EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 7, 1995

.0910

[English]

The Chairman: Order.

We're here today to welcome, on behalf of the industry committee, representatives of Canada's major banks and the Canadian Bankers' Association.

The purpose of the meeting today is to discuss a report that recently was tabled in the House, ``Performance Benchmarks for Small Business Financing by Banks: A Progress Report''.

There are really two main topics in the document. As the title suggests, the first has to do with performance benchmarks. We'll be spending the greater part of today going through that part of the document that refers specifically to either statistical measures or survey data. We will then bring closure to that part of the discussion and have a second discussion relating to the whole subject of ombudsman, and alternative dispute resolution. Then there will be a major announcement the banks collectively wish to make on the subject.

As I said, it is a two-part agenda. There will be a break for lunch so participants may have a chance to discuss things more informally, or perhaps caucus amongst themselves to sort out various problems. But we will be going today from 9 a.m. until 5 p.m.

In terms of the first part of the discussion, it is the committee's hope that as a result of these conversations today, the committee and the banks can come to a common understanding of what statistics the banks will produce by our next quarterly meeting in February.

Naturally, there are differing views about what is both possible and desirable, and that is the purpose of this meeting. But I'm hoping when we reach the end of the day we'll be able to sign a document that will get us set up for our next meeting, and we can in some sense declare a victory on the subject of performance benchmarks.

Let me give you a little detail on how I suggest we proceed. The relevant statistical material can be found in this report. I will be making reference to the paragraph numbers in the report. What I'm about to say starts on page 13, so I hope the batting order will be fairly clear.

My proposal is this. With your agreement, we will hear first of all from a representative of the bank, Mr. John Leckie, who will give us a kind of overview response. I would then propose we deal very quickly with the items in which there is mostly complete agreement. I would characterize those items as items 1(a) and (b). We will return to them to find out where the small differences are.

.0915

I then propose we deal with two generic problems that confront us in a lot of the material that follows. They do not have item numbers but are general problems. The first one is customer confidentiality. It is pervasive in the response of the banks to our proposal, so we have to talk about it in general before we can come up with specific resolutions.

The second generic problem is that of timing. When can statistical material be produced by you, and what sort of material? Those are two overriding questions I would propose to discuss after we've looked at where we are in total agreement.

Then I propose we tackle a number of items where I think there's room for discussion and negotiation, and where we really want to understand better where you're coming from, but hope to perhaps push you a little bit. I propose we discuss those items in the following order: 1(c), 1(d), 1(g), 1(h), 1(j), and 1(i).

There is the final category of three items where, if I dare summarize the collective feeling of the committee, we would like to push quite hard. We think there are strong arguments to move further than you have proposed in items 1(e), 1(f) and 2.

So there are four categories we are going to be discussing today. The ones we agree upon; generic problems; areas for negotiation; and three points where I think the committee feels quite strongly that we need a bit more movement than you have proposed.

If that is clear, I propose we start immediately with Mr. Leckie's opening statement. Then we will move on to the areas of total agreement.

Mr. Leckie.

[Translation]

Mr. John Leckie (senior vice-president of Business banking services for the Toronto-Dominion Bank): Mr. Godfrey, members of the Committee, good morning.

[English]

My name is John Leckie and I am the senior vice-president of business banking services for Toronto-Dominion Bank. I am also the chairman of the Canadian Bankers' Association's independent business committee. It is a committee made up of many of the people you see here today representing the Canadian banking community for small- and medium-sized business. It is in this capacity that I would like to make a few opening remarks on behalf of my fellow committee members.

In March of this year, your committee embarked on a process to identify meaningful benchmarks that would contribute to the public policy process and provide information by which to gauge a bank's individual performance in serving the needs of Canada's small- and medium-sized enterprises.

In response, the banking industry developed a proposal for the collection and provision of meaningful information on several aspects of our small- and medium-sized market, including measures of lending volumes and service initiatives. This proposal was tabled before the industry committee this past April by the Canadian Bankers' Association.

Following the August standing committee hearings, you presented us with a draft motion calling for a very comprehensive collection of statistics on our lending activities in this small- and medium-sized market. We, in turn, provided you with a memorandum containing a brief overview of our ability to meet your requests for this data.

Today we are pleased to have the opportunity to appear before you as a group and hopefully bring closure to our mutual efforts to provide this data. To assist in this process, we are joined by Terry Glossop of the Toronto-Dominion Bank, and Candace Fedoruk. Terry is the chair of the Canadian Bankers' Association business credit group that oversees the collection of credit statistics from each of our information systems. Candace Fedoruk is the chair of the CBA's survey working group of research experts from each of the major banks, who will oversee the survey work we will be carrying out over the upcoming months. These two highly experienced individuals will add credibility to today's discussion vis-à-vis the issues surrounding data collection.

.0920

Before we start our discussion of the lending data and the client survey work we are proposing, I would like to briefly touch on some of the significant issues. I believe my colleagues would agree that Canada's banks are very competitive and each pursues a distinct business strategy.

What we do share, however, is a commitment to ensure the development of the small business sector in this country. As a result of the work that has been done by your committee, I believe we have seen a renewed commitment by Canada's banks to this country's small business sector, defined at this stage as borrowing less than $500,000.

We must not lose sight of the fact that Canada's six largest banks currently finance almost $42 billion in credit to small business. This represents lending to over 580,000 small businesses across the country. As well, over 80% of small businesses that seek financing from Canada's banks get their applications for loans approved. These numbers are substantial and I believe they say a great deal about how committed the banking industry is to financing small business.

Canada's banks have also been active in seeking new and innovative means of improving service to small business customers. Over the past year many of us have brought back community banking, and in doing so have made our products and services more accessible to small businesses throughout our bank networks. As well, we have all implemented our own codes of conduct for small- and medium-sized enterprises.

As part of these codes of conduct, we have each made a complaint resolution procedure available to business customers. We have each implemented our own alternative dispute resolution process, which is available to customers who have complaints about the loss or reduction of credit, or about the bank calling its security.

As evidence of our commitment, in September of this year we asked the Canadian Bankers Association to commission an independent study to determine our progress in communicating information about our codes and the alternative dispute resolution mechanism to the appropriate bank employees and in ensuring employee understanding of these initiatives.

We are very encouraged by the progress that has been revealed through these survey findings. The results of the survey demonstrate widespread awareness and understanding of the code of conduct and a growing understanding and awareness of the alternative dispute resolution. The survey results also demonstrate where more effort is required. Where this is the case, we are committed to ensuring that awareness and knowledge continue to grow. That process is what benchmarking is all about; continuous improvement.

Further to the recommendations made by your committee, most of the banks represented here have announced their internal banking ombudsmen to enhance their complaint handling mechanisms. An internal ombudsman can help resolve disputes by providing the resources of someone who has knowledge of the bank's internal processes and who can act as an independent party in attempting to bring about resolution. Most importantly, it will help our industry make it clear that we are dedicated to improvement on these matters.

Of course, my colleagues would be pleased to speak to you about the programs and services they have each developed for this business sector. No doubt many opportunities will arise as we deal with the specifics of your motion over the course of the day.

Overall, Mr. Chairman, this has been a very constructive period for us. During the course of the past year alone we have seen more collectively done for small business than during any other period of time. We should not lose sight of this. The beneficiaries are and will continue to be small- and medium-sized businesses.

Thank you.

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

I think I can speak on behalf of my colleagues to say how pleased we are that this exercise has gone so well today. There has been considerable progress and understanding in both directions.

.0925

Our overall intention, of course, is to make sure that lending to the small business sector be increased; that it be appropriate; that it is not simply a matter of documenting what is but striving to improve the level of appropriate financing to small business. That's the purpose of today's exercise.

As I said, it seems to me that the next most useful thing we can do, with colleagues' permission, is to look briefly at the two points where there seems to be total agreement between the committee and the banks. If you will look at your report, those are items 1(a) and (b) on page 13. As it says, we've asked for numbers and loan authorizations between a number of categories and numbers and loans outstanding in the same categories.

The suggestions, which are minor, are really twofold. One is that we change the categories slightly to reflect the categories laid out in the Small Business Loans Act, in other words substituting $250,000 for $200,000, and that we add another interval, which is the $1-million to $5-million class interval, simply as a further means of comparison. The other small change seems to be linguistic. The committee uses the words ``number of loans'' and the Canadian Bankers' Association uses the words ``number of customers'', but we are talking about the same thing.

Mr. Leckie, have I essentially summarized the only differences between us on these points?

Mr. Leckie: I believe that's correct. I think it is a good idea to choose $250,000 as the cut-off to match the SBLA arrangement.

As well, just to clarify, will that cap it at $5 million? Is it $1 million to $5 million and then it's capped? Is that your understanding, or do you want figures beyond that?

The Chairman: We are trying to figure out small businesses, and I suspect that by the time we hit $5 million, that's a pretty big small business.

Mr. Leckie: Right.

The Chairman: Mr. Mills, do you have a question?

Mr. Mills (Broadview - Greenwood): Mr. Chairman, I'd like a point of clarification just before we get into these details on our report. It has to do with Mr. Leckie's opening remarks.

I'm just asking for some clarification here. You mentioned in your opening remarks that the authorized credit increased to $41.8 billion or $42 billion. This is for the past year, and this is for loans that are $500,000 and under.

Mr. Leckie: That's right.

Mr. Mills: Now, that is the amount that's authorized, not the amount that is used. Correct?

Mr. Leckie: Correct.

Mr. Mills: When we had our budget document of last year, the Department of Finance gave a number of approximately $18 billion that was outstanding to small business in this country from the year before. I'm sort of startled by the number that is in the budgetary documents. It was approximately $20 billion, and you talk about this number of approximately $42 billion. Has our small business envelope increased by that much in a year?

Mr. Leckie: You're right, Mr. Mills. The $41.8 billion is authorized. I believe, if my memory serves me right, that $29.4 billion is what is drawn against that $42 billion, if that helps you reconcile.

Mr. Mills: Fair enough, but even that $29 billion is an increase from the Department of Finance's outstanding float, which was approximately $20 billion. Is the small business lending that's actually being utilized up by approximately $10 billion? Is that what you're saying?

Mr. Leckie: That's the correct math. Speaking for my own bank, as I reported to you in the August hearings, we were pleasantly surprised at the growth we were experiencing through 1995, frankly.

.0930

Mr. Mills: Mr. Chairman, I think that's a significant number to focus on, because if the float has increased from approximately $20 billion a year ago to almost $30 billion now, that's an increase of almost one-third in that's been available for the small business community. In the CBA document, which talks about authorization levels, I notice they show the increase is approximately 1%. I think that's misleading. It's important for us to focus on the fact that small business lending may have increased by about one-third.

Is that accurate, Mr. Leckie?

Mr. Leckie: What I can explain is where that 1% came from, but I like your math.

Mr. Mills: But I'd like to make sure I'm correct.

Mr. Leckie: Let us dig into that over the course of the day and try to correct with the CBA how that 1% was -

Mr. Mills: I would prefer my -

Mr. Leckie: One-quarter over one-quarter is the remark I'm hearing.

Mr. Mills: But even one-quarter over one-quarter is only 1%.

I'll tell you why I like my math. I certainly don't like the math of the CBA, because if their numbers are accurate, the amount has only increased by 1%. I of course don't consider that a great improvement. But if in fact the float has increased from $20 billion to $30 billion, that's worth talking about.

The Chairman: What if we agree that we will attempt to clarify those numbers? Of course we should remain cognizant of the fact that when we finally sign off on the benchmark document, those sorts of distinctions are going to become much more apparent when we have our quarterly meetings. That's exactly why we're having the exercise.

Mr. Ianno (Trinity - Spadina): I just want to understand something in terms of the numbers.

Mr. Leckie, you went from $42 billion. In August I received the numbers from the banks that appeared, and I added them up to approximately $35 billion, including the Hongkong Bank, at a rough number. So I'm wondering if, from August to today, the number has gone up to $42 billion. Or are we talking about the $20 billion to $30 billion? Is it the authorization of $1 million or is it the $500,000?

Mr. Leckie: On the latter point, it's the $500,000.

Going back to Mr. Godfrey's comment, what we're trying to do here today is standardize the reporting. I know I reported numbers in August that were from a different month from the one some other banks reported, so we really did have apples and oranges.

Mr. Ianno: I marked all the apples and oranges down as everyone reported them, and my numbers, even including the $1 million mark, still didn't come up to $42 billion.

We understand this process is very important so that we get everyone to report the same numbers. We're aware of that. It's just that if you didn't bring up the $42 billion and left it solely to what we're here for - to discuss a standardized method - then no one would start to deal with the specific numbers. But when you bring up the $42 billion, I just don't like to leave it alone, especially taking into account that for the past two years I've been taking the numbers the banks have supplied, and they don't come out to the way you're describing it, to the best of my knowledge.

The Chairman: Why don't we roll that same conversation ahead? What we might do is save ourselves a little time after lunch to come to a better understanding of the 1% and the $42 billion. We'll have a report back on these points that are raised.

I come back to the points under discussion, which are 1(a) and (b), where we apparently have, with a couple of minor adjustments, agreement.

Are there any further comments, questions or clarifications? Sold.

We now move on to the two generic problems, the first being one of customer confidentiality. The argument is essentially that with every additional cross-reference, with every increase of the matrix, you can refine it down to the point that you know the name of a specific customer.

What I would like to do is have a quick comment on this problem from the group. We're in a fairly relaxed mode today, so I will take questions or comments from any of my colleagues on this point and we'll try to find some overall way of resolving the issue of confidentiality.

.0935

Mr. Leckie, do you want to do it yourself?

Mr. Leckie: I'm going to ask Terry Glossop to comment on the specifics, but the real issue here is that you break the cross-references or cross-tabs of industry, size of loan, region and so on. As you cross-tabulate those, the privacy issue pops out because there are certain cells below fifteen customers in each cell, and at that stage that information is deemed to start to break into confidentiality issues.

Terry, with that opener maybe you can help.

Mr. Terry G. Glossop (Vice-President, Credit Division, Toronto-Dominion Bank): I'm Terry Glossop of the Toronto-Dominion Bank and I chair the business credit committee.

What John has said is true. Once we start taking each of the pieces of data and cross-referencing it, the effect is to have very few observations in each of the cells in many instances.

For example, if we were to take the authorization of seven banks and a total, take six banks and a total, take the five geographic regions and a total, and take the seventeen industry sub-groups, that works out to over six thousand individual cells where we have data. So you can imagine that once we drill down to that extent, many of those cells will not have sufficient data for us to feel comfortable with the privacy situation.

We have used the StatsCan number of 13 as being the number at which we feel the information shouldn't be released independently. It is good information, but at the same time it's too revealing. We think the privacy issue would override the need to actually release it down to that level.

The Chairman: That's very helpful.

Let me now turn to colleagues.

On this particular point, Mr. Mayfield.

