:
I call this meeting to order, the 47th meeting of the Standing Committee on Finance.
Pursuant to the order of reference of Tuesday, February 14, 2012, we are considering Bill , an act to amend the law governing financial institutions and to provide for related and consequential matters.
We have two panels with us here today, colleagues. In our first panel we're again very pleased to welcome back the Honourable Ted Menzies, the Minister of State for Finance.
Some hon. members: Hear, hear!
The Chair: A unanimous welcome back from the committee, Minister Menzies. Thank you so much for being with us here to present the position on Bill .
I understand you have some officials at the table, who you will be introducing in your remarks. We'll have questions from all committee members after your remarks, so please begin at any time.
This is, as I say, becoming a habit, but I am glad to be back among the financial champions in the House of Commons. Thank you for allowing me the opportunity to appear once again before this committee.
Today we are talking about Bill S-5, the Financial System Review Act.
I have with me Jeremy Rudin, Jane Pearse, Eleanor Ryan, Leah Anderson, and Joe de Pencier from the Department of Finance. If you ask me any technical questions I will probably defer to them, because this is a rather technical bill, but it is nonetheless very important.
From the start I want to underline for the committee that while this legislation is important, it is mandatory, routine, and as I say, primarily technical. But it is important, in that it will ensure that we keep Canada's financial system safe and secure, a system all of our constituents depend on almost every day, be it making a bank deposit or applying for a loan to start a business.
Our financial sector plays an important role in financial stability, safeguarding savings and fuelling the growth that is essential to the success of our Canadian economy. It also represents about 7% of Canada's GDP, employing over 750,000 Canadians in good, well-paying jobs.
Before I start talking about some of the highlights of today's bill, I want to explain the background of why and how it came to be. The committee should know that every five years the government reviews all legislation governing federally regulated financial institutions. This is a long-established practice in Canada, with the last review being completed in 2007 in the 39th Parliament. Such mandatory five-year reviews are a big part of why Canada has a well-regulated financial system that is safe and secure. Indeed, earlier this year the independent Financial Stability Board praised this aspect of our system:
...review of all legislation to ensure that it is current, contributes to stability and growth of the financial sector and, by extension, allows Canada to remain a global leader in financial services.
I'll note that the present five-year review process formally began in September of 2010, when our government launched a broad public consultation process. During that consultation we heard from a wide range of Canadians on ways to help further strengthen Canada's financial system.
What's more, as we know, Bill has already been reviewed in the Senate and received extensive study by the Senate Standing Committee on Banking, Trade, and Commerce. As we know, the senators know a lot about money, so they would have scrutinized this very closely.
The committee engaged in a timely review of the bill, hearing from groups ranging from Credit Union Central of Canada, the Canadian Life and Health Insurance Association Inc., the Financial Consumer Agency of Canada, the Office of the Superintendent of Financial Institutions, as well as others. While noting Bill S-5's technical nature, the witnesses were very supportive of the bill overall. For instance, the Canadian Life and Health Insurance Association Inc. noted that “Bill S-5 represents a welcome fine tuning of the various financial institution statutes”.
Before highlighting some of the items in today's bill, let me mention that due to the legislated sunset date, it is essential that it be renewed by April 20, 2012 to allow Canada's financial institutions to continue to function. No pressure, Chair, but keep that in mind.
I will now take this opportunity to outline some of the measures contained in Bill . Once more, while the majority of the bill is purely technical, its passage is nevertheless essential to guarantee that Canada's financial system remains stable and secure. That's why broadly, the bill will make changes to, first of all, update existing legislation to promote financial stability and to ensure that Canada's financial institutions continue to operate in a competitive, efficient, and stable environment; fine-tune the consumer protection framework to better protect Canadian consumers; and improve efficiency by reducing red tape and regulatory burden on those financial institutions.
More specifically, key measures contained in this act include reinstating the required approval of the Minister of Finance for select, extremely large foreign acquisitions by Canadian financial institutions; reducing the administrative red-tape burden for federally regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements; promoting competition and innovation by enabling cooperative credit associations to provide technology services to a broader market; more than doubling the maximum fine that the Financial Consumer Agency of Canada can impose on financial institutions that violate consumer provisions, increasing that from $200,000 to $500,000; and also guaranteeing that all Canadians, especially those who are most vulnerable, have the right to cash any government cheque under $1,500 free of charge at any bank in Canada.
