven wrong, but at first overview of the bill, I am afraid it may fail to address the single most compelling concern that we have about our financial and banking institutions and that is basic access to basic financial services for all Canadians.
I represent a low income riding in the inner city of Winnipeg. I can tell the House that there has been a flight of capital from the core area of the city of Winnipeg. My colleague from in his questioning of previous speakers told us today that there is a problem finding basic financial services in the rural and remote areas of Canada's north. This is a complex problem that is bigger than just an inconvenience.
In the core area of my riding of , 15 neighbourhood bank branches have closed in the last five years. These branches have been there for 10 to 50 years. The bank that my parents banked at since 1948 when they were married and bought their first home also closed. This is a vote of non-confidence in the inner city.
Let me remind the House that our chartered banks are granted the exclusive monopoly on some very lucrative financial transactions, such as credit cards, in exchange for providing basic services to all Canadians even where that might not be the most profitable thing for them to do. That was the trade-off under which we granted their charters.
The Government of Canada should revisit these charters to ensure that our partners are in compliance with their obligations. In an era of record profits, I defy banks to justify why they are closing branches on every street corner in the inner city of Winnipeg. My colleague from , who spoke before me, indicated that there had been 13 bank closures in her community.
and are venerable ridings with old established neighbourhoods full of hard-working people. These people trustingly trudged to the street corners year after year to cash their cheques at their banks. This is a thing of the past. I think it is a breach of trust. Banks have broken their contracts with Canadians because they are making record profits quarter after quarter. Every time we open the financial pages of newspapers we read about banks making record profits. We read in community newspapers about bank closures in the inner city of some major city or in rural Canada.
In New Westminster too.
Mr. Pat Martin: In New Westminster too, my colleague from New Westminster--Coquitlam tells us.
I do not know if Bill satisfactorily addresses the one compelling issue facing Canadians and that is access to banking services. This has led to the proliferation of payday lenders. Every single vacancy in every strip mall across the country is being filled with another Money Mart or Payday Loans, et cetera. Why? Because they can charge 1,000% to 10,000% interest per year. Show me another business enterprise that receives 1,000% interest. Selling coke for God's sake does not provide 1,000% interest. Prostitution or any other illegal activity does not provide 1,000% interest.
The province of Manitoba did a study on payday lenders in my riding of . One case study documented 10,000% per annum interest on some of the loans as a result of a series of surcharges and fees and roll-over loans. No wonder the Hells Angels are involved. No wonder terrorists are looking to this kind of activity to launder money. I trace it back directly to the banks and the abrogation of their duties to provide basic financial services. By abrogating their duties, they left a vacuum for these rip-off outfits to spring up.
Without getting too over the top on what these reprehensible companies are doing in my riding, one thing they are doing is charging to cash cheques. If people knew their banking rights and if the charter banks were living up to their obligations, people should know that the banks have to open a bank account for them. If people have one piece of ID, even if they do not have any money, a bank has to open a bank account for them. It is in the Bank Act.
Yet poor, low income people do not know this, so they get maybe a government cheque and have no place to cash it because they do not have a relationship with a bank because the bank has abandoned their community. They wind up at a payday loan outfit where they are charged 3% or 4% of their social allowance cheque to cash it. It is illegal to charge to cash a government cheque. Another thing people do not know about their banking rights, and the present and past governments have made no effort to tell them.
Governments have allowed this burgeoning mini-industry of preying on the misery of poor people by taking a chunk of their meagre paycheques to provide basic financial services. I am not overstating it to say that it is morally and ethically reprehensible to be in the payday loan industry. It is morally negligent for the government not to police this industry and not to prosecute anybody who would exceed the usury laws in the Canadian Criminal Code and charge 1,000% per annum. They should be locked up. They should be led away in handcuffs. They should be dragged away in a paddy wagon and locked up, and the key thrown away because there is no lower form of animal in my view than someone who would prey on human misery by exploiting the poor and the desperate in the inner cities.
I am no big fan of the big banks. We do not need to do a tag day for the big charter banks in this country, but we should be holding their feet to the fire and make them live up to their basic commitments, their basic obligations under the Bank Act.
Bill would have been an opportunity to remind the charter banks of their obligations. In the inner city of Winnipeg where I live and at the corner of Portage and Arlington where I had my campaign offices two elections in a row in two different vacant buildings there are six payday lenders on that one intersection within a half a block in any direction and they are open all the time.