Mr. Mayfield (Cariboo - Chilcotin): I appreciate the problem of confidentiality that you raise, Mr. Glossop. As you're aware, one of the difficulties in a nation this large and diverse is how a committee like ours can understand where the banks are perhaps doing an adequate or better-than-adequate job, and where, in other areas of the country, more assistance from the banks would be helpful, not only to the community but to the country as a whole.

Do you have any suggestions as to how the difficulties with confidentiality could be overcome?

Mr. Glossop: I don't know how we can solve that conflict because if we actually reveal the information you need we come up against the problem. It's a catch-22 situation. I think we could expand the five geographic regions slightly, maybe on a provincial basis, but I don't think that would really help you a lot.

Mr. Leckie: I think there's another part to the answer. We have 600,000 clients in this sector for the industry in total and given the growth we've seen there are excellent trends at the moment. I think you're anticipating what happens if we come to the end of a growth cycle here. How do you keep a handle on that?

My only response is that all of us must try to become familiar with these trends. We have to have a starting point, which is why we're here today. If we can get the starting point down and agree on the apples and apples, if you will, I think that will help us. We will remain flexible in working with you to try to deal with these privacy issues as we get more comfortable with it.

Mr. Mayfield: I'll leave it at that for the moment. Thank you.

The Chairman: Did you want to add something?

Ms Anne Sutherland (Vice-President, Small and Medium Enterprises, Royal Bank of Canada): Yes, if I might.

One of the other things the committee might want to consider in terms of getting more information on this area so that we do not compromise any confidentiality - and as of course you know, a huge issue with our customers in the public right now is confidentiality of their information and who gets hold of that information - might be to say, reduce the number of bands, reduce the industry piece. Our people, who have a lot of detailed knowledge, could work with your researchers to say, okay, where are the pieces? Because we absolutely will not compromise client confidentiality. At the same time we recognize and do appreciate the need to understand what activities are going on across the country. That's a fair request.

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The Chairman: Do you wish to say something, Ms Brown?

Ms Brown (Oakville - Milton): Thank you, Mr. Chairman.

Of course, we share the confidentiality responsibility that you feel. We certainly have no desire to embarrass individual borrowers who are our constituents as well.

However, I'm wondering about the number 13, which was quoted by Mr. Glossop as relating to StatsCanada reporting. Do you have to report to the finance department? Would you have the same system, with the number of 13 individuals per cell below which you would not report, or is there a different number in your reporting to the Department of Finance?

Mr. Glossop: I don't think we report to Finance to this degree. I'm not sure, but I wouldn't think the type of information they need would drill down as far as we're being asked to here.

Ms Brown: This is a bit of a first for you, being asked to cross-tabulate to this degree.

Mr. Glossop: [Technical Difficulty - Editor]...which we are asking to be offered up here is I think different from what Finance would get. We wouldn't have those same problems because we're not drilling down to the extent that we're being requested to.

So I don't think it's an issue so much for Finance. I don't actually report those figures to the bank myself, but that's what I would suspect.

Ms Brown: Thank you.

Thank you, Mr. Chairman.

The Chairman: Mr. Shepherd.

Mr. Shepherd (Durham): As we talk about this, there is one thing that concerns me. I'd like to think that banks still compete among themselves to some extent. To what extent is this categorization and your sensitivity to it driven by your own natural competitive orientation?

In other words, another bank is going to be able to see where your loans are by region and so forth. I guess the aspect of stealing each other's accounts or whatever is involved in the competitive market place. To what extent is your sensitivity to this driven by another agenda than confidentiality?

Mr. Glossop: There's no question about it; it is a factor. Even if it weren't, we still couldn't, because I believe that StatsCan by law cannot reveal information where the cell observations are 13 or less. I think we would have to be governed by that.

So while you're absolutely correct that it would be an opportunity for us to look at other banks' market share and for them to look at our market share, that isn't what would stop us. If that was all there was, maybe we could solve it, but unfortunately it isn't.

Mr. Doug Williamson (Senior Vice-President, Market Management, Royal Bank of Canada): Just let me add something to that, if I can.

An example of the issue around competition, Mr. Shepherd, might fall into an area such as knowledge-based industries, where we have small clusters of high-tech or knowledge-based industries across the country. It would be fairly easy, if you start breaking down in these cross-tabs the way we're talking about, to identify specific clients in specific industry groups in specific communities. That would be a major concern, a breach of confidentiality, particularly in a community like Ottawa, which is a high-tech centre. That's the degree of information that would breach both client confidentiality and the competitiveness that we wish to have in the industry.

[Translation]

The Chairman: Mr. Rocheleau.

Mr. Rocheleau (Trois-Rivières): I have a somewhat theoretical question to ask. When you express concerns about revealing confidential information, is it a matter of principle for you? Is it something that worries you or is it because in the individual banks and in the Canadian Bankers Association you have conducted a rigorous rational examination that definitely proves that some businesses might indeed be identified if you provided specific information?

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[English]

The Chairman: Is that a question for Mr. Glossop or Mr. Leckie?

Mr. Leckie, you be the quarterback. You tell us who the question is for.

Mr. Leckie: Yes, I'm just going to make a quick comment, and perhaps ask the Scotiabank people to add a comment here.

For me, this is really about our customers. I think when you drill down to 15 customers in a cell, you're getting down real deep, almost to the point - and Terry could go through some numbers here - where you will have a tonne of information at that level, and certainly more than we feel we can digest. I think it is, in a way, kind of a moot point to go down even lower than that. If we do, we're going to break into privacy between two knowledge-based industries in Kanata, for example. If they go to The Gazette or get information through the Access to Information Act, those industries will theoretically be able to start to figure out what the others are doing in terms of borrowing and the situation there.

So that's the real driving force, and the ruling on the 13 from StatsCan helps us by supporting that argument.

Mr. Dieter Jentsch (Senior Vice-President, Canadian Commercial Banking, Bank of Nova Scotia): To really echo what John mentioned, to me the issue revolves essentially around our customers. Our customers wish their affairs to be private, and it revolves solely around that issue. The competitiveness is an issue that's out in the market place. I'd like nothing more than to be back in Toronto taking one of John's accounts, so at this point and to my way of thinking, it is not an issue. The sole issue is that our customers and the people with whom we do business do not wish to have their affairs revealed.

I think we all share that as an objective, and I agree that certainly the solution is to figure out at what level confidentiality is breached. Certainly the level of 13 is one StatsCan has put forward. It is one I certainly agree with, in full conjunction with John.

Mr. Kelly Shaughnessy (Senior Vice-President, Small Business Banking, Canadian Imperial Bank of Commerce): Mr. Rocheleau asked whether or not this was a question of principle. We have clearly expressed the principle involved in applying confidentiality and the 13, but he also asked if there is a danger here too.

In looking at our numbers for the CIBC, and I'm quite sure the same will apply to all of our competitors sitting here at the table, I can say there is a real danger here. This is not something we perceive, this is not something we are objecting to solely on principle. We are objecting to this on the basis of fact.

When you look at the numbers, when you look at the cross-tabs just under $500,000, let alone going down to what we have just agreed to, with the further cuts, we have a substantial number of cells in which the 13 principle is broken, and a substantial number of cells in which we're down in the low single digits.

[Translation]

Mr. Rocheleau: I would like to know whether the number of 13 or 15 customers is based on a study or if it is just a guess.

[English]

Mr. Leckie: Yes, we have. We have drilled down to those levels and we have seen these cells pop out, and Terry can give you some feedback on that.

[Translation]

Mr. Tom Cormier (Senior Manager, Corporate Account Management, National Bank of Canada): At the National Bank, we sometimes achieve savings in the province of Quebec, but outside the province, it is very obvious that if you used the 13 parameter distributed between the 13 industry sectors, especially in the Western provinces, you would end with a chart like the one Mr. Glossop just showed us, a chart that contains more blanked out data than information.

It is obvious that the number 13 is a parameter that is often applied to in the downward scale.

[English]

The Chairman: There are more names on my list, and I'm hoping that the following persons will find a resolution to our problem: Mr. Mitchell, and failing that, Mr. Discepola or Mr. Valeri.

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Mr. Mitchell (Parry Sound - Muskoka): Thank you, Mr. Chairman.

Mr. Leckie, I want to make it clear so that I understand this. You're suggesting that you'll comply with the figure of 13 as suggested by StatsCan. Is that correct?

Mr. Leckie: Correct.

Mr. Mitchell: Would that mean that if you are doing a particular run to, say, give us the stuff between zero and $25,000, broken down by industry sector, that you'll report everything excepting maybe for one or two cells that might fall below that threshold, but you'll continue to report those cells that are above the threshold? You won't throw the whole thing out because one particular cell happens to fall below.

Mr. Leckie: I think that's correct, yes.

Mr. Glossop: That's correct.

Mr. Mitchell: So what we would see, then, assuming that we were going to get a report, is that it might be a report that included 5,000 cells, of which maybe 22 would come to us blank, and we would know that was because it fell below the 13 threshold.

Mr. Glossop: It would be much higher than 22. If it was 5,000, it might even be half. It would be very high.

In fact, we've blanked out quite a lot of the information we're able to give to you right here, because it does fall within the confidentiality ceiling.

Mr. Mitchell: What figure did you do that from?

Mr. Glossop: The 13.

Mr. Mitchell: You used 13.

Mr. Glossop: Yes.

Mr. Mitchell: Can you tell us exactly how many cells you ran and how many came up in the confidentiality ceiling?

Mr. Glossop: I have a document here that says that. I could certainly make this available. I can read some of it.

When it came to the actual industry breakouts we could do it for the total banking system all the way across. No problem.

When it came to the industry breakouts with the six banks we could only give you up to $500,000 and the totals for the whole amount. But we couldn't give it to you for individual banks.

When it comes to individual banks, there's hardly anything. In fact, with industry breakouts and individual banks we can only give you one cell out of a total of about thirty because of the violation that it would create with the confidentiality ceiling.

The conflict is the more information we give you, the more cells we have to blank. So it really is, as I said earlier, a catch-22 situation. What we have to do is work with you to try to give you the information you need to measure the banks, but at the same time not compromise the confidentiality. That would be difficult, but I think if we worked together we could achieve that.

Mr. Mitchell: So just to recap, then, you're suggesting right now in terms of confidentiality that you will provide us with everything that we come to a conclusion with today with the exception of those cells that would have less than 13 customers. But even when that occurs and there's a cell that is part of that particular cut and it's over 13, that will continue to be provided even though part of the data might get blanked.

Mr. Glossop: Yes. It's actually a matrix situation, of course, and if any of the observations in that particular cell in that matrix falls to 13 or below, we'd blank it. Where that particular information was above we could supply it.

But there's one problem. If we have a situation whereby we have a sum total and we blank out one, obviously you can calculate what that one is by just adding the rest of them and deducting from the total, so it's not quite as simple as that. You have to work with us to make sure that the confidentiality is preserved.

Mr. Mitchell: Thank you, Mr. Chairman.

The Chairman: Mr. Shaughnessy, do you want to add something?

Mr. Shaughnessy: Mr. Mitchell, I think what you'll find, though, is that when we get over that $500,000 mark the number of cells that would have to be blanked out probably would make the information not of any use to this committee.

The important thing, though, is that I think you will find that you're going to get useful, statistically sound information under the $500,000 mark. That really is what we're trying to work for here together with the government and with the committee. We're trying to help small business. I think you're going to find that on the matrix of the dollar bands, the five regional bands and the seventeen industry bands, that you're going to get information. I think the real conflict comes when we start drifting up into the larger dollar amounts.

The Chairman: One final comment and then we move along to Mr. Discepola.

.0955

Mr. Steve Klein (Vice-President, Independent Business, Bank of Nova Scotia): One of the things, Andy, you and the committee may want to consider is the importance of getting down below the industry level.

At the industry level, within the bands we're talking about, you will get nearly 100% of this information at the tier you want it, but because of the way we're represented across this country and because of the way we differentiate markets, if you start getting down to the level of the individual banks, you'll get next to nothing. By the time you get down to that break-point confidentiality, it's really a blacked-out chart. We'll give you the information that's above that break, but you're getting into some really small numbers that aren't going to make a lot of difference.

If you can stick to the whole level of the individual bank, like all of Canada for a bank, you may get some significant data. If you stick to the industry, you'll get all the data. Maybe that's the way you have to look at this.

Mr. Discepola (Vaudreuil): I don't know if I have a solution. I might bring more confusion.

I'm desperately trying to understand this issue of confidentiality. The last speaker just stated that if it's over the $500,000 threshold, we would have less risk of hitting a cell that's 13.

Mr. Mills: More risk.

Mr. Discepola: More risk?

Well, I'm having difficulty, because you say 90% of your clients are small- and medium-sized businesses, of which 580,000 or so have less than a $500,000 borrowing requirement. It seems to me if we have a statistical population of 500,000 clients, if we break these things down into the detail we want, we should have less risk of giving cells at 13 or less.

Contrary to the opinion that's already been stated, you're saying confidentiality is really between the customers. I'm wondering if maybe you don't want the banks you're in competition with knowing the customers you're dealing with.

From a client's perspective, if I don't know the competitors in my field as to their employment size, their sales or their categories - i.e., the competitive advantage they have over me - I won't stay in business very long. I'm quite confident that I can get that information on my competitors if I want to. All I have to do is subscribe to a credit house and they'll give me the sales of that person, the credit rating of that person, etc. There are statistics I can get from people such as Dun & Bradstreet, for example.

So is the question of confidentiality more that you don't want your competitive banks knowing who your small- and medium-sized businesses are, or is it really a question of trying to, again, not provide the depth of information we are seeking? I feel that if you ask your customers on their application forms whether they'll allow you to disclose some of the factors we're asking for, such as employment size and sales level, they'll gladly give it to you and allow you to disclose it. So where's the confidentiality problem?

The Chairman: I see lots of enthusiastic responses from around the table.

Mr. Shaughnessy: Mr. Discepola, on the question of cells, there's a much higher risk of hitting blanked-out cells over $500,000, so I think there's a misunderstanding.

Mr. Discepola: You have a population of 580,000, so you shouldn't hit as many cells.

Mr. Shaughnessy: Exactly; we agree there.

On the case of confidentiality, yes, you can probably, just by walking around outside your competitor's place of business, figure out how many employees there are and all that. But what we have to keep in mind is the linchpin of this is the authorized credit the client has with the bank. That is what we're saying is confidential. A cornerstone of our dealings with our clients is not to release the details of their dealings with our institutions.

So what you're asking me here is to break down the loans for the banking industry or for an individual bank between $100,000 and $250,000. If we get down below that cell of 13, if you and I were two competitors in that industry, we could probably figure out pretty quickly who is doing what with which bank.

Mr. Discepola: Mr. Shaughnessy, I maintain that you can get that kind of information on your competitors just by subscribing to people like Dun & Bradstreet. They'll tell you the amount. As a supplier, if I want to sell to a particular customer, I have to know his credit rating, and I can get that information currently.