When we saw the failure of some of the world's most well-known banks, the recent global economic turbulence has made clear the importance of keeping Canada's financial systems safe and secure through the passage of the Financial System Review Act. Canadians recognize how much we have benefited from our prudent regulations and sound financial oversight in recent years. In fact, for the fourth year in a row Canada has been ranked number one by the World Economic Forum for having the soundest banks in the world.
Without a doubt, Canada's safe and secure financial system has served as a model for countries and is envied around the world. In fact, U.K. Prime Minister David Cameron recently praised our system when he said:
In the last few years, Canada has got every major decision right. Look at the facts. Not a single Canadian bank fell or faltered during the global banking crisis.... Your economic leadership has helped the Canadian economy to weather the global storms far better than many of your international competitors.
As well, the prominent Economist magazine made this proclamation:
Canada has had an easier time than most during the recent global recession, in part because of a conservative and well-regulated banking system.
Likewise, a recent report from the United States Congressional Research Service underlined how well our financial system is regarded and examined as a model for others to build on. I'm quoting directly from that report:
...Canada’s supervisory system and regulatory structure have proven less susceptible to the bank failures that have loomed in the United States and Europe and may offer insight for U.S. policymakers.
In conclusion, let me say that our government believes that modern and effective regulation is critical for an innovative and prosperous economy. What's more, we recognize that we must keep Canada's financial system secure so that it continues to be a fundamental source of strength for our economy. The measures contained in the Financial System Review Act will provide a framework that will benefit all members of the financial services sector, and also all Canadians.
The well-established practice of regular five-year reviews of the regulatory framework for financial institutions is a unique practice that sets Canada apart. It is a positive practice that has proven vital to the stability of this sector.
All Canadians know the importance of continually examining how we can better ensure the safety and soundness of our financial system for the benefit of all Canadians, and today's legislation does just that.
I encourage all members to support this important legislation.
On that note, I'll wrap up and would welcome any questions.
Thank you.
The , Minister Flaherty, launched the review by putting a press release on the Department of Finance website inviting all interested Canadians to make a submission, noting that this was part of the regular process of updating the financial institution statutes. He also took the opportunity to point out that a number of important changes had been made in the legislation governing the financial system as a consequence of the turbulence in financial markets and the lessons we had learned domestically, and more importantly, I think, from observing what was going on in other countries. He anticipated therefore that the review would be principally focused on technical issues, that the government wasn't contemplating major policy changes but was certainly prepared to contemplate a fine-tuning exercise.
Everyone was invited to make their submissions electronically, and a number of submissions came in, on the order of 30. Then we looked at all of those within the Department of Finance. In some cases we went back to the people who had submitted the suggestion to get more information, to get more background, to understand better where they were coming from. We also consulted not only within the Department of Finance but also with the relevant federal agencies, whether it be the Office of the Superintendent of Financial Institutions, the Financial Consumer Agency, or the Canada Deposit Insurance Corporation. Then subsequent to that, the bill was tabled.
I want to take a moment—forgive me, Minister Menzies, but I have to take a moment—to wish all of the women in the room a happy International Women's Day.
I must note how impressed I am to see, Minister Menzies, the balance of women versus men in high-ranking public service sitting with you at the table. I want to congratulate them. There are three to two here, and I'm so pleased to see our women doing so well in public service life.
In any event, Minister Menzies, I'm glad to see you here, because this is, as you said, a very important piece of legislation. It is a review that's mandatory, and there is a very important date coming for sunset. You mentioned as you provided your opening statement that the bill includes technical and administrative amendments that you classified as housekeeping, but you also acknowledge that some of them are very substantive measures that address current global and domestic trends.
Now, the financial crisis highlighted the importance of evaluating the overall size of financial institutions, their global linkages, and the impact these factors have on financial stability and the best interests of Canada's banking system.