For low income people in my riding, because these firms have been around for almost a decade, people carry their Money Mart card in their back pocket as if that is their ID. That is a poor man's credit card today which is a licence to cheat that person. It is not a credit card. It is not even an ATM card where people can get money using it. It is their identification because payday lenders are smart. They have nice clean tile floors, they are well lit and illuminated. People are treated with some dignity because they want to cheat them. People are sucked in that way, but that used to be the type of service that banks offered legally to neighbourhoods and communities. They were big clean places too where people could go with their paycheques and be treated with some dignity. All that is gone.
We have to remind our charter banks that there was a reason why we gave them the exclusive monopoly on certain very lucrative financial transactions and that was so that they would provide basic services whether we were in Plum Coulee, Manitoba or New Westminster, British Columbia, or in the heart of downtown Toronto, or wherever they are needed.
An hon. member: Tuktoyaktuk.
Mr. Pat Martin: Let's not forget Tuktoyaktuk.
The deal was not that they could run those banks as long as they were profitable. The deal was that overall this would be one of the costs that they would assume in their overall activity, namely providing basic financial services. It seems to me the banks do not want ma and pa business any more. They are pawning it off to the credit unions.
There is this idea of the right wingers, the Conservatives, the neo-conservatives in this place. The right wing neo-conservatives have this idea that they should privatize the profits and socialize the losses. That seems to be their basic philosophy. They should privatize all that they gain and let the big banks have all the real good paying business, and they should pawn off the less profitable services such as mortgages, basic banking services, and let the credit unions have those. Somehow the non-profit sector can have all that non-profitable stuff and that will streamline our activities.
Just nationalize it.
Bigger and bigger profits for the banks.
Mr. Pat Martin: Bigger and bigger, there is no such thing as too much profit for the banks.
One of the right-wingers said that we should nationalize the banks. What an extremist point of view. I am going to use that in my literature the next time there is an election campaign.
The segue between the last bill we debated on offshore tax havens and the bill we are presently debating on Canada's chartered banks and financial institutions is interesting, because there are no worse culprits for tax avoidance and being tax fugitives than the big banks that are abandoning the inner city of Winnipeg. They are abandoning the inner city of Winnipeg and setting up shop in Barbados, the Cayman Islands and everywhere else they can think of to avoid paying their fair share of taxes in our country.
An hon. member: They are masters at it.
Mr. Pat Martin: They are masters at it. They have hundreds of tax lawyers working for them, looking for ways to avoid paying their fair share of taxes. I call them tax fugitives hiding out in tax havens. They certainly are not living up to their commitments to the good people of the riding that I represent. They abandoned my riding and I will never forgive them for it. Frankly, I will not bank in a major chartered bank in this country and I do not care who knows, although I guess everybody knows now.
There are many things that could have been done with this piece of legislation to try to impose some fairness into the financial institutions regime in this country. I remember when the former leader of the NDP, currently the member for , and I used to crash the shareholder meetings of the major banks. We had nine resolutions that we would put forward at every bank meeting. Two of them almost passed.
One of the resolutions that I moved at the Bank of Montreal failed to pass by less than 1%. In fact the result was 49.6 to 50.4. I remember because it was the same ratio as the Quebec referendum, 49.6 to 50.4. That resolution was gender parity on the board of directors. We came that close to dragging the banks into the 21st century kicking and screaming all the way, but the shareholders clearly wanted modernization of the banking system or they would not have supported gender parity on their own board of directors within one-half of one percentage point. We were very proud of that.
The other resolution that almost passed, and this one almost gave the CEO a heart attack, was that the salary of the CEO would be limited to 20 times that of the average employee. It would still be 20 times what an ordinary human being made, but CEOs were making 200 times and 300 times that of an average employee. That, sadly, did not succeed as a resolution.
It gives some indication of the amount of work that needs to be done if we are going to have a fair regime governing our financial institutions in this country, first to provide reasonable access to every person in this country. Whether people have any money or not, they deserve the right, and in fact they have the statutory right, to basic banking services. Even if people do not have any money but they want to open a bank account, they have to be allowed to open one. Do Canadians know that?