Ms Sutherland: That information is volunteered by the customer. If we had Dun & Bradstreet here today, the representatives from that company would tell you the information provided to Dun & Bradstreet is solely voluntary, and it's not nearly at the same level as that of the information that is exchanged between banks and their customers.

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The Dun & Bradstreet database, in terms of getting information on small business clients, is not terribly well-populated, because most small businesses customers, in our experience, do not wish to share the very detail of their financial dealings with the world at large, including the Canadian public.

Mr. Discepola: You're saying that the business community will not share employment size?

Ms Sutherland: No, that's not what I'm saying.

Mr. Discepola: Which factors are you concerned about in regard to confidentiality?

Ms Sutherland: What we're talking about is the confidentiality issue and how detailed it is in each community across this country. We will provide this information so that the public at large has this information to make conclusions about a confidential relationship between our customers and particular clients. That's what we're talking about.

We're saying that we are more than willing to work with this committee to find benchmarks that will help the committee in assessing banks' performance against small business - absolutely. We're just trying to explain to you the technical detail of where those compromises in confidentiality occur as soon as you start to drill down into this data.

Mr. Discepola: So you're saying that if we take a particular rural community, you can pinpoint it down to the company level that it's...something difficult about knowing that this company in this community has a line of credit of $50,000 with the bank.

Ms Sutherland: Yes.

Mr. Discepola: That's detrimental to the business.

Well, then, I come back to the question of matrix. If you're going to remove that information from the matrix, I maintain that you can't rely upon the rest of the data anyway.

The Chairman: I guess what we're trying to do is make sure...we're really trying to get clarity here. We're also trying to get resolution.

Mr. Mills: Mr. Chairman, I think I can help here.

The Chairman: Sorry, but I notice that Ms Fedoruk has something to say.

Ms Candace Fedoruk (Project Manager, Commercial Research, Bank of Montreal): I'm part of the survey working group. We normally deal with samples rather than populations, but I think I have some comments that would apply here.

When we're sampling we often end up with cells that have very few respondents in them. What we habitually do is combine two bands so that if I have bands of zero to $25,000 in borrowing and $25,000 to $50,000, and I have very few respondents in each of those two cells, I combine them and I give you a number for zero to $50,000. I keep combining bands until we have a reasonable size that we can feel comfortable in dealing with.

I hope perhaps that's an idea for a compromise between blacking out cells. You're quite right, once you block out cells a good part of the table becomes less useful.

The Chairman: Mr. Mills thinks he has the problem licked.

Mr. Mills: I think the difficulty here arises because of the 17 different sectors that we are defining. When you have 17 sectors in a community and your base is 13, right off the bat you'd have to have 222 or 221 businesses divided amongst each sector. There aren't very many municipalities in Canada that would have 17 or 13 businesses in each sector.

As a committee I think if we're really going to persist on the municipality or regional information request, we would have to compromise on the number of sectors that we're asking to be defined.

Mr. Jentsch: The conversation has again gone to what the banks were prepared to release. My position perhaps may be simple, but our customers, I believe, do not want their banking information released.

What I'm hearing from the committee is that perhaps our customers don't mind the information being released, whereas I take the position that the customer's information that he or she has with the bank is private to their own relationship. It is not something that can be made public and available.

The Chairman: I note that I have two colleagues who indicated some time ago they wished to add something. I think we should try to bring some sense of closure to this discussion as best we can. Then we may have to revisit it.

Mr. Valeri and Mr. Shepherd.

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Mr. Valeri (Lincoln): Thank you, Mr. Chairman.

First, I want to respond directly to the last comment. I want to make it very clear that this committee is as concerned about confidentiality for SMEs as the banks are. I don't want to be continually hearing today that banks are here to protect their customers and that the committee wants information that in any way is going to jeopardize SMEs.

That's not what we're here for. We're here to obtain information that will assist us in developing public policy and in helping SMEs gain access to capital. That's why we're here. And I think there's agreement across the table.

So can we back away from continually coming back to the comment that you're here to protect your customers? We're not here to expose your customers or to have information exposed between banks that would in any way affect the competitiveness in what you do in the market place.

We'd like to work together with the banks in order to achieve benchmarks where we can assess information on a quarterly basis. I think you people should want to be partners with us in order to help SMEs grow in this country. We're here as a government trying to improve the situation for SMEs so they can go out and create the jobs we so very badly need in this country, and I think you are well-positioned to be the partners who help us do that.

I want to put that on the table and move on with the rest of the issues we have to deal with today.

The Chairman: I think that was a very useful intervention that summarized well the positive positions of both groups.

Mr. Shepherd, did you have a quick comment?

Mr. Shepherd: Yes. I have two basic points.

First, it seems to me that we're just dealing with an algebraic formula here on matrixes. Surely through your monitoring of the system you can come back and tell us that there are two or three alternatives where we don't run into the problem of 13.

The second issue bothering me is that clearly there's a huge deviation among the banks themselves. Clearly the client base of the Royal Bank is quite different from that of the National Bank. Are you in a sense using that deviation within the banking system as an excuse? The National Bank would clearly have more of those categories under 13 than would the Royal Bank. To what extent is that a big problem within the banking sector and do we need to develop different rules depending on the size of your client base?

Mr. Leckie: I will ask somebody to jump in here in a minute but as for opening remarks to that, Mr. Shepherd, I feel we need experience with this data. As your committee has proven to us, there's been a dearth of data so far. It's perhaps even surprising to us how little data there has been.

Over the years, the industry has been driven by credit, not by the plethora of products available for the last decade or so. We just didn't catch up. You deserve a lot of credit in pushing us in that direction. We're frankly overwhelmed by the data. We're talking about what's missing here in this questioning, but what is available is still overwhelming. There's a lot of it. I think we can all learn from it, and picking up on the earlier comment from Tony, I think we can work with you as partners to deal with that.

The Chairman: On that note, let me make a suggestion on this point of confidentiality. It seems to me we could hardly be criticized if we accepted the StatsCan standard of 13 as the minimum for a cell.

However, I would suggest two other future directions. One is that when we've had our first go-round we re-examine the number of blanks and then perhaps reconfigure the matrix. That's one solution.

Secondly, bearing in mind what I think is this absolutely crucial discussion, as we now go through the next points I think we'll all have to decide, if we want to sacrifice a degree of refinement, would we prefer that it be geographic or would we prefer it to be by industry sector?

I think these are questions we have to think through as we go. Those debates will be well framed by the discussion we just had.

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If we can accept for the time being our working hypothesis of 13, and understand that benchmarking is an exercise in continuous improvement and we will collectively be able to improve the model as we go, I think we should move beyond the confidentiality question to the next question, which is really the timing issue.

There are a couple of technical issues here, as I understand it.

Perhaps there might be a generic response from your group, Mr. Leckie.

As I understand it, one of the three issues on timing involves the best cut-off point. Is it the bank quarter? Is it the calendar quarter? What's that debate about? The competing quarters, so to speak, are bank quarters versus human quarters.

The other issue has to do with how fast you can get information to us and of which sort. So those are the two timing issues.

Mr. Leckie: I'm going to ask the Bank of Nova Scotia to respond to the first item. We are running with June data now. That's suitable, and we'd like to keep running with that, but we are amenable to change on that.

Mr. Jentsch: The basic position is that when it's on a quarter it helps us with the loan loss data because our year ends are collectively October 31. We would like to stay on the bank quarters specifically as a compromise, if nothing else. But certainly, on loan loss data, a bank's quarter end is when the determination of our provisions and credit allowances is made. Certainly use of the bank year ends and quarters is the preferred position of the bank.

Mr. Ianno: I'm not totally clear about the difference between calendar and bank quarter. If it's calendar quarter, is there a time when you could slip numbers to one side or the other because they're right in between compared with a bank quarter - sticking with your definitions - and would it be a standardized form?

Mr. Glossop: I think perhaps the background is useful. The reason we chose calendar quarter is to spread out the workload. We have a lot of work at the financial quarter, and the previous committee, which I chaired, decided we would use the calendar quarter so there wouldn't be as much pressure on the people to produce the figures. But it's absolutely crucial that the loan loss be in the bank financial quarter.

Mr. Ianno: We don't want you to have to do extra work that would put a lot of strain on your staff. But I'm concerned that the calendar quarter - and again, I don't know if I'm correct - leaves too much to discretion and isn't a standardized approach. Can you discuss that aspect of my concern?

Mr. Glossop: The bank's books at the end of the calendar quarter would be there for anyone to audit, for example. If you felt there was any concern about transferring amounts over to make the figures look better, that would never happen. It's too complex to do that. Our other concern is we have three-quarters of our history already under the calendar quarter. We'd be throwing that away if we now switched to the fiscal quarter.

Mr. Ianno: That's fine for that part of it, for myself.

When I read the CBA proposal you put forward, it didn't state that you will provide us with the information by January 3, as requested. Should I assume it will be supplied?

Mr. Shaughnessy: For clarification, it was mentioned that the loan loss would be by the bank financial quarter. In fact, I think we can only give loan losses as of October 31 on an annual basis because we only charge against specific accounts annually as opposed to quarterly. So I don't want to leave you with the impression that we would be giving you loan loss statistics on a quarterly basis. They would only come in annually.

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Mr. Ianno: Can you just explain to me what the difficulty is so that I can understand better why you wouldn't be able to have it at each quarter? Mr. Leckie suggested it's basically all in the books. I don't know how your computer system works, but if you happen to declare a loan in default it appears in the books in the calendar quarter. You should be able to punch up the loan loss in a few minutes, assuming it's mechanized. Is that possible?

Mr. Glossop: The fiscal quarters, apart from the year end, are all estimates. It's not a science, it's an art. By the time we get around to October 31, we have a pretty good idea and then we can crystallize it. But the other three quarters are all estimates.

Mr. Shaughnessy: We're not carrying specific accounts on a quarterly basis. As Terry said, it is only an estimate with a provision, and a specific charge to a specific account occurs. It's much the same with the small business or any business. When you're writing off receivables, traditionally you do that at the end of your fiscal year.

Mr. Ianno: Would it be difficult to supply the estimates? Again, I'm not trying to push the point.

Mr. Shaughnessy: I think it would be difficult to supply them. Once again, we're trying to get into databanks here and these are estimates looking at the bank's total portfolio. They're probably estimates that aren't even just restricted to commercial lending, looking at our mortgage funding portfolios and our personal lending portfolios. The estimate you're trying to have the bank do on a quarterly basis is the global estimate that will be reflective of all the portfolios and not a particular portfolio.

Mr. Ianno: In your banking system, who determines the estimate? Is it the account manager?

Mr. Shaughnessy: Once again, it is a global estimate, so it would be determined - Terry, being a risk manager, can correct me if I'm wrong - by the bank's risk management division, not by an individual account manager; emphatically, no.

Mr. Ianno: So the person who is actually having the contact with the business is not sending any information through the system; it comes from the top. I'm just trying to understand.

Mr. Glossop: No, the account officer has to report regularly on all bad and doubtful loans, and an estimate for each quarter is arrived at by the sum total of all these reports coming in. Then at the year end a figure is struck and we can officially write it off. We still try to collect it, but we actually write it off.

Mr. Leckie: Perhaps we should explain, Terry, the difference between provision and write-off. Would that help? Could you get into that?

The Chairman: I'm trying to focus on the timing issue, and come back to the question of apples and oranges to a certain degree, and I guess it's a very practical question. Based on this debate, how much information can you have for our next session in February?

Mr. Leckie: We'll have it.

The Chairman: In February.

Mr. Leckie: We'll have good information on the write-off because, coincidentally, our year-end is October 31, so you'll be going into your first round with good data.

Mr. Klein: I would like to sort out two of the pieces. If we stick to the credit reporting arrangement, which is on a calendar year, the next set of data you're going to see - you just got June's - will be September's. By the time that information is pulled off the system, sent to the CBA to be packaged up and sent to you, it'll be January. That data sometime in January will reflect the tiers we've been talking about today.

Mr. Ianno: The tiers meaning....

Mr. Klein: It will be broken down into the various splits, such as 1(a) and (b), as you've asked for.

Mr. Ianno: Are you talking about until June?

Mr. Klein: That will be September's data.

Mr. Ianno: To the next reported quarter.

Mr. Klein: That's right.

Mr. Ianno: That's fine. That's what we're talking about.

Mr. Klein: The other issue is the issue of loan losses. That information, to be accurate and reflect the reality of what is actually considered to be a loan loss, will not be available. It is not even reported by us accurately until the end of our fiscal year-end, which is October 31.

Mr. Ianno: And it takes 12 to 15 weeks, according to your document, correct?

Mr. Klein: Yes.

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Mr. Ianno: So we could still have that by the end of January. We will not meet with you until February, which will give us a few days to review it.

Mr. Klein: Yes. As long as you understand that will reflect that year end, then we're fine with that.

Mr. Ianno: Okay, thank you.

The Chairman: Mr. Mitchell.

Mr. Mitchell: I have two questions. First of all, you indicated that you'll provide the September statistical figures as of January 3. You have done runs of the previous quarters in June and March as well. Can you provide those at the same time? I realize they might not all be cut exactly the same way, but it will give us something to work on for comparative purposes.

Ms Sutherland: Yes, but it won't be cut the same way.

Mr. Mitchell: Okay, great.

The second part of this is that, depending on the conversations for the rest of the day, there is some limited information you are going to provide by survey. We haven't talked about the timing on the survey. We've agreed the statistics will be here by January, but when are we going to have the survey data?

Mr. Leckie: We'll ask Candace, our expert on that subject, to comment.

Ms Fedoruk: Unfortunately, the survey data will not be available for February. If you like, I can go through the schedule we foresee for the survey. Would you like me to do that?

The Chairman: May I suggest something? Why don't we see how big the survey package is and take it all at once when we get to it? In other words, let's not do that now.

Ms Fedoruk: Okay.

Mr. Mitchell: Can you give me a ballpark figure for when the first survey data will be available?

Ms Fedoruk: We're shooting for the end of March.

Mr. Mitchell: So that could be reported within a short period of time after the quarter ending in March?

Ms Fedoruk: The surveys are not based on quarters. Is is an annual survey and we expect to have a report at the end of March.

Mr. Mitchell: So we'll get the 1995 survey by March.

Ms Fedoruk: Yes.

Mr. Mitchell: Okay.

Thank you, Mr. Chairman.

The Chairman: Mr. Discepola, you're first.

Mr. Discepola: I was going to suggest that maybe they could consult Léger & Léger. They can do surveys in three or four days and they're quite accurate.

The Chairman: I'm not sure we were.

Mr. Discepola: My question is more relevant, Mr. Chairman. It's on the question of a calendar quarter or a bank quarter.

Don't the banks all have a fiscal year end of October 31?

Mr. Leckie: That's right.

Mr. Discepola: Then if we go on fiscal year end and actually report quarterly thereafter, you are obligated to provide quarterly financial statements to your shareholders anyway. Therefore you should have no problem with estimating your loan-loss ratios or any other figures we're asking for, if we base it on a fiscal calendar as opposed to an actual calendar basis.