As a partial response to lessons learned, today's legislation, as we know, proposes to reinstate an existing ministerial approval for select foreign acquisitions of financial institutions. I happen to have with me a quote from the Canadian Bankers Association with regard to that section. Here's what they said:
We fully support that decision. That power should be back with the finance minister to, in our view, give him a full suite of tools as part of the oversight of the financial system in Canada.
I would ask you, Minister Menzies, to tell us your thoughts with regard to the importance of this provision.
My apologies to all the women in the room; I should have noticed that myself and highlighted it, and of course that we have two parliamentary secretaries, both women, who sit on this committee, and that on a regular basis we depend highly on the women in the finance department. Our associate deputy minister is a woman, and many of our high-ranking officials in the Department of Finance are smarter than some of our guys, but we won't tell our guys that. Anyway, thank you.
We want to highlight some of the technical things. Prior to 1992 all banks were prohibited from owning any foreign subsidiary. In 1992 ministerial approval was granted to have oversight over that matter, but in 2001 the ministerial approval was removed and it was simply the Office of the Superintendent of Financial Institutions.
What we're doing is to make sure that we're bringing strong oversight back by providing oversight by the Minister of Finance. OSFI still looks at it to make sure that the transaction qualifies, but the Minister of Finance has the final say, and I would agree with Terry Campbell and the CBA that this is the proper oversight to have in this situation.
:
Yes, I'd be glad to respond.
Senators asked us to explain some of the substantive portions of the bill that Minister Menzies mentioned. The ministerial approval of foreign acquisitions was an issue they wanted to talk more about. They asked , who appeared before that committee, to explain that, and we had a number of technical questions about it.
We dealt with the CPA issue.
We dealt with the consultation issue, which was raised here as well.
We had an explanation about the change in the size-based ownership regime. We're moving a numerical threshold, so we were to asked what the purpose of that was and how we went about coming up with the new numerical value.
We had a question about the change we're making to the Bank Act's special security regime—we were to called upon to explain it—which some stakeholders had raised.
I think those are the principal ones. Perhaps Ms. Pearse will remind me, if there is something else. Those would be the main issues that we discussed in the other committee.
:
Thank you, Mr. Chisholm.
The issue on the foreign ownership was that our banks are looking at acquiring other institutions as well as other banks having subsidiaries in this country. And we need to make sure that we keep it Canadian, to put it very bluntly, that we don't end up with a wholly owned bank within this country.
I have no concerns with having political oversight, because the Office of the Superintendent of Financial Institutions still makes a recommendation that it go to the finance minister for final approval.
On the cheque cashing, I might ask Mr. Rudin to explain that one. I've never run into the situation where no one would cash my cheque, but I think it has happened.
The banking ombudsman is a good question. Frankly, we're concerned about this as well. Consumers need protection and they need, in this case, an ombudsperson who will hear their complaints and take that to negotiations with the bank, or at least explain it to the bank and hopefully receive an outcome that is agreeable to both parties.
Minister, thank you so much for being here today. We really appreciate your presence.
You mentioned earlier that Prime Minister Cameron, right here in our own Parliament, spoke about how the Canadian financial system is a model for others around the world. I just want to cite a few others who have mentioned the same thing.
President Obama a couple of years ago said that in the midst of the enormous economic crisis Canada has shown itself to be a very good manager of the financial system and the economy in ways that the U.S. hasn't always been.
Ireland's Independent newspaper said recently that Ireland's financial regulatory system is due for a radical overhaul, with the Canadian system being held up as a role model.
Last week I was in Washington and had a number of meetings with various congressmen on both the House side and the Senate side. I guess The Washington Times must have known I was there, because I caught an article whose headline was, “America, home of the free. Canada, home of the future”. The first paragraph is, and I'll quote it: “Canada has strong banks, a stable real estate market and rock-bottom corporate tax rates, and it's about time Americans paid attention....” That was from The Washington Times last week.
I want to also say that throughout my meetings with members of the House and members of the Senate, the Canadian story is well known down in Washington, as you probably know. We are being looked at as a role model of how to craft a secure and stable financial regulatory system. It makes you feel proud, when you're down there and speaking to senior legislative officials of the United States government and they have that to say about our country's financial system.