We would drive the payday lenders right out of business. People who have relationships with banks and need to borrow an extra $100 to get them through until their next paycheque could simply use their overdraft the way I or my colleagues do and pay a surcharge of a couple of dollars for that privilege instead of having to pay a surcharge beginning at 1,000% interest. Some of these institutions charge 10,000% interest on a simple loan. On title loans these companies are actually lending people $1,000 and making them sign over the title of their homes as collateral. If they fail to pay off the loan, they run the chance of forfeiting their homes.
Unbelievable in a civilized society.
Mr. Pat Martin: This is unbelievable in a civilized society, as my colleague from pointed out.
I do not know why the Liberals and Conservatives refuse to address these basic inequities in the financial sector. It used to be they relied heavily on the big banks to finance and bankroll their political parties. That is not allowed any more. News flash: They do not have to be afraid of the banks any more. The banks are not allowed to give political parties money any more.
The banks would always line up with wheelbarrows full of money. They would dump an equal amount on the Liberals and on the Tories, but the laws have changed. We no longer have to be afraid of the big banks. If we stand up on our hind legs we can actually demand service from the big banks without jeopardizing our political future. It is a liberating feeling to be able to tell the truth about the banks without having to worry about our donations drying up. That was the beauty of the changes to the election financing laws.
It begs the question, what is the barrier now? If it is no longer money, why do we not force the banks to live up to their obligations under the current Bank Act? Why do we not amend the Bank Act to make it even better so it serves the best interests of Canadians?
Mr. Pat Martin: My colleague from Nova Scotia, a Conservative, is agreeing with me. Now and then that Conservative member has the odd lucid moment I have noticed. It may be that in his home community he has suffered the same indignity as I have, that the corner banks are closing their doors, folding up their tents and abandoning us. They are bailing out. They have more investments offshore than they have in our own communities. We grant them a charter to exist and give them the exclusive monopoly to make a fortune on certain financial transactions and they refuse to live up to their end of the bargain. That is where I find fault. The little guy is not getting a fair shake from the big banks.
We create our own credit unions and we are left with the least profitable side of banking that nobody else seems to want. We seem to make it work. We are making it work in the non-profit sector through a vibrant credit union system throughout the land, but that is still no excuse. We cannot afford to backfill every place the banks have abandoned us, we simply cannot. No credit union can.
Imagine how devastating it is to represent an old established neighbourhood like mine and see 15 bank branches close their doors. There is another place in which they are failing to live up to their commitment. Right in the Bank Act it says that if a bank wants to close a branch, it has to have public meetings. It has to deal with the inconvenience to the long-standing customers. It has to help them find alternate banking services within a reasonable distance. One of the banks was even ordered to provide a van to drive seniors from the existing branch to the new branch, which was all the way across town. That lasted exactly four months. The van disappeared and the seniors at the Blue Bird Lodge in the inner city of Winnipeg are without service. It is just not working.
I am here to serve notice that the current Bank Act lets Canadians down. The Bank of Canada had Arthur Anderson as its auditor of record for the whole time of the Enron scandal. I have no confidence in that particular system.
I am very concerned though that Bill is a lost opportunity, because the very things that I point out as being urgent needs for the communities that I have cited I do not find anywhere in the hundreds and hundreds of complex amendments to complex acts in here.
I would urge the government to get back to the basics and listen to what Canadians are saying. They are sick to their stomachs. Get back to the people. Let us do what is best for ordinary Canadians for a change, not for whoever gets affected.
Let's do what is right.
Mr. Pat Martin: My colleague from Surrey is saying let us do what is right. What better way to summarize why we were sent here. My colleague from says it is despicable and my colleague from is suggesting that we do things right.
I do not think that is too much to ask. We were sent here on a mission to represent the views, the needs and the concerns of the people we represent. In the inner city of Winnipeg, one of the primary concerns of people is the complete lack, an absolute paucity of basic financial services. They are being forced to use payday lenders who I think are morally and ethically reprehensible. There is no lower form of animal than someone who would prey on human misery and exacerbate the poverty of low income people, stealing from the poor to give to the rich.
The last thing I would point out is if we are serious about putting a lid on organized crime, we should cut off their ability to raise money and cut off their ability to launder money. I say without any hesitation, without any fear of contradiction whatsoever, money, ill-gotten gains, is being laundered through these payday loan outfits in my riding and every riding in this country. If government were serious about stemming that tide and choking off their ability to carry on organized crime, this would be an important step that it should take.