Mr. Klein: Mr. Discepola, it's not the issue of whether we can or can't. We could switch over. The issue is the kind of information you're asking us for. The mandatory reporting we're now doing at quarter end and year end is substantial in the banking industry as a whole. To add in the new tiers and the data runs we'd have to build, we'd actually have to create empires to be able to produce it in the timeframe you're asking us for.

As was said earlier on, one of the reasons that the reporting to both StatsCan and this committee is all consistent - it's reported on calendar quarters - is to spread out the volume of generation of paper and statistical data that is necessary to do it. It's not a case of can or can't; it's that we'd rather just spread that workload out and keep the consistent quarter.

Mr. Discepola: What are you proposing? I can accommodate you either way. Just tell us which way you want to do it.

Mr. Klein: As I said earlier on, we're suggesting that we continue to report the fiscal data broken down into the new criteria that we just agreed to today, starting with September's data, which means you'll see it in January. We're reporting on the calendar quarters. Loan losses, on the other hand, will be reported as at year end and you'll get that early in February, probably about twelve or fifteen weeks later.

Mr. Discepola: That goes on a quarterly basis anyway.

Mr. Klein: You have to remember that it goes back to the accuracy, the validity of estimates as opposed to real numbers.

Mr. Discepola: Don't you have to provide those in your interim financial statements?

Mr. Klein: Yes, but they are qualified in our statements as well as being estimates.

Ms Sutherland: They are not estimates for business, they are estimates across all of the banks' businesses, as Kelly Shaughnessy was mentioning. That is a note to the financial statements on quarterly results that we released.

Ms Marilyn Rozsa (Vice-President, Independent Business and Agriculture, Bank of Montreal): They're not broken down by...[Technical Difficulty - Editor]...or by industry; they're an estimate of the total. So it wouldn't provide the information you're looking for on a quarterly basis.

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Mr. Discepola: [Inaudible - Editor]...aggregate the estimates on the same basis. Just by definition, they're....

The Chairman: I think Mr. Shepherd had a point. Then we'll try to bring closure to this issue and perhaps have a coffee break.

Mr. Shepherd: Mr. Chairman, please bear with me. I want to use the issue of frequency to delve into something that concerns me about this whole aspect of data gathering.

First, within your organizations, have you allocated what this whole process is costing? Second, can you assure us that this cost won't be allocated to small- and medium-sized businesses?

Mr. Leckie: I think we will each have to answer that question. On behalf of Toronto-Dominion Bank, thanks for asking, but we haven't figured it out. Moreover, if we can put the standards to bed here, it won't be as burdensome going forward as it has been getting here. It's really critical that we agree to standards today. I don't think you'll hear us whining about it if we can just get the standards down and go forward.

Mr. Shepherd: You haven't clarified the issue about allocating this cost to small businesses by way of set-up fees and so on.

Mr. Leckie: We don't know what it is, and the market won't let us do that. Some of you, in discussions we've had with you, questioned whether we would stay the course because the spreads are so thin. It is very competitive. There's not a lot of margin here. There are six or more banks clubbing it out in the market place. Everybody has realized that this is an even more important sector than they thought, thanks to your committee, so the market won't withstand piling on of pricing.

Mr. Shepherd: Just to clarify, you haven't given me a no. You've left the door open that you expect it to increase the fee to small businesses.

Mr. Jentsch: No, it won't.

Mr. Klein: No.

The Chairman: To summarize where we are, before the coffee break, the way I understand the issue of timing, figures for the main statistical package up to September 30 will be delivered to us by January 3 for our discussion in February.

That loan-loss material, which will be up to October 31 for the fiscal year end, we hope to get as soon as possible. Hopefully that will be sometime in January, prior to our meeting in February, the date of which has yet to be determined.

Finally, the survey will be completed by the end of December but will not be reported to us before March, so that will come to us not at our February meeting but at the meeting after that.

That is the timing question. Hoping that no one has figured out that I made a hash of it, I declare a coffee break.

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The Chairman: Gentlemen, we've had some useful discussions on confidentiality and timing. In light of those discussions, the next set of discussions will proceed.

Ms Fedoruk has made a slight clarification to me on the survey data. That material will be collected in January, so it will not be ending in December. Ms Fedoruk wanted that on the record.

When Mr. Mills returns, we will have a discussion to clear up that point about the apparent $10 billion gap.

We will now move on to a group of items on the statistical package where we would like further clarification. I suggest that the order in which we take those is 1(c), 1(d), 1(g), 1(h), 1(j) and 1(i).

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In the interests of time, I suggest we group three points for purposes of discussion, 1(c), 1(d) and 1(g), that is to say, the number and amount of authorizations enforced; recorded having the number of employees; recorded having sales of; and by age of business.

In every case there is a suggestion that this data is not currently being collected by the banks in a way that allows them to roll this up in a convenient fashion. Someone might want to expand on that before I turn it over to the committee for questions.

Mr. Leckie, could you find a designated hitter to talk about data collection in these three points, and what you propose as a solution to this problem?

Mr. Leckie: I'll try to take it myself. Going back to my earlier comments, the databases that we've historically used have revolved almost entirely around the general ledger that keeps the loan data - the authorizations and the drawdowns of those loans. That's where all of our computer power had been aimed.

That is why I think you'd be entitled to ask why you wouldn't have the number of employees, level of sales and so on. How can you make a loan without knowing the level of sales? You can't, of course, and that goes into the analysis of granting the loan, but it doesn't go into our databank, into our host computers. That's carried in a separate file where we manage the loan.

So that's the background on why we don't do it. To move on to how we can do it, more and more each day I hope we are wearing marketing hats rather than just lending hats. All of our organizations are moving in that direction. We want the data for marketing purposes. For example, our payroll people are very interested in knowing how many employees work for the customers that we bank, and we'd like to be able to pull that off.

What I'm trying to say is that we have a lot of incentive to get this for you. We're all on different pages in terms of development, in our own organizations, on delivery. As I understand from meetings with my colleagues, we can all deliver this collectively by the end of 1996. Everybody will be on the same page at that point, but the points of entry vary over the year.

Ms Sutherland: To clarify, that's for new loans only, not the existing portfolio.

Mr. Leckie: So we'll all be able to add new loan data. As we get a new client up and running, we'll be able to add this information over the course of 1996.

The Chairman: I gather that some of you will be able to do it sooner than others. Is there any reason that those of you who can do it sooner than others might not help us out by doing it?

Mr. Leckie: Why don't we start with the good news?

The Chairman: I'm starting a bidding war, as you may be aware.

Mr. Leckie: You're very good at that. Maybe the Scotia could comment on where they're at.

Mr. Jentsch: I hear what you're saying, Mr. Chairman, but as an industry I think the data will be useful to the committee. Some of us are further ahead in our systems. By mid-1996 we'll have the systems in place to collect the data on the loans we make from that time on. Our position is that it would be beneficial to have it all at once, but by mid-1996.

The Chairman: And who is the furthest ahead?

Mr. Leckie: I started with the good news. TD would be pretty well in the same timeframe - mid-1996. It isn't just a question of each bank throwing more money or more resources at it and saying we can pull this stuff off our computers. The analogy I like to use is that if you have something wrong with your kitchen sink, you can only get so many plumbers under the sink.

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We use the same databases for our RRSP campaign, Canada Savings Bonds campaign, etc. So all the enhancements that go into the various products that are delivered.... You can only enhance so many things at a time. It's a queueing problem, if you will.

Mr. Williamson: As a result of that, I think it's fair to say in a general context that this committee has significantly helped the bank in waking up, as John said, to the marketing benefits of some of the data you're requesting.

I would point to John's bank and some others that are further ahead. To be absolutely bluntly on-point on this, there is a direct correlation between where you are on this curve and the size of your bank. The smaller the bank, the further ahead.

Some hon. members: Oh, oh.

Mr. Shaughnessy: I guess we're all going to have to eagerly await the October 31 result to see where we are on the curve of providing you with this information.

Some hon. members: Oh, oh.

Mr. Shaughnessy: I think, Mr. Chairman, especially on new business, this committee has helped the banks focus on this segment. If I may share them with the committee, the spirit of our discussions - with the exception of two banks that have been working on new systems and such - is that the committee and the banks really should have this type of information. We are a sales-focused organization, and for me to get up here and say, ``Mr. Chairman, I can't tell you how many sales our organization made last month or last quarter'', is probably not a very defensible position.

What we've said, and quite frankly it's the commitment of the CIBC, system or no system, is that you'll have that information by the end of fiscal 1996, because we should have it and you should have it. If we can't get in the queue for the capital dollars that are required to modify our systems, then I'll get on a plane and go across the country and collect a quarterly, in a figurative manner.

The Chairman: Well! I don't want to summarize a discussion we haven't had yet, but I'm tempted.

Perhaps Mr. Discepola would like to try to make a generic point for rolling together these three categories of information, of which the response has been roughly the same.

Mr. Discepola: Thank you, Mr. Chairman.

I'd like to go back to Mr. Leckie's opening remarks, where he said that the whole CBA and the members are prepared to establish benchmarks for establishing a basis for performance measurements of banks' individual performances. I wrote it down quickly when you stated that.

Mr. Chairman, as I sit here after almost three hours, I find we're probably deteriorating more than we're advancing. I find it totally unacceptable that when we're talking as a government, we're prepared to accept 1996 as a delay for an awful lot of the data that is meaningful to us - data that is probably meaningful to every member and every banker here.

I can't accept delays such as that. We are going to have to work towards a consensus to get the information out in order to measure the performance of the individual banks, in order to see if access to capital is lacking desperately, as we feel on this side of the table.

I know something about database technologies, Mr. Chairman, and I don't think it's very difficult to add an extra field in a database that would pertain to sex, or employment size, or whatever. Maybe we should reinstate the $300,000 R and D tax credit for the banks so they could accelerate and get us the information by the end of 1995.

I'm very serious, Mr. Chairman.

If you take a look at the information we're requesting now, we started with this committee saying that we wanted an amount of loans outstanding. Now we're going to amount of loan authorizations.

I realize that I signed off on the report, but I was shocked this morning to hear that authorized is $41.8 billion, and in actual use is only $29 billion. So you're saying that out of the $42 billion, only 75% of it is in use. Am I to ascertain from this that there is no capital crunch in Canada, that small businesses aren't using their loans authorized as it is?

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If we're going to ask for these statistics on loan authorizations, Mr. Chairman, then I find that all I have to do is ask for an extended line of credit, for example, and I get my loan authorization.

I'm desperately seeking the valid data that Canadians expect, that the small business community expects. I want it as soon as possible, and I think we should work to that, not that every time we come here this morning there's always a reason why we can't get information. I think for the balance of the afternoon we have to work to come out here to say that by spring of this year we're going to get the information we want.

The Chairman: I don't know whether or not there's a general response.

Mr. Williamson: I would like to clear up a point, Mr. Discepola. This is a discussion we've had going back right to the start of this committee. There is a significant gap between the authorized and the outstanding. That could be understood and implied to suggest there is ample availability of credit that has not been tapped by existing borrowers. I really think we've beat this issue to death.

Mr. Discepola: All right, then come back to my concern for 1996. Your banking community was told by the Minister of Finance in February 1995 that we were going to establish benchmarks. We're almost at February 1996, and we still haven't gotten anywhere.

Voices: I disagree.

Mr. Discepola: In April and August of this year, you were told again by a committee about the benchmarks we were seeking. Now we're coming here in November and we are again going to debate which benchmarks and which data we're going to gather so that we can get it all by 1996?

Ms Sutherland: You're going to get information by January 1996. We've already been down this road, so I have to disagree with you. I think we are making progress. For the first time, and under the leadership of Mr. Godfrey and his predecessor, we have some things by which we are saying that we agree to provide you with information that is in our databases.

Mr. Discepola, you may know some things about information systems, but the truth of the matter is, with what the banks are working with, it takes time to change some of these things in systems that are, quite frankly, old. We're not trying to stall here. We're trying to find a solution. So I find it somewhat offensive that you continue to be so sceptical about our reasons for trying to work with this committee.

As Mr. Shaughnessy and a number of people around this table have pointed out, we absolutely want to work with this committee in order to find a solution to give you the information you need. It's just that simple. So can we just get on with it and agree on what it is that we're going to provide instead of going back over old ground about all the things that have happened over the past eighteen months?

Ms Rozsa: I should also add that we won't be coming forward by way of survey for the 1995-96 year until we get our systems in place.

Mr. Shaughnessy: I have two points. First, if I can speak on behalf of my colleagues, the willingness of the banks to work with this committee is sincere and it is there. If you look at where we were eighteen months ago in the form of information-getting to the committee, we went from ground zero to where we are today, and I do believe we have made major strides on this.

My second point is that the banks and the industry recognize that the committee wishes to have information that we cannot provide to the committee with our existing databases. This is why we're proposing the annual loan approval and turn-down survey. An awful lot of data is going to be captured in that survey. It is very statistically sound and will be of tremendous use to this committee, I believe, pending the resolution of the banks' changing systems and pending the resolution of an agreement to capture certain information in the banks' systems. Pending that, there is going to be an awful lot of good data with which the banking industry, the individual banks and the committee will be able to work.

Maybe we can take some of these issues off the table, or perhaps we can satisfy some of these issues. Perhaps Candace or Debbie Doyle, who is working with the same committee, can take us through the contents of the survey and through what the output of the survey will look like. I think you will find an awful lot of the questions that you are raising and a lot of the concerns that you have - whether or not certain companies or a particular gender is getting to credit, or whether or not the size of the company or sales of the company has anything to do with it - will be covered on a statistically sound basis in that survey.

Mr. Discepola: Mr. Shaughnessy, I will just conclude by saying that I can't go back to my constituents and tell them it took me four years to get this information.

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Mr. Shaughnessy: No, sir. On the information, I believe Candace will be available to the committee in March of 1996.

The Chairman: Mr. Schmidt.

Mr. Schmidt (Okanagan Centre): Thank you, Mr. Chairman.

[Technical Difficulty - Editor]...perhaps come to an agreement as to just what is it that.... I think I heard the Royal Bank's Anne Sutherland say there is some information available now. Could we differentiate the information that's available now from the information that will be available later, and could we put a time line on each of those things? Could we say what will be available in January, in March, in June and in December? Then let's get what's available on the table.

I agree with my hon. colleague across the way. What is available should be made available now, not at the end of December 1996. Can we do that? Have you done that already?

The Chairman: We did that to an extent in our discussion about timing and sorting out the difference between the date it was available for the fiscal year as opposed to the calendar year and the date it would be available by survey. We have laid down some broad time lines.

Mr. Schmidt: Okay.

The Chairman: May I make a suggestion on the specific point we're speaking to? What I hear is that we have a choice between going with some, dare I say, gazelles, who are faster off the mark in gathering this kind of data, or waiting for the whole convoy to make its way across the Atlantic. Obviously we want the convoy to deliver the goods as fast as possible, but where systems are lagging, I suggest that the committee would be interested in hearing from the early birds as soon as possible.