Being from Toronto and from Ontario, I just want to ask you this. There are 400,000 jobs that are directly linked to the financial system; the job rate has grown 42% over the last ten years in the financial system; and 280,000 additional jobs are ancillary to the financial system. So clearly the financial system plays a key role in the economy of the province of Ontario, particularly in the city of Toronto.
Notwithstanding what we have here in Bill , the government has taken a number of other steps along the way in the last number of years to further secure our financial system, in addition to what we see here in Bill S-5. Could you please talk about those?
Thank you to all of our witnesses today.
I was reading this bill the other night. I needed to get some sleep, so I thought I'd pull it out. Indeed, I thought what a great bill it is and that it should be renamed the Consumer Protection Banking Act, because it certainly speaks for Canadians. And it reminded me why we're here.
Some of the more appropriate amendments it makes to other legislation are moving the maximum fines to more than double, to $500,000; government cheque-cashing, of course, is going to be popular in my riding, where 23% of my constituents are aboriginal and have difficulty finding cheque-cashing for free, as of course do the unemployed and seniors as well; improving confidential information and operational efficiency, which will of course speak to consumers and customer service; new credit card rules, which I was very happy to see, as a small-business person; even consent for limit increases, which I think a lot of people have been asking for; full disclosure to customers; and a code of conduct for credit and debit cards. It goes on and on.
In fact, I was looking through all of the amendments—those involving proposed sections 446, 447, 450, 452.... It goes on and on, and even talks about foreign banking disclosures under proposed subsection 568(1).
I know the NDP are laughing, because they will probably want to nationalize banks, if they ever come into power.
I want to know, first of all, what—
We are pleased to provide the banking industry's comments on the Financial System Review Act.
We believe strongly in the importance of insuring that the legislative and regulatory framework is reviewed regularly, and for that reason, we were pleased to see that the bill proposed retaining the sunset clause for financial services legislation at five years.
[English]
I'd like to begin with a few points about the banking sector in Canada, particularly in light of what is still an uncertain global economy. As we all learned during the global financial crisis of three years ago, Canada is not immune to the fallout from the problems that originate elsewhere. However, as we know and as was talked about at the previous panel, Canada's banks did not require taxpayer-funded bailouts, nor do we have any bank failures. In fact, during that period our banks continued to lend to individuals and to businesses, while many other financial providers either pulled out or pulled back from the market.
As was the case then, our banks today remain well-managed and well-capitalized institutions that continue to participate in Canada's economic recovery and growth. For example, Canada's banks provided $10.3 billion in dividend income to millions of Canadians, including through pension and retirement funds, and in many cases directly to retirees.
Banks also employ 267,000 Canadians in communities across Canada, and they take a leading role in support for those communities in arts, sports, health, education, philanthropy, and so on. The banking sector also helps the broader economy grow, contributing some 3.4% to Canada's gross domestic product. They're able to do this because Canada's banks have remained profitable.
Turning to Bill S-5 itself, as I think Minister Menzies said, it was against the backdrop of the global financial crisis that the finance minister introduced the review of the Bank Act in 2010. The finance minister indicated that given the very large volume of new international regulation arising from the crisis, the focus of the 2012 review should be on fine-tuning the domestic legislative framework. We agree with that approach, especially since the extensive array of global regulation is still being implemented.
There's one item in the bill I would like to specifically comment on, and that's the Bank Act special security regime. This type of security interest has long been a significant aspect of the bank regulatory regime and has played an important role in our ability to support the economy, particularly in lending to agriculture and forestry. Unfortunately, some recent court cases introduced some uncertainty into the Bank Act security regime, some uncertainty that needed to be fixed.
In Bill S-5, the government has stepped up to the plate and is proposing what we think are very needed clarifications. While we still need to make sure that what is proposed is fully workable, we're very pleased to see that the government is open to clarifying this important measure.
Let me conclude by just stepping back from the specifics of Bill S-5 for a moment to take into account the broader context and the implications of the international regulatory agenda. As you may know, and I've been on record on this for quite some time, we fully agree on the merits of a strong supervisory system as part of Canada's excellent standing in the world. At the same time, however, policy-makers and regulators must also be continually mindful that the new global rules arising from the crisis represent the biggest regulatory implementation exercise that our banks have ever gone through. This exercise is stretching systems and resources to the limit and beyond, and it's a real challenge, particularly for smaller institutions.