Of course, the comparison that will be invidiously made by the committee is those who have the most advanced systems versus those who do not, but in other words I'm suggesting a market place solution for these categories. Those banks that have something to tell us should tell us if they'll have it by the February meeting. We'd love to hear from you. We understand that a greater number will be ready by the midpoint and that all will be ready by the end of the year, but there will be a bit of a bidding war and we expect to hear from you as you get the goods on an individual basis.

Mr. Shaughnessy: Mr. Chair, to make sure that we're addressing the needs of the committee, when the banks were saying we would have this information available, some banks suggested early or midway through 1996. All the banks have committed to make information available to the committee by the end of 1996. That was for new loans. That was for new business written.

The Chairman: Understood.

Mr. Shaughnessy: I believe what Mr. Discepola and the other members of the committee wish to have is not only new business written but what our portfolio looks like. I don't believe any of us at this table can provide that information within the timeframes we're talking about. That is why information of that nature is being captured in the loan approval survey.

The Chairman: Mr. Mitchell.

Mr. Mitchell: Thank you, Mr. Chairman.

I just want to get some clarification. Do you now as individual banks - I understand you don't roll it up - record the amount of employees, the amount of sales and the age of the business when an application is taken for a new business?

Mr. Glossop: No.

Mr. Mitchell: You are not doing that. Okay. That means you'll have to send out a directive to your account managers so they'll begin recording those three pieces of data. Is that correct?

Mr. Williamson: On new loans.

Mr. Mitchell: Okay. So what you're saying is your present computer system doesn't have the ability to expand to an extra field or an extra three fields. Is that what you're saying?

Ms Sutherland: There's a difference between different banks. That's why Mr. Godfrey made the reference to the gazelles, if you will; some banks have the fields available to input that and develop some systems, and other banks don't have those additional fields.

Mr. Mitchell: I don't want the names here unless you want to crow a bit: how many banks' computer systems are sufficiently developed to add three more fields if your account manager started to ask for and record that data? How many of the seven here?

Ms Sutherland: Not today.

Mr. Jentsch: We're undertaking development work right now, Mr. Mitchell, that would see us start to collect that data in mid-1996. We're undertaking development work. It's not in place right now.

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[Technical Difficulty]

Ms Bruna A. Giacomazzi (Chief Credit Officer, Hongkong Bank of Canada): From the Hongkong Bank's perspective, unfortunately we are not going to be able to provide the information as quickly as some of my competitors will be able to.

Hongkong Bank has been working on a new computer system for the last five years. We fall into that category of having a rather archaic system. We expect to be able to have all of this information to this committee sometime around May 1997. I understand there has been some discussion here that this is not going to impact the numbers that much, so it shouldn't an issue.

But we will be able to provide the loan loss numbers as of October 31, 1995, and the 1(a) and 1(b) by the end of February 1996.

The Chairman: You realize what's at stake for the first person to cross the finish line is the famous Discepola Prize, much coveted by banks around the world.

Some hon. members: Oh, oh.

Ms Giacomazzi: To add one more thing, the Hongkong Bank's portfolio in small business has continued to grow, I'm pleased to say.

The Chairman: We've heard quite a few testimonials. Is there anybody who can claim they can do it?

Mr. Discepola: Not today.

Mr. Mitchell: To summarize, then, all of you are committing today that you will provide the data we've asked for in 1(c), (d) and (g). That's the commitment from all of you. Is that correct?

Voices: Yes.

Mr. Mitchell: The only issue is when your systems will be able to provide that to us. Is that correct?

Voices: Yes.

Mr. Mitchell: The testimony is that all of you will do it for the quarter ending December 31, 1996. That's what you've put on the table.

Mr. Cormier: We can't commit to the fourth quarter of 1996 because, very like the Hongkong Bank, we are in the process of doing some major revision. It will be sometime after that - not much later, but sometime after that.

Mr. Mitchell: Who is going to be able to provide it first and by when?

Mr. Leckie: Scotia and TD will be able to provide it by mid-year. I could say June 30.

Mr. Shaughnessy: I'm just afraid we're going down a road that Mr. Mitchell may find...I don't want to use the word ``deceiving'', but we might be going down the wrong road.

Mr. Mitchell, I believe you're talking about the total portfolio, and I believe the banks are talking about new business.

Mr. Mitchell: I'm talking about new business right now, because I realize you put that division in it.

Mr. Shaughnessy: Okay.

Mr. Mitchell: You've all agreed to provide the data. The question is, how quickly?

You're saying your computer systems won't allow you to do it until later on. Is there anything you can put in place in the interim, until your computers are ready to record this data, so you can provide that on a manual basis?

Ms Fedoruk: Yes, that would be the survey research we're going to propose to you.

The Chairman: Do we want to hear about that now?

Mr. Mitchell: I'm sorry, but the survey doesn't excite me about these particular statistics. It's not going to give me anything meaningful. What I want to know is how many -

Ms Fedoruk: Listen, and then you can evaluate it.

Mr. Mitchell: I don't want to get into the surveys. We planned to discuss that later. I don't want to get side-tracked on this.

You're saying you cannot manually keep track of this information beginning January 1. Is that correct?

Ms Fedoruk: That's correct.

Mr. Mitchell: Or you can, but you're not willing to.

Mr. Leckie: I don't think it would be of service to the small business community to have our account managers bogged down in a bunch of bureaucracy filling in blanks on this stuff. We think it should be automated.

Mr. Mitchell: Can I ask you a specific question, John? How many new small business connections would you acquire in a three-month period?

Mr. Leckie: Part of the problem is we don't have very good data now. We have 940 branches that are going to be delivering to small business. We have to educate. It's not just a computer issue; it's a procedural issue, a training issue and a lot of stuff.

Ms Fedoruk: Exactly.

A voice: I thought it was just filling in the blanks.

Mr. Mitchell: We've agreed to do it, Mr. Chairman, but I think we have a dispute about the timing.

The Chairman: I understand that there will be some bragging rights available for those who do it quickly. We will let the market work its magic. And the glare of publicity in this committee -

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Mr. Ianno: I'm slightly confused. When we were asking the timing question, of what were we asking that question?

The Chairman: With certain categories of information that could be provided now, what we're getting into are some of the subsets of information in which it's not available currently.

Mr. Ianno: I don't understand. Maybe the reason I don't understand, Mr. Chairman, is this. For the historical data, I could see someone having more difficulty in obtaining that information, because maybe the systems are archaic. If they can achieve that and give us the data by the beginning of January....

I guess I'm slightly confused as to why they wouldn't be able to that on new loans, considering the systems are continually being updated and it's no longer just a historical piece of information, but a current one. Could someone explain that to me?

The Chairman: What was discussed in the timing issue were the first two categories of information: 1(a) and (b). Categories of information 1(c), (d) and (g) are not currently being gathered. No bank gathers that in a statistical form. In order to get revved up and do that properly, it will take the amount of time available.

Mr. Klein: That is exactly right, Mr. Chair. We were one of the two banks that indicated it would be at the earlier end.

In our case, we have to go through a system enhancement. We have no fields to capture this data to date. In doing that, we've put through the requirements, we've lined up in the queue, and we've prioritized it, actually, as being very important for the commercial bank. As a result of that, we are going to see our fields activated in mid-1996.

For us to even go forward today to ask account managers to do paperwork manually and capture some other mechanism...we don't have the ability. As a matter of fact, it would detract from the whole purpose of being here today, which is to advance all of the lending in the right way, the sales side of it.

We can't capture the data. We'll start capturing it when the system's ready. This applies pretty well to all the banks, except the timing. Then we'll start reporting on new sales at the end of the quarter, when we start capturing it.

The Chairman: Mr. Ianno wishes to continue. I see Mr. Discepola, and I see Mr. Williamson.

Mr. Ianno: [Technical Difficulty - Editor]...to companies that, at the time of application, recorded having ``sales of''. Do you not have that information in terms of the sales of a company when you are determining how much to lend them?

Mr. Leckie: Yes, but we just don't feed it into a databank that can pull it off. It goes manually into a file. It's literally an old-fashioned file.

Mr. Ianno: That's the same as what you do with the first two items we discussed. Is that correct?

Ms Sutherland: No, that's not correct.

Mr. Ianno: That's the one about the number or amount of loan authorizations between -

Ms Sutherland: No.

Mr. Ianno: That's not done manually?

Ms Sutherland: As for authorizations and what's outstanding, the reason why we are able to provide you with that is because that is in our databases. So that's the information we are providing to you. It's what is there.

Mr. Ianno: Let me ask just another question. Not to cause problems, but we're talking about a data system; I would assume that you have an extra field, but you just haven't set it up. Is that correct or is that not correct?

Ms Sutherland: No, that is not correct.

Mr. Ianno: So it's limiting the computer system -

Ms Sutherland: That's where the disparity occurs across the various banks. We said some people have the field, and some people don't. Some people are going to have to build and create the field.

I think it's really important to take note also of John Leckie's and Steve Klein's comments about how it's more than just setting up a data field. You're talking about hardware upgrades at all your branches across the country. You're talking about the training and the processes so that account managers can input this data, which they have never known how to do before, or it hasn't been provided for in our systems. There's that whole people management and process management piece associated with it. It's not just sort of setting up a field. It's broader than that, and that's where the time is coming in.

Mr. Shaughnessy: In general, with the bank, you're getting the information on the amount of authorization, the dollars authorized and the number of clients in general, from a loan accounting system.

To capture information on the number of employee-level sales and things -

Mr. Ianno: I understand the other two.

Mr. Shaughnessy: - is a different system. That is a loan adjudication system.

So this is the difficulty. We're giving you information off our loan accounting systems. Now, as individual banks, we're developing new loan adjudicating systems, which would feed that information system.

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Mr. Ianno: The only reason I chose one of the three was because when you are determining the amount of loan one is authorized to have, sales is an important element as compared with the number of employees or the age of the business. I understand that.

I am a bit confused and I don't understand. I wonder why that wouldn't have been in. It's an ongoing monitoring process. If you see that the sales figures have decreased dramatically, that's when you determine their authorization is too high, and you start to cut.

Mr. Williamson: Let me try to explain it. It's really quite simple. Those decisions are highly decentralized onto each individual client's file that literally rests in a filing cabinet. So the numbers - you're absolutely right - are looked at. You look at it and compare them year to year. The number of employees has gone up. The size of the sales has gone up. But that information is not transmitted into a central databank.

It comes back to the earlier question about whether we could collect it manually. Let me say that, on behalf of our organization, you have made us very wary of collecting any manual data that will only take us back to the ``apples and oranges'' argument.

We're also relatively close. I think we'll all be better served by waiting for a fully automated service that can collect it. Otherwise, I would have great reservations about the accuracy of the data collected manually.

Mr. Ianno: Just one last point. Any information that is given manually is not as accurate as the system?

Mr. Williamson: I'm afraid the answer to that is yes.

Mr. Ianno: So the first two items that will be supplied to us won't be that accurate?

Mr. Williamson: No, it's the opposite.

Ms Sutherland: The first two items are provided by the system.

Mr. Williamson: They will be 100% accurate. Any manually collected data will have a margin of human error in a system as large as ours.

Let me just follow up to give an order of magnitude to Mr. Mitchell's question on the same point: how many clients do you put on in a quarter? The net in our institution is 20,000. That's the net, just to give you the magnitude of the manual process.

Mr. Ianno: Mr. Chairman, taking that into account, we won't be able to have the information for another year and a half.

The Chairman: In some cases.

Mr. Ianno: Okay, I haven't seen any cases otherwise yet, but maybe you have and you could tell me which one it is.

Mr. Discepola: Toronto-Dominion Bank and the Bank of Nova Scotia.

Mr. Ianno: When will they be giving it to us?

Mr. Discepola: Mid-June.

Mr. Ianno: Okay, so you're going to guarantee that with them then? They'll give it to us mid-June?

Mr. Jentsch: Mr. Mitchell, we're planning to have it available to begin collecting mid-1996. With any development there could be delays, but there is the objective to have that system up and going -

Mr. Ianno: Here's what I'm getting at, Mr. Chairman. Taking all of that into account and the item.... I don't know if we have in our report, which Mr. Discepola alluded to, the number of amounts of loan authorizations and the number of amounts of loans outstanding.

I'll defer it to later when we discuss also the CBA manual they gave us for June 30. I'll bring that up then.

The Chairman: We have two final points - Mr. Discepola and Miss Bethel. Then we're going to try to wrap up this discussion.

Mr. Discepola: Could I have an idea from maybe the CBA as to the total number of active loans in Canada?

Ms Rozsa: It's some $580,000.

Mr. Discepola: You have roughly about 8,000 branches across Canada?

Ms Rozsa: Approximately.

Mr. Discepola: What's the average per branch or per account manager that the account manager administers in loan portfolios? How many would he or she have, roughly?

Ms Rozsa: It depends on the community and the reason.

Mr. Discepola: Just an average; 50 to 100?

Ms Rozsa: We don't look at it in those terms, Mr. Discepola.

Mr. Discepola: You don't know the actual workload for your account managers?

Ms Rozsa: We do, but we don't look at it as an average per branch or per centre across the country. It's by the individual location. We don't average it out across the country.

Mr. Discepola: Based on your experience, if you had to take a wild guess, how many accounts would a manager administer?

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Ms Rozsa: In terms of borrowing accounts only -

Mr. Discepola: Less than $1 million.

Ms Rozsa: - I would say that an average would be approximately 100 to 120 accounts.

Mr. Discepola: Okay. I'll make a deal with the banks. I'll give you the computer program free of charge - we'll call it ``Big Deal'', the way you have ``Big Idea'' at the Royal Bank - and you collect the data that's the basis of your account manager.

So that person would have roughly 100 companies and profiles for which during their normal process of annual review they would enter the data and the statistics that we're after. Then you could provide it to us within a month or two.

Mr. Maurice Hudon (Senior Vice-President, Personal and Commercial Lending Services, Bank of Montreal): Mr. Discepola, perhaps I could provide some perspective that I think we need to bear in mind in terms of the integrity of the information the banks want to provide. I think the banks - I'll speak for the Bank of Montreal in this case - want to be terribly satisfied that the information we provide to this committee and to the Government of Canada is information that is rock solid in the same way that the financial information that we provide and that we are able to provide is indeed rock solid, and as we've said earlier, 100% accurate.

The difficulty, if I understand the proposal that you're making, is that you still decentralize the actual process of deciding what you actually input in the information. Can I give one example? We're talking about the number of employee levels that we want to talk about.

There's a whole issue of how does one define the number of employees who are going to be inputted. Is it full-time equivalents? If we have a seasonal business and we put this information in at one time of the year is it reflective of the average employment level within an organization?

Mr. Discepola: What I'm getting at, Mr. Hudon, is if you get the account managers who know their accounts well, they'll be able to give you that data. We're saying manually right now, yes, until you get your computer systems up, but all it takes is one little spreadsheet at that account manager level who can give you all the diskettes across your branches and you could get that data rather rapidly. It may take some manual elbow grease to get it, but I think it can be done in a lot shorter period than your industry's willing to give it to us.

Mr. Hudon: I think what our industry is very concerned with is the integrity and the validity of the information that we do provide you, and we'd want to ensure that the processes in place ensure that so that you know it's reliable.

Ms Bethel (Edmonton East): I understand clearly your concerns for the integrity of the data and the validity of it, but first I want to clarify for myself that what you are saying is that all of the banks - Nova Scotia, CIBC, Hongkong, Bank of Montreal, Royal and TD - will collect the data by mid-1996.

Mr. Leckie: No, they didn't say that.

Ms Bethel: Okay. Maybe I should run through them. The Bank of Nova Scotia.

A witness: We'll start collecting in 1996.

Ms Bethel: CIBC - end.

Hongkong?

A witness: May of 1997.

Ms Bethel: Bank of Montreal

Ms Rozsa: End of 1996.

Ms Bethel: The Royal Bank.

Ms Sutherland: End of 1996.

Ms Bethel: And the TD.

Mr. Leckie: The end of 1996.

Ms Bethel: That's to collect the data; the provision to us of the statistics will be by when? First quarter.

Mr. Leckie: Whenever we next meet would be my recommendation. We'll have it by June 30. You can have it at our next session.

Ms Bethel: Okay, the following quarter.

I understand your concerns about the validity and the integrity of the data, and certainly a computer is more reliable than manually collected data, no question. I don't think anybody here would question that. But it would seem to me that manual collection of data is certainly more accurate than surveys.

Mr. Leckie: No. It's a matter of standards. I would think the standards that will be set going into the survey is part of the issue here, that everybody, both clients and banks, will be feeding information into the survey.

Ms Bethel: I don't want to talk about the survey. I want to talk about the validity of the survey as -

The Chairman: I think the question you put was, why is manual data even less reliable than survey data?

Ms Bethel: Yes, because that's not my understanding.

Ms Fedoruk: When we set out to do this survey, just to give one example of why that data will be more accurate, we will be having trained interviewers who collect information such as the size of the business, and their focus is on collecting that data correctly. Contrast that with an account manager responsible for lending who collects this information as a secondary duty. For that reason alone -

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Ms Bethel: I don't mean to belabour this point, because we're going to be getting into the survey, but I believe that manually collecting within your branches is more valid, that there's more integrity to that data.

A voice: No.

Ms Rozsa: Perhaps when we get into the discussion about the robustness of the survey, we could get back to this issue of which is better, manual or survey. I think we could explain -

Ms Bethel: Mr. Chairman, perhaps this committee needs to look at that. If an extended period of time is needed in order to collect this data by computer, then perhaps we need to look at some kind of manual data collection if it can be shown to be more valid than survey.

The Chairman: We're haggling over time lines and all the rest of it on specific points. At the end, we'll wrap it up using the survey as a bit of a fallback position. We can discuss why surveys are better than manual data collection at that point.

To sum up, I heard all of the banks say they will give us the data at some point under 1(c), (d) and (g) - that is, number of employees, sales of, and age of business. There will be a delay on these three categories that will depend on the institution. Individual institutions will provide this data to the committee as they get it and not wait for the whole convoy to proceed. With the exception of the Hongkong Bank and the National Bank, I believe the banks have agreed to have the data by December 31, 1996, at the latest.

Is that a summary of where we are?

Mr. Leckie: That is correct.

Ms Giacomazzi: The Hongkong Bank will be able to provide 1(a) and (b) and the loan-loss provisions of number two.

The Chairman: We understand that. We're talking about these three categories - employees, sales of and age of business.

I would like to move on to 1(h), the number and amount of loan authorizations by industry category - the SIC code. This is a complex issue, because the SIC codes are quite refined, but there are also broader cuts like the 17 major SIC code divisions.

Someone might want to kick off that discussion, and then my colleagues will want to join in. There is one of those areas where we have to make some trade-offs between refinement of category and the confidentiality question. This is one of those issues, but it's also useful information to better understand our economy.

Mr. Glossop: There are 836 separate SIC codes. Obviously, it's impractical to collect information and pass it on to you in that degree of detail, so they've been condensed into 17 major industry groupings. I think all of the banks are prepared to report this data exactly as we have in the booklet you all have. They're all listed there. I think you'll agree that they are the major industries and represent a more meaningful breakdown than if we try to go into any further detail than that.

That data is on page 4 under ``Business Credit Statistics: Total SIC Bank Lending by Industry'', and it has the regions, followed by the total for the whole country. I think all the banks can report this and are quite happy to report it. I don't think you would want it in any greater detail.

The Chairman: That's the proposal that's on the table.

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I see Mr. Valeri has a question.

Mr. Valeri: Mr. Chairman, I recall that you were at a function with me where my name was pronounced incorrectly once, and you seem to be continuing that.

The Chairman: No, it happened at a dinner. I was so enchanted by its reconstruction that I keep repeating it.

Some hon. members: Oh, oh.

Mr. Valeri: Thank you, Mr. Chair.

I just want to comment on the fact that we had asked for all the SIC codes to be broken out.

You responded, Terry, with the fact that 17...and I think as a compromise, the committee might be convinced that this would be the route to go, once we look at the information you have provided us today.

I want you to comment on my understanding of what the banks do now, and clarify whether that's the case or not. I understand that the banks assign a four-digit SIC code to all the loans that come in, and that the banks are capable of rolling up this information. If you have the information, are you making a judgment call that the information won't be significant to the committee and as a result you want to go with the 17, or do you have a problem in collecting that data?

Mr. Glossop: It's difficult to separate one from another when you have 836 separate SIC codes, so it's not very meaningful. Each bank has a different way that it looks at industries, but we're roughly the same. Our bank breaks down the 836 SIC codes into 25 major industry groups, but I think 17 is the common denominator that each of the banks feels comfortable with. Once you've looked at these breakdowns I think you'll agree that to break it down any finer, we might run into the privacy problem, because we get more cells in the course of fewer observations in each cell. So you won't be getting as much information if we break it down very much further than this.

Mr. Valeri: From our perspective, what we want to derive from that information, from the SIC code breakdown, is where our economy is going and which sectors are growing. That's a key policy question for us.

Do you believe that the breakdown of 17 would give us the information we're looking for? If you do have the 25, was there some disagreement among the banks?

Mr. Glossop: No, we collect the data by SIC code. That's the only way we can do it. Each bank submits the total drawings in the SIC code to the CBA, and the CBA then compiles that. In theory you could have 836 pieces of information, provided they did not contravene the 13-observation aspect in the privacy. If you wanted any particular industries included there, we'd be pleased to look at it and see if it's possible to increase that to 17.

But again, I caution that we'd be running into more privacy observations, because we'll have fewer observations the more of these industries we create.

Mr. Valeri: So if we could comply with the confidentiality concerns and everybody is fairly happy with what we come up with today, as far as confidentiality goes, and as a committee, based on some other research we might be doing, we find that in the 17 SIC codes you've broken down there perhaps are some SIC codes we would like to further investigate, would we be able to ask the banks to come up with -

Mr. Glossop: The good news is that you can have that now. We don't have to wait. That's all available now.

Mr. Valeri: So if we decide that of the 17 you provide there are a few SIC codes we want information on, are the banks prepared to provide that information?

Mr. Glossop: Yes, they are.

Ms Fedoruk: I want to elaborate on those divisions. I think your objective here is to look for patterns and trends in the data. My experience is that as we get down to finer and finer gradations in terms of groups of industries or anything else, you start to lose the big picture. The signal-to-noise ratio goes up significantly. So it's often more useful to look at slightly broader categories. That's my first point.

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The second point is that if you're dealing with a category that covers a very small number of companies, adding one or two customers can make a huge difference. It can cause a real blip that in fact is not really a trend at all.

So that's why it's useful to approach these statistics at a fairly high level. Then if you see something interesting, perhaps you can go down a level and see if it's still there.

The Chairman: Okay, thank you.

We have a quickie from Mr. Mills.

Mr. Mills: Mr. Chairman, I just have a point of clarification. There are two sectors: tourism and knowledge-based industries. These are two separate sectors. Where would they be under these classifications? Where would you lump together knowledge-based industries?

Mr. Williamson: That is an excellent point, Mr. Mills, because if we use the term ``knowledge-based industries'', it is not an industrial sector. It covers several sectors from information technology to life sciences, etc.

So you will not find a standard industrial classification code for the new economy stuff, and that is one problem.

Mr. Mills: Are accommodation, food and beverages all tourism?

Mr. Shaughnessy: Or tourism would be included in that.

Mr. Mills: That would be tourism in total? Those are the total dollars banks lend to tourism?

Mr. Glossop: Actually, there's another one. If it's a motel or hotel, you might find it under real estate as well.

Mr. Mills: Well, tourism is the largest sector of our economy right now, and I'm just trying to understand. From a public policy point of view tourism affects nearly every riding in this country.

If I wanted to do an analysis of how the banks are loaning to tourism-related industries, I just wanted to know how I'd do that.

Mr. Leckie: I think that's an excellent point, and I believe both with knowledge-based industries and tourism, Industry Canada is having trouble defining them.

Mr. Mills: No, we're not having any trouble defining tourism in Industry Canada.

Mr. Leckie: Knowledge-based industries?

Mr. Mills: No, tourism.

Mr. Leckie: In any event, I think if we could get a definition of it, we'd be quite happy to put it in as a SIC code.

Mr. Mills: Well, we have a definition, and we'd be happy to give it to you.

Mr. Leckie: Okay.

The Chairman: Mr. Klein, you've been champing at the bit.

Mr. Klein: It's not only that the issue of the definition for tourism is clearer for KBI, for instance, which is not classified. The problem goes back to the fact that we are using SIC codes to break it down to multitudes of levels.

In the case of tourism it's captured probably in half a dozen or more different SIC codes that roll back up, in these 17, into at least three, maybe even four, criteria - without really spending the time at it.

That's one of the problems we have in trying to break this down to the degree you would like. With one industry we may be able to ``re-dice'' the pie.

However, I just want to bring everybody back to perspective. You know, if you look already at the 17 level, in our case one of the cells for all of Canada is just over 200. If you break that down regionally you'll then get back into confidential issues and start blocking out or having to roll up, and we get this issue again.

So it's a question of where you really want to make sure you get meaningful data, identify a trend from point A in one quarter to another quarter, and see which way we're going.

The Chairman: I had a tiny supplemental from Mr. Valeri.

Mr. Valeri: I want to pick up on what was said earlier with respect to knowledge-based industry, the fact that it's not an actual sector in terms of SIC codes. I know the banks are struggling with the definition of knowledge-based industry.

When you're able to define that industry I assume you would be doing it so that you'd be able to then collect the information from the SIC-type categories. So at some point - hopefully very soon - we would in fact be able to ask the banks to provide us with numbers on knowledge based-industries.

Mr. Williamson: That's correct. We will have to have some discussion about commonality of that descriptor.

Mr. Glossop: Within the next two years all the SIC codes will change, and under the auspices of NAFTA, the U.S.A, Mexico and Canada will be working together.

I think the definition for the SIC codes will be much improved over what they are now because they're 20 years old. Many industries that have come up over the past 20 years aren't reflected.

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So while the information we supply now might not be as meaningful, going forward - once we get all these SIC codes changed - I think you'll find it a lot more informative.

Mr. Williamson: There are two other important points to mention. I would like to comment on one, and then Ms Sutherland will comment on another.

In our case, for instance, we are already using the U.S. SIC code system because it is more accurate and updated than the Canadian one.

Ms Sutherland: You can see the breadth-of-data integrity we need to continue to work on. This is why this exercise we're going through with you is really important.

You'll notice at the bottom of the page there's an area called ``unallocated''. That represents the wrong SIC being inputted and not matching up with the corresponding thousands we have. In terms of authorizations, as you can see, it's over $3 billion across the whole industry across Canada. That points to the fact that data integrity and the process we're undergoing are really important, because they highlight the areas that require improvement.

The Chairman: May I just hold that to allow Mr. Schmidt to come in, and then we can come back?

Mr. Schmidt: Thank you, Mr. Chairman. I think the question was partially answered by the gentleman from the TD Bank.

My other question has not so much to do with knowledge-based industries - although that's very significant - as with the whole area of high technology, which includes KBIs, of course. But it's also a unique and distinct category that ought to be looked at.

When I see a categorization of communication and other utility, I'm just wondering what the emphasis is here. Is the emphasis on communications as a utility, is it utilities, or is it communication? Because those are very different categories. Just what's in that category?

Ms Sutherland: To highlight that, Mr. Schmidt, if you look at agriculture and other services, other services include the whole biotechnology field, which is a tremendous creator and user of -

Mr. Schmidt: That includes all of biotechnology?

Ms Sutherland: Depending on how it's coded, it could include that area because it is related to ag-biotech. We're just getting into how, depending on how something is classified, you can take something out of it. That is another area of very high technology where Canada is a world leader.

Mr. Cormier: Maybe Mr. Glossop can provide you with all the various definitions of all the SIC codes that were brought into each of these families of SIC codes. These 17 categories are really families of SIC codes.

Mr. Schmidt: No, I understand that. I was going to ask whether it would be possible to do that. But we also need to recognize this kind of information is really in anticipation of what's going to be developing in our economy. This isn't simply to look back; it's much more than that.

Mr. Chairman, it seems to me it's really following on the question Mr. Mills asked. It's very critical that we identify this in such a way that we can determine forward-looking strategies in terms of how this information actually leads us into the future.

That's where we have to go. All this work we're doing is useless unless it is put to that kind of practical test.

The Chairman: Mr. Jentsch has been trying to get in for some time.

Mr. Jentsch: Mr. Schmidt, there's no doubt that what you're saying is absolutely accurate. We're also saying we agree with Tony's and also Denis Mills's comments. We agree with what you're saying, that for a policy perspective and where the government wants to go in the future, that information is important.

With the new SIC code classifications coming in two years, that will resolve itself, but we agree that information is important and should be more defined as we go forward. It certainly isn't an issue of our not wanting to provide it. We agree that information is important. We want to make sure it's accurate and there's integrity to the data. We're with you on that.

Mr. Schmidt: So you will be providing us with the definitions of all the things that go in here? Then as the new SIC codes are revised, that will become available as well?

Ms Sutherland: Absolutely.

Mr. Schmidt: Good, thank you.

Mr. Mills: Mr. Chairman, I think Mr. Glossop has given us an insight that we should reflect on. If I understood him correctly, he's saying this modelling is essentially 20 years old.

Mr. Glossop: Yes.

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Mr. Mills: Well, what comes immediately to my mind is, what modelling is the Governor of the Bank of Canada using? Because if it's 20 years old, then no wonder we're sort of screwed up. Maybe we could have the Governor of the Bank of Canada in here and maybe we should start by making sure that the Governor of the Bank of Canada has a system that: a) is updated and contemporary, and; b) is the system that all the banks should essentially follow suit on. What good is a 20-year-old system, if that's the system that's essentially running this country, and it's essentially not...?