We must all, the whole community involved, take care to ensure that the sheer volume and complexity of the new rules does not become a regulatory risk in itself.
Let me conclude there. I would be very pleased, Mr. Chairman, to take any questions later on.
:
Thank you, Mr. Chairman.
I'm Frank Swedlove, the president of the Canadian Life and Health Insurance Association. I have with me today Frank Zinatelli, who is the CLHIA's general counsel.
[Translation]
The Canadian Life and Health Insurance Association accounts for 99% of the life and health insurance in force in Canada.
The Canadian life and health insurance industry provides products such as individual and group life insurance, disability insurance, supplementary health insurance, and individual and group annuities including RRSPs, RRIFs, TFSAs, and pension plans.
[English]
Overall, the industry protects more than 26 million Canadians and over 45 million people internationally.
Mr. Chairman, we welcome the opportunity to appear before the committee today as you review this important bill. The industry is very supportive of the bill and urges that it be passed in a timely manner.
Following up on the Minister of Finance's September 2010 request for input on the scheduled review of legislation governing federally regulated financial institutions, for us—and I've already been quoted on this by the minister today—Bill S-5 represents a welcome fine-tuning of the various financial institutions' statutes. The bill contains provisions to promote financial stability, to fine-tune a consumer protection framework, to reduce administrative burden, and add regulatory flexibility.
With respect to the first of these objectives, we are pleased to see the amendment to the Winding-up and Restructuring Act, which changes the priority status of segregated fund policies in insolvency situations and will facilitate timely transfers of policies.
[Translation]
As for consumer protection, the bill improves the Financial Consumer Agency of Canada Act and gives the government increased regulatory powers in this area.
As for the third objective, which is improving the efficiency of the legislative and regulatory framework, the life and health insurance industry particularly supports certain technical but useful proposals.
[English]
For example, amendments would be made to the Insurance Companies Act as follows: to reduce administrative burden from fairly regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements; to allow a segregated fund to invest in an insurance company through a mutual fund that the insurance company controls, provided the shares of the company are part of a recognized market index; to provide federal financial institutions with enhanced flexibility to issue shares to foreign institutions owned by foreign governments; and future adjustments on the limits on transfers to shareholders from participating policy accounts will be facilitated by adding regulatory flexibility.
In conclusion, Mr. Chairman, the industry strongly supports the provisions of Bill that are relevant to the life and health insurance industry, and it is willing to assist in whatever way it can in ensuring the bill's timely passage.
Thank you very much.
:
Good afternoon. Thank you very much for inviting me here.
My opening remarks will be short and will focus on the impact of Bill on FCAC.
FCAC welcomes the changes the government is proposing to make to the Financial Consumer Agency of Canada Act. The changes are largely technical amendments or clarifications to existing provisions.
[Translation]
Among the changes which would have an impact on our activities are the cashing of cheques. The proposed change would allow us to streamline the service we offer consumers with respect to cashing government cheques, whether or not they are clients of a bank. This would confirm that Canadians, including a banks' clients, could cash government cheques of under $1,500 without paying fees, in any bank in Canada.
[English]
Among the changes that will be impacting our agency's activities, there is also increasing the maximum penalty for a violation of a consumer provision. The amendment will increase to $500,000 the FCAC's maximum administrative monetary penalty, bringing it in line with other federal regulators such as the Office of the Superintendent of Financial Institutions and the Financial Transactions Reports Analysis Centre of Canada. The bill also provides that the commissioner, officers, and employees acting under their direction are not compellable witnesses in any civil proceedings on matters relating to their duties or functions.
The other amendments included in the bill are minor technical elements. They will have no significant impact on the work we do.
This ends my brief comments, and I look forward to any questions you may have for me.
Good afternoon, members.
[Translation]
My name is Philipe Sarrazin, I am Director General of the Legislation and Strategic Initiatives Division at OSFI, the Office of the Superintendent of Financial Institutions. Among other things, my team is responsible for helping develop statutes, regulations and guidelines with respect to financial institutions. I therefore hope to be able to answer from OSFI's perspective any questions you may have about the bill your committee is presently studying.