These bankers here, with all due respect, are essentially being given most of their direction from the Governor of the Bank of Canada, and if his modelling system, as Mr. Glossop has said, is 20 years old, then God forbid.

The Chairman: Mr. Mitchell, do you still want to comment?

Mr. Mitchell: A quick intervention, Mr. Chairman.

If I understand it correctly, we're going to receive SIC codes by 17 categories, but in our report we ask that this would then be broken down by various cuts that we're agreeing to today. You will continue to do that, subject to the confidentiality consensus we reached earlier. So it'll be SIC codes broken down by the various categories. Correct?

The Chairman: That is correct.

Mr. Mitchell: Okay. Thank you.

The Chairman: Let me try to summarize where we are.

What I hear is mutual frustration. That is to say, the committee and the bankers both agree that they wish they knew more about the new economy and that the existing code system doesn't work. So we're agreed on that.

We're agreed that clearly we will be greatly helped in a couple of years' time by the new NAFTA-wide system, which will better capture the data we're looking for in the new economy. Let me understand that, as a transitional measure, because you have 864 categories, it is possible to manipulate...it's not perfect, but you can actually take various cuts of that and say this is a rough approximation of the new economy; this is biotech as it applies to agriculture or health.

It wasn't designed to capture it, but there are ways in which you can find software buried in all of these statistics. It would be in everyone's interest, on a interim basis, to try to at least get a quick and dirty capture of that data without violating confidentiality. Is that possible?

Mr. Williamson: If perhaps you are asking on a bank-wide basis, yes.

Ms Sutherland: One the problems is that there isn't, for example, a SIC code called a biotechnology firm, so you can't sit there and enquire for that SIC code. And then because we don't capture the other data about the details of the characteristics of the borrower, which we already described to you, there's no way of drilling down further. That's the problem, and frankly, we're as frustrated by that as you are.

The Chairman: Let me then make a final suggestion, which I hope we can refine in the course of the day. It seems to me that we've captured a direction and a desire, and what we're doing is designing interim measures to satisfy that desire.

I think what we may have to do, what the committee may have to give some thought to, is to construct a small working group that would be representative of both the government side and the opposition, and work carefully with our researchers, so that there'd be discussions of a technical variety that would allow us to understand better knowledge-based economy, which I have a feeling is going to occupy a great deal of what we do in the second half of the mandate of this committee and of this government. That's where the new thrust, I think, is going to be.

But we need to be able to talk about that from a technical point of view, and of course we have to take into account the other negotiations you're having on the NAFTA-wide SIC codes and all the rest of it.

So what we're probably looking for today is kind of an agreement in principle, and a direction, and then we need some way of having a mechanism that helps realize that agreement in a more concentrated and detailed way - but we'll perhaps come back to that at the end of the day.

Mr. Glossop: I think that's an excellent idea. We have the systems, actually, to help you on that, and help ourselves. It's already in place.

Mr. Williamson: I think you'll have unanimous agreement on that.

The Chairman: Let me reiterate. What I understand by that is not that we would change the general policy thrust - anything that changes the big picture has to come back to the committee - but when we get into the detail, that's where we can have a working group, which will keep us all on the same side. You'll keep us informed about all your other negotiations.

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We're not the only players, as Mr. Mills pointed out. I think the Governor of the Bank of Canada and the Department of Finance would have an interest in these questions as well.

Mr. Shaughnessy: Mr. Chairman, did I understand that in the small working group there'd be representatives of the banks and of this committee?

The Chairman: Yes.

Mr. Shaughnessy: I think that would be very beneficial.

The Chairman: Let's mull that over lunch and work on it. I think that will allow us to have a follow-up and keep the pressure on the discussion. It will also allow us to deal with bumps on the road that neither side may have anticipated.

Let me see if it's possible before lunch. This is to encourage people to move right along. That was a major discussion. We have the minor matter of municipalities called 1(j), but it's really nothing.

You are hungry, aren't you. I don't want you to think you're prisoners or anything.

I would like a quick hit on the municipality problem and any solutions from single postal codes to the entire western universe. Somewhere in between there has to be a trade-off.

Mr. Leckie: Mr. Chairman, now that Dennis is back perhaps we can go back to a point he raised this morning - the very optimistic growth number we were looking at of roughly $20 billion growing to $29 billion. We talked about that during the break and there's another apples and oranges issue there. I'll ask Terry Glossop to go back and clear that point up.

The Chairman: I want to make sure that we are holding onto the discussion I just launched to clear up a point now that Mr. Mills is back.

Mr. Leckie: Right.

Mr. Glossop: As John said, the problem is that we were comparing apples with oranges. The figure Mr. Mills referred to - $29 billion - represented Canadian dollar direct loans only, and they were business loans, not agricultural loans. The figures we've given you include not only those same business loans but also agriculture sector loans, Canadian dollar bankers' acceptances, Canadian dollar letters of credit, Canadian dollar letters of guarantee, U.S.-dollar loans and commercial mortgages.

So that huge chunk of information is not included in the first figure, which would account for the huge difference you mentioned of about $10 billion or so. So you are correct.

Mr. Mills: So the Department of Finance did not include those numbers in their last budget document.

Mr. Glossop: Yes.

Mr. Mills: Thank you.

The Chairman: It would be good to have that on paper in order for the committee to get that story straight.

Mr. Mills: Excuse me, but if I understand you correctly, our increased lending to small business has not been that dramatic.

Mr. Glossop: Unfortunately, you're correct.

Mr. Mills: Thank you.

The Chairman: Mr. Ianno, did you want to further refine that point?

Mr. Ianno: I didn't know when it was appropriate to bring up the document that you presented. I was hoping to see on here the total amount in corporate loans by each bank. When Helen Sinclair was here on April 25, I specifically asked if that would be supplied and she said it would be. I wanted it on here to get the percentage of small business loans as compared with overall corporate loans.

Could we get that from each bank by the end of the day - the total amount of corporate loans that you have?

The Chairman: What page are you on, Tony?

Mr. Ianno: I'm on page 3. You can go to the other pages if you want to carry forward.

It does not have the total amount of corporate loans outstanding, which would allow us to determine what is the percentage of small business compared with overall corporate loans.

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The Chairman: Will that be available by the end of the day, folks?

Mr. Ianno: I understand that they have that in their annual report. Is that correct?

A Voice: Definitely.

Mr. Williamson: Just so we're clear on this, Mr. Ianno, you're back to the issue of the 33%, the Bank of Montreal number?

Mr. Ianno: No, I'm not discussing the specifics. I can quote, if you want, my discussion with Helen Sinclair. On April 25, 1995, I asked if the total amount of loans, when you were preparing your document, would also be there so that we would see what the percentage is for each individual bank in terms of the amount of small business versus corporate loans.

Ms Sutherland: We need to amend it because what we were trying to do was follow your motion of last August, 1(a) and (b). We would have to go back and then re-agree. We disagreed this morning on what those cuts would be. Now you're saying you want a different...introducing another cut. So what would you like?

Mr. Ianno: No, I'm not introducing another cut.

Ms Sutherland: Yes, you are.

Mr. Williamson: It's not in the motion.

Ms Sutherland: Look at page 13 in your document, and at 1(a) and (b), which Mr. Godfrey went through a little bit earlier. It's just a clarification. We've done it by loan size, right? We've agreed that what we wanted to provide is tranches by loan size.

Mr. Ianno: The reason this was put in this way was that we also took into account that you would be giving us the total amount.

Ms Sutherland: Could I just ask you for clarity on whether or not you want another cut?

Mr. Ianno: We can add it in on this piece of paper just to do it on that basis, but we assumed you would be giving us the total amount by each bank.

Ms Sutherland: So there is going to be another cut added on to that, saying ``all loans''.

The Chairman: For $5 million?

Mr. Ianno: No, total corporate loans.

The Chairman: Total?

Mr. Ianno: Total - which they would have in the annual reports anyway, I would think.

The Chairman: If I understand what we're asking for, it is not breakouts, except by banks; it's total.

Mr. Ianno: It is the total, by each bank, of any corporate loans that they have.

The Chairman: Something that, I gather, is available in your....

Ms Sutherland: Yes.

Mr. Leckie: We can get it to you.

Ms Sutherland: Is what you are defining as ``corporate loans'' those over the $1-million mark? Is that what you're saying? Or we originally provided $1- to $5-million.

The Chairman: What's your cut-off there, Tony?

Mr. Ianno: From zero to your largest corporate loan. I want the total corporate loan portfolio.

Ms Sutherland: I'm just clarifying things.

Mr. Shaughnessy: I think all the banks have given Mr. Ianno that information, in fact, and I have no objection to giving it to you.

Ms Sutherland: No problem.

Mr. Ianno: Thank you.

When I discussed it with Helen, it was just a matter of making sure we have it all in one package so that it is easy to determine. That's all.

The Chairman: Now we -

Mr. Mills: Mr. Chairman, I just have a point of order before we break.

In light of what we have heard this morning from Mr. Glossop about this 20-year-old modelling system, I would like to seek the support of the committee on the following motion: I would ask that you write a letter to the Governor of the Bank of Canada, asking him to come before this committee as soon as possible - or as soon as it is convenient for him - with his officials so that we can talk about this specific issue.

Mr. Schmidt: I agree with that.

The Chairman: Just as a point of clarification, would it not be useful to have a discussion with all of the interested players? I don't mean a huge mass meeting, but he would be one, and it seems to me that the Department of Finance would have something to say about this.

Mr. Williamson: And the Department of Industry.

The Chairman: If you'd accept a firming amendment, would it be useful that the committee examine the whole issue and bring in all relevant federal players including, if you want to make a specific reference, the Governor of the Bank of Canada, but not excluding the Department of Industry?

Mr. Mills: We're not excluding everyone, but let's face it. His modelling system is the one that essentially is the guideline for the rest of the system that works around here. We should know what system he's working with.

Mr. Schmidt: [Inaudible - Editor]

The Chairman: Fine. I don't have any problem with that. But let's understand that it will be the Governor of the Bank of Canada and others.

Mr. Mills: We were not excluding any.

The Chairman: Is there any need for discussion on this or should we...?

Mr. Williamson: I think -

The Chairman: Sorry, you're not allowed to vote.

Some hon. members: Oh, oh.

Mr. Glossop: I think the people in the Department of Industry and the Bank of Canada...would say we recognize that and are doing something about it. That's why we have plans to introduce the new SIC codes two years from how. Again, it is a very difficult thing to do, because we have to get Mexico and the United States to agree.

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The Chairman: I think Mr. Ianno wants simply to have a quick vote of the committee members to proceed to this discussion, with the understanding that we have a specific desire to see the Governor of the Bank of Canada and other related officials.

Motion agreed to [See Minutes of Proceedings]

The Chairman: On that note of agreement by the committee - we get it so rarely; I'd better stop right there - I'd like to suggest that we all mull over the work to be done this afternoon and repair now to the Press Club at 150 Wellington Street.

We will reconvene at 1:30 p.m.

AFTERNOON SITTING

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[English]

The Chairman: On the assumption that our colleagues will be joining us from across the road, what I would like to do obviously is to pick up the pace a bit on these discussions.

I'm very much aware of the fact that there's a whole airplane that's depending on your presence at 6 p.m. to take you back to Toronto, the weather is not on our side, and we have a major announcement to make at the end of the day. I therefore will hope that we can move quickly to find areas of agreement, where they exist, and devote our time to substantive discussions where there are really major philosophical and practical problems in play.

The specific point we've arrived at is 1(j), which is to say the issue of municipalities and how fine a breakdown we want. We understand from the overall discussion on confidentiality that with every refinement we get cells where we can identify, municipally and every other way, who the players are, and we don't want that.

I would ask if there's a compromise with your original proposal, somewhere between five regions and all the municipalities. Is it possible to come up with something, where appropriate, given the geography of this country, that is more than five and less than the municipalities? Do you have an idea for us?

Mr. Leckie: Yes, I can start. The way we run our business at TD is we have nine geographic regions run by nine senior vice-presidents, and they're accountable for driving the branch network and so on within those geographic areas. It would be very easy and in fact would align ourselves more with the marketing decisions that are made in the bank if we reported with nine versus the five we've suggested. So that would be my starting point.

However, the caveat we're soon going to fall into here is that not every bank operates within those same geographic areas. Anyway, the main thing I'd like to put on the table is there's room for movement. If you go by province, P.E.I. runs quickly into these cell issues and so on in terms of privacy, but there's room for dialogue. That's where I'd like to start.

The Chairman: What we've said is you can move from five to nine. You're speaking for yourself, of course. This strikes me as a question where if we can establish a direction or a general set of principles, we can negotiate the details out of the room.

Let me just ask the other banks. Of course, they don't know what nine he's talking about and neither do we. Maybe it would be useful for you to tell us what the nine are quickly and then we can get a bit of a feel for how far away the other banks are from that. Do you want to give us your nine?

Mr. Leckie: British Columbia, Alberta, Saskatchewan and Manitoba. Ontario's divided up into four.

The Chairman: Which are?

Mr. Leckie: North and east, southwest, Toronto, central Ontario. Then we move on to Quebec.

The Chairman: Is Quebec a category by itself?

Mr. Leckie: Yes, it's a division by itself, and then Atlantic is a division by itself.

The Chairman: Are there very significant variations from that?

Mr. Williamson: From the Royal's point of view, it's quite similar except that we divide Ontario into Metro Toronto and outside of Metro Toronto. So where TD has four, we have two.

Mr. Jentsch: With Scotia, we're at six. British Columbia is a region, then the prairies, including Alberta, Manitoba and Saskatchewan, and northwestern Ontario is the third one. We divide what's left of Ontario into two, Metro Toronto and the rest of Ontario. Quebec is its own region, and then we have all of the Atlantic provinces. So we can see already quite a difference in how we are divided up geographically.

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Mr. Cormier: The National Bank has three divisions. Ontario and western Canada are one. Then there are two in Quebec, and Atlantic Canada is part of one of those two divisions.

Mr. Shaughnessy: At CIBC we have eight divisions; that is, B.C., Alberta, central prairies, which are the prairie provinces obviously, Ontario southwest, Ontario east and north, Toronto, where we have two regions with the greater Toronto area, the province of Quebec, and Atlantic Canada.

I think what we're seeing here is that, while there are differences across the country, there probably is some form of an arrangement that we could work out to take it down to, perhaps, eight or nine regions, but look at Canada a bit differently than the traditional five.

The Chairman: In other words, it's more than five and less than ten and we've just got to sort it out.

Ms Giacomazzi: At the Hongkong Bank of Canada we have four, B.C. being one, prairies being two, Ontario being three, and Quebec and Atlantic being four.

The Chairman: Mr. Mitchell, do you have a suggestion to expedite this conversation? I think we know roughly what the variations are.