The five-year review of financial statutes is an opportunity to evaluate the goal and efficiencies of federal statutes that govern financial institutions in Canada. Furthermore, it allows all the stakeholders, including political, financial and regulatory authorities, to re-examine previous legislative changes and continue to clarify its laws. The legislative review process is one of the elements that explain why Canada survived the global financial crisis relatively well.
[English]
Perhaps I should explain briefly OSFI's existing legislative mandate. A key element is to advance and administer a regulatory framework that promotes the adoption of policies and procedures designed to control and manage risk. This provides us the authority to refine our own guidance for federally regulated financial institutions, guidance that is sensitive to developing risks and promotes industry best practices.
The superintendent, the Minister of Finance, and others frequently speak about the importance of clear and focused mandates. OSFI's mandate is clear and focused, and we do have the flexibility to respond to developing risks. The elements contained in this bill are consistent with OSFI's mandate, role, or powers. In general, the bill provides more clarity and consistency across financial legislation and does not contain fundamental changes to the federal financial legislative framework.
In summary, from OSFI's perspective the federal financial system legislation in Canada is clear, effective, and enforceable. The bill before the committee today contains further technical refinements to an already strong legislative framework.
[Translation]
I am pleased to have participated in the review of this bill. I will be pleased to answer your questions.
:
Thank you for the question.
As you surmised, this amendment will change the method. Currently, the decision comes from the superintendent. The review of the file begins when the financial institution submits an application, and then the review continues. Applying is a long and complex process that requires exchanging a lot of information as well as the gathering of information by the office. In short, the review of the file begins as soon as an application is submitted.
The superintendent's review is very exhaustive. It is an economic and legal review. A transaction is reviewed based on the contracts included in the file. The transaction is reviewed from an economic perspective, by considering the strength of the entity that is making the application and verifying if it has the financial strength to participate in the transaction in question. Ultimately, the people responsible for approvals at our agency make a recommendation to the superintendent, who then makes his decision.
With the proposed amendment—I don't remember your exact question anymore, but I suppose you want to know what will change if this amendment is passed—the final decision will be in the hands of the minister. However, that does not change anything about the process I have just described. In fact, the first step will be submitting the application to the Office of the Superintendent of Financial Institutions. The office will then diligently conduct the same exhaustive study, from an economic and legal perspective. This will culminate in the recommendation submitted to the minister, who will then make the final decision.
:
Thank you, everybody, for appearing before us. This is a great thing that we get to do in committee. When I read some of the quotes that come out.... You've heard them, I'm sure you've heard them.
The Fitch credit rating agency said that “Canada's banks proved more resilient than many peers thanks to a conservative regulation and supervision environment”. It's the old Scottish bankers' system, I think.
The Economist says, “Canada has had an easier time than most during the recent global recession, in part because of a conservative and well-regulated banking system.”
The Irish Times says, “Canada's policy of fiscal discipline and strict banking supervision was a reason why it was one of the world's strongest performers during the recession.”
My dear mother would have told me that when there was too much praise being heaped upon me to be careful, that I was being set up for a fall. I suppose this regulatory system we are talking about today provides us with some safeguards.
I'm going to direct most of my questions to you, Mr. Campbell, at this point anyway.
When we look at improving our financial system, the global economic turmoil highlighted one area where Canada needs more coordinated oversight, and that is in the area of improved securities regulations. Your organization has been clear that the current patchwork in Canada is very inefficient. It's costly, and there's a disincentive for foreign investors, I think you said. Can you elaborate on why you believe Canada needs a single regulator and how that would improve overall stability in Canada's financial system?
First of all, I would say there's an old Spanish proverb that says that the biggest enemy of the bullfighter is not the bull, it's the applause. That's related to your comment earlier.
We all know that there was a decision of the Supreme Court in December. It was on a very specific statute that had been put forward, and that particular statute did not pass muster, but some very important principles were outlined there. One is that there is federal jurisdiction over key aspects of the securities system. That is now established, and I think that's a very positive base on which to build.
On your point, all the reasons why we would need a single regulator are still there. We have an inefficient enforcement system for individual investors. It's scattered. It's diverse. It's fragmented. A bad actor in one province can just go to the next province and carry on business. That is entirely inappropriate. We find that the process of raising capital is unnecessarily complicated. We think that businesses would be able to raise capital in a much more efficient kind of way.
One of the lessons we've learned from the financial crisis is the importance of being able to have a coherent, unified policy system that can take policy decisions quickly. We have that. We have a single unitary system on the prudential side, we have a single unitary system on the consumer side with the FCAC, but we do not have that with the securities side, and that slows down decision-making. It slows down responsiveness. One of the advantages of the system that we have now, in the areas other than securities, is that you can get the players around the table to talk about the decisions that need to be taken quickly. You cannot do that with a fragmented 13-party system.
So all the reasons why we felt a single regulator was needed are still there. We hope that taking some of the lessons coming out of that decision in December, there is a basis for continued discussions and we hope that does proceed.
I hope you're right, Mr. Campbell, in your assertion that Canadians are careful borrowers. I have concern. There is a growing concern about the personal debt bubble in Canada at $1.50 for every dollar value of income. It's unprecedented for Canada. It's higher than that of our previously thought to be spendthrift cousins to the south.
The Economist magazine stated, in the February 4 edition, “When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug...”, and “During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America”. But the Canadian housing prices hit new record highs by 2010. It quotes saying, “Canada was not a part of the problem”.
The Economist goes further, stating, “Today the consensus is growing on Bay Street...that Mr. Harper may have to eat his words”. It goes further—the slowdown in emerging markets, the fact that housing prices have doubled, or have grown significantly, particularly in places like Vancouver and Toronto.
Don't you share this concern, that we have a housing bubble, which is closely related to a personal debt bubble, in many Canadian centres today?
:
There are two things I will say in response to that.
The emphasis of your point is absolutely right in the sense that none of us—and that's certainly not the case with Canadian banks—can be complacent about the levels of Canadian debt. We agree. We monitor this very carefully. We agree with the warnings from and from Governor Mark Carney. This is not something that should be taken lightly.
At the same time, it is important to put it into perspective. All the points, all the differences with the housing market, which I was just referring to in response to Mr. Van Kesteren, are very true.
When we look at the housing market in Canada.... I am not an economist. I cannot give you an economic forecast. But the preponderance of opinion I see, on Bay Street and elsewhere, is that there is some froth in the market but that it is slowly coming down. We are not talking about a bubble. We are not talking about a dramatic collapse. There is some softness that will happen. We are seeing consumer borrowing levels having risen.
And remember, today is the day the Bank of Canada released its policy decision on interest rates. It's kept them very low, historically low, almost to the point of free money. The point of doing that was to encourage people to borrow, to continue the economy going forward. The balancing act is that you have to encourage those expenditures but you have to be careful that it does not get inflated.
I would say we are seeing a slowing down of that consumer lending. There will be a softening of prices. I'm quoting here, Mr. Brison, the preponderance of opinion that I read.
Governor Carney is in very good company. It isn't just Governor Carney, of course. It's the minister, . It's Superintendent Dickson.
Their counterparts around the world—in the United Kingdom it's the Chancellor of the Exchequer, it's Commissioner Barnier in Europe, and authorities in Japan—have all said the same thing.
I used the phrase “preponderance of opinion”. Our hope is that the preponderance of opinion will weigh upon the authorities in the United States. Quite frankly, when we read Chairman Bernanke's comments last week, we saw that he said, in effect, “Look, we get it already”.
We're going to have to go back, I hope, to the drawing board. But at least we're going to have to go back and take seriously those comments.
They're not going to meet their July deadline. That's good news, because they're going to have to rethink those....
Thank you for that question. It's a very important one.
So that confirms that there was a process in place. I think that's what Canadians want to hear, that it wasn't just something government was doing heavy-handedly; it had the cooperation of a variety of partners, in this case, to see this type of legislation come forward. That should give comfort to the opposition members, that there was a good process followed in terms of recommendations.
As you said, Frank, it might not be everything you want, but at least you were consulted and talked to.
Terry, one of the things we're seeing in this bill--and I'll read it in terms of today's legislation--is that the government is increasing the “large bank” ownership threshold.
Can you explain why this is occurring, and what impact the increased ownership thresholds will have on oversight of financial institutions?