Mr. Mitchell: Just a question and then a suggestion.

If we come to an agreement - let's say we'll use the model of the Toronto-Dominion - even though your bank doesn't have similar breakouts, are you able to assemble your data like that?

Mr. Jim Foster (Senior Manager, Credit, Hongkong Bank of Canada): We can do it on postal code, ultimately an expansion of postal codes.

Mr. Mitchell: So let me ask the question in another way. Can all of you adhere to a common definition of nine areas if we come up with it?

Mr. Foster: The only qualification I would make is that with respect to Toronto, for our purposes, it wouldn't be as simple to divide that up. But I imagine that, with that caveat, we would be able to accommodate that at the Bank of Montreal.

Ms Rozsa: We're going to have to work out amongst the banks how we're going to look at Toronto, because all of us will look at it a little bit differently. For example, some will include Burlington and some won't.

A voice: It sounds like the greater Toronto area caucus.

Mr. Jentsch: Mr. Mitchell's question is an excellent one. I don't know what we can't and can do on that. We can do it, but how much work it's going to require is another issue.

The Chairman: In the spirit of the post-lunch slump, hoping that I will catch everyone off guard and they won't pay any attention, it would seem to me that we've got a direction established; we've got a goal. We know it's more than five. We know it's probably under ten. It's somewhere in there.

Can I propose, with the agreement of the committee, that this is exactly the kind of discussion that has to take place between a smaller group of us and our researcher and a smaller group of you to come up with the number greater than five and the number less than ten. Is that something that you would accept as a way of dealing with this issue?

Mr. Leckie: That's a good idea.

A voice: Perfect.

The Chairman: That of course means that we'll have to construct this group, but we'll do that afterwards. So that is where we are with paragraph 1(j).

We'll now move on to a major discussion, I suspect - it's a very important discussion, anyway - on the gender question. This is paragraph 1(i). It might be helpful to have a quick presentation by one of you about the basic challenges and also some solutions. I guess every time you have a challenge we should come forward with a solution, and then we will turn it over to members.

I will try to keep the discussion, if I may, if I'm lucky, to under half an hour.

Mr. Leckie: I'll start, and I think others will jump in quickly.

Usually we quickly get to talking about women entrepreneurs and whether or not they're being treated fairly relative to men entrepreneurs. Clearly we would have a lot of incentive to bank women entrepreneurs. They represent a growing force in society. They're starting businesses. I don't know the numbers offhand, but they're moving -

Ms Sutherland: Three to one.

Mr. Leckie: Is that it?

I'll soon be turning it over to Anne.

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The other point I want to make is we are going to be doing some survey work on this. Surveys are certainly the place to start relative to asking people to fill in boxes when they make a loan application. By having a two-way interview through our survey people, we'll get a lot better feedback and grounding upon which to start a dialogue that would help all of us.

There are gender issues out there in society. We all know that. As bankers and leading institutions in Canada, we want to be a lot better than the average. That's our goal.

The Chairman: May I suggest something in order that we have a more concrete discussion? Because the trade-off seems, at least initially, to be between a statistical data-gathering exercise and a survey, in order that we may know what kind of useful information this survey would produce for us, perhaps we should get that out on the table and then have members of the committee ask questions about it. Otherwise we're just theorizing. Would that be appropriate?

Mr. Leckie: That's a good idea.

Ms Bethel: It's my understanding that the survey covers more than gender. In fact it covers a great deal more. Perhaps we could leave the survey until later.

The Chairman: But for the portion that deals with gender....

Well, maybe what we need to do, though -

Ms Sutherland: I can tell you enough about the survey so you understand how it applies to the gender issue.

Ms Bethel: But I really did want to review what we had suggested and the difference between that and the bank. We should deal with the survey in the broader context of all of the items the survey will cover.

The Chairman: We can have a discussion about gender and statistics now, if that's what you would like. Then, in terms of a response, we might as well take that moment to talk generally about the survey, because it will give us the big picture. Is that okay as a way of proceeding?

Ms Bethel: The survey is covering more than gender.

The Chairman: I understand that. I guess what I'm trying to do is find the appropriate moment to talk about the survey, both as it covers gender and as it covers the other issues. If you'd like to have a discussion about gender and statistics now, let's get that going. When we've had that discussion, then let's have a full discussion of the survey, which may anticipate other issues. Okay?

Ms Bethel: Thank you.

The Chairman: I hope that's helpful.

Why don't we talk about the gender and statistics issue?

Ms Sutherland: I have a few words I'd like to share with the committee, on behalf of my colleagues as well, on this issue.

First of all, when we're talking about the marketplace in general, women entrepreneurs, as John has already pointed out, are starting businesses at the rate of three to one compared to men.

I would like to quote a demographer who works out of the University of Toronto and is actually quite well respected in Canada. He says any business that ignores women deserves to go bankrupt. My colleagues and I agree with that statement. The bottom line is it is the marketplace that has to decide, and there is no question that in our society, the ability of any private sector organization to successfully go after the women's market is going to have a direct impact on its bottom line. It's a business issue.

All of the banks have undertaken a number of higher- and lower-profile initiatives on the whole gender issue. In most banks, 75% of the staff, give or take, is women, and our ability to make sure there is equal opportunity one way or the other is vital.

When it comes to dealing with women entrepreneurs, one of the issues we do have to face as banks is an overriding perception amongst many women business owners in the marketplace that banks do discriminate against them. The market research is clear on this. There's a whole raft of issues behind that, from communications style - which, as I pointed out to some of my colleagues around the table at lunchtime, none of us could say we've been innocent of over the course of our lifetimes - to the way in which we communicate our decision process.

So what we want to do - and it's a perfectly smart business strategy - is make sure the perceptions that are in the marketplace change, because perceptions are reality. Collecting data by itself, by asking somebody to say what is the gender of the business owner, is not the technique by which we change the way we do business.

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Ms Bethel: Mr. Chairman, witnesses, I really, truly appreciate those comments. I think that clearly all Canadians recognize the fact that women are extremely successful as entrepreneurs. We also know that because the greatest opportunities for job creation come from these small- to medium-sized enterprises, which women are creating at a rate of three to one compared to men, that it's in everybody's best interest to ensure that there are few or no barriers to women in access to capital. It's on that basis, I think, that we can move on, because we are all in agreement.

I'd like to state a couple of thank yous and recognitions to two banks in particular. One is the chamber of commerce. They made an absolutely tremendous speech before the board of trade in Vancouver that talked about the value of women within workplaces. Also, accolades go to the Bank of Montreal.

The Chairman: You said chamber of commerce in front of the board of trade. Did you mean the CIBC?

Ms Bethel: Yes, I'm sorry, the Canadian Imperial Bank of Commerce. Their chairman made a speech to the board of trade in Vancouver.

The Chairman: That's just for the record. I was looking around for the chamber of commerce and wondering where they were.

Ms Bethel: The Bank of Montreal also deserves recognition. For those of you who aren't aware, they received an employment equity vision award from HRD for the work they've done in removing barriers to employment for women within their organization. So it's on that basis that I would like to start my questioning.

It's really important that we have confidence that the barriers to women in the workplace have been identified and systematically removed and dismantled. I think we can see that within the Bank of Montreal when they talk about their workplace. But I'm asking bankers to think about this: if you can do that for women in banking, why can't we do that for women in business?

To pursue this just one moment, please, Mr. Chairman, when you take a look at what the Bank of Montreal did within their workplace you can see clearly that they determined the milestones. They actually had action plans to remove some of those barriers, and in order to do that they needed to have data collected on the numbers of women in their workforce, the numbers of promotions. They had to, in essence, establish benchmarks, and that is simply, I think, what this committee is doing.

What this committee has asked of the bankers is to statistically provide data on the number and amount of loan authorizations broken down by gender, so we can assure that there is equity in terms of the amount of capital women are asked to provide, so that there is equity in terms of their opportunities, so that they're not being turned down more than men entrepreneurs, and, finally, so that there is equity in terms of the amount of interest they pay so that their businesses can have the same profitability as men's businesses.

With that there are some thanks, but also real disappointment and a real sense of determination that we need to deal with this. As I look at your reply to us, I don't see that the banks have dealt with it fairly. We're all clear, I think, on what we have asked, but what you basically have said is that you're going to provide an annual sample survey, not statistical data, and you're going to do that on loan approval rates by gender only, and that you're going to exclude the data on the number of loans and the amount of loans to women. If I'm incorrect in that, please tell me. It will make me feel a lot better than I do now.

I think, based on what you've said, that it's impossible to look at the issue of whether or not you're being more or less supportive to female entrepreneurs. In other words, there will be no benchmarks.

I have a couple of questions. I'll start with the issue of the resistance to having a gender box on your loan application. The Bank of Commerce does have a gender box on their application, so my question to the Bank of Commerce is, why do you have that there and of what value is it to you?

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Mr. Shaughnessy: The reason the gender box was put on the loan application - it's a small business loan application for loans up to $250,000 - relates to the fact that when we introduced that application we were concurrently introducing a statistically based credit score. Therefore, when the application was designed, the designers thought that by putting a gender box on the application it would facilitate the verification of that individual when we ran the credit score, or ran what is called the Beacon score, which is a form of credit bureau report. It was used as an identifier.

For example, is Kelly Shaughnessy a male or a female? That was the verification for it. In the design of the credit score itself and in the design of the electronic credit application system that we're just introducing at the bank, there's no field for gender.

I've been counselled by our people, the people who designed the form, that they in fact probably have made an error on two counts by putting that specific gender box in here, because, as you will recall, it says ``male/female''. That doesn't help us at all in mailing to our clients. If you get a VISA card application, or something like that, it says ``Mr., Ms, or Mrs.'', and that facilitates the mailing.

While we don't have any hard evidence of this - it's based only on internal discussion within the bank - the issue of how our clients really feel when they're applying for commercial small business loans has been raised within the bank. How do they really feel when one of the questions we ask them is what their gender is? I have no evidence as to whether the client is accepting that or pushing back on that point, but it is interesting that we are asking a question on that application as to the gender of the client in order for the client to get a loan from the CIBC. It's something we will have to consider, probably it will be put to focus groups with our clients.

Ms Bethel: Mr. Shaughnessy, how long has it been since you've been asking this question?

Mr. Shaughnessy: That application, Ms Bethel, I can't recall definitively, but I'd suggest to you it's been out there for a few months. It was introduced, I believe, about halfway through this year.

Ms Bethel: What are your account managers telling you about women's resistance? Certainly that's been what we were told is going to happen; that there is resistance by women to answering.

Mr. Shaughnessy: I have no evidence, but I have not sought out such evidence either.

Ms Bethel: It certainly seems to me that if women entrepreneurs understood that the question was being asked so that we could be sure, confident, that there was no discrimination, my sense is they wouldn't really object.

In terms of the CBA itself, what programs does your bank have to promote women entrepreneurs and how do you measure that program's success.

The Chairman: I heard you ask the CBA, but did you mean -

Ms Bethel: I would be interested to know whether the Canadian Bankers Association offers any courses.

The Chairman: Who can speak to that?

Ms Bethel: Or what role do they play in the development of programs for women entrepreneurs?

Mr. Douglas W. Melville (Director, Commercial and Regulatory Affairs, Canadian Bankers Association): Essentially, Ms Bethel, the role of the CBA is to provide secretarial and research to the committees of our members.

Ms Bethel: Okay.

Mr. Melville: So as our members get involved with an issue, we're happy to provide as much research support as they deem necessary to respond to these public issues.

Ms Bethel: The Bank of Montreal?

The Chairman: What's the question you're asking?

Ms Bethel: I'd just like to know what kinds of programs they have to promote women entrepreneurs and how they measure the success or effectiveness of those programs.

Mr. Hudon: I'll answer that in a moment. I wonder if I can offer some insight into the recognition that you alluded to earlier, which the Bank of Montreal received for its employment equity programs.

In fact, the policies that were adopted by the bank in the early 1990s were the result of an exhaustive study that was done internally, which was essentially a survey of attitudes towards women advancing in our organization.

Ms Bethel: Mr. Hudon, my question was about the programs you're offering now for women entrepreneurs and how you judge their effectiveness.

Mr. Hudon: Specifically in regard to that, I can tell you that among other things that come to mind there is a newsletter that's out there to help educate and provide information to entrepreneurs, and women entrepreneurs in particular, as to how to go about providing information, developing business plans and addressing their own interests, how to get financing and what the variety of sources is.

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There's also an opportunity for women entrepreneurs to write to the bank and talk to the president of the bank, to seek any information they may find of particular interest to them. That correspondence is shared in this particular review.

There is the Canadian Woman Entrepreneur of the Year program, of which the bank is a sponsor and supporter, along with a variety of other communication vehicles that address the specific needs of women. These are all intended to address the very issues you have raised in your own questions.

Ms Bethel: How do you judge their effectiveness in terms of loan turndowns, for example? Are the women better equipped and therefore getting fewer turndowns?

Mr. Hudon: Our information suggests to us that women are as satisfied as men are, if not more so, with the credit-granting process at the Bank of Montreal. That's with respect to ourselves.

I would say that we would do so by surveying and by gathering data on ongoing customer satisfaction activities.

Ms Bethel: Okay.

We'll try the Royal. How does the Royal Bank monitor the decisions of your loans officers to ensure that the decision-making is gender neutral, that women are not being refused more, and that women are not paying higher interest or being asked to pay more collateral?

Ms Sutherland: We ask our customers - for the same reasons Maurice talked about - and we ask the market in general. We do a lot of market research and establish benchmarks against that research.

We do a lot of research to make sure we're getting at the key irritants that women entrepreneurs feel versus men or versus anyone else. We support mentoring programs, we support entrepreneurial education programs, and we have specific communications programs, in fact. We have training specifically aimed at our account managers in this arena.

It's the same way, Ms Bethel, that we are able to determine how any customer is satisfied with the Royal Bank. We do ongoing surveys and market research.

Ms Bethel: How do you relate that directly to an account manager, for instance? I would imagine these are quite general surveys. Are you satisfied with your account manager? Do you relate? Do you respond to -

Ms Sutherland: Well, in our case we relate it to business centres where this information is being delivered.

Ms Bethel: But you can't be really specific with those, certainly not as specific as if you were gathering the data on an application form, for instance.

Ms Sutherland: No, because all of our research indicates that the key irritants that come out in the women entrepreneur market are the way in which we communicate or fail to communicate in terms of our policies and our procedures and the way that we as bankers collectively communicate. It's not whether it's a male or female banker but the way we communicate that's one of the key irritants to entrepreneurs and women entrepreneurs.

Ms Bethel: So what they're saying is that the problem is just how you talk to them?

Ms Sutherland: Yes, literally. It's communication on a two-way street.

Let me give you the classic example of spousal guarantees. Most of our research indicates that women believe that banks only ask for spousal guarantees when they're women. I can only speak for the Royal Bank in this case, but I know it's similar with all the other banks. Spousal guarantees are gender neutral, but we don't do a very good job of explaining this. When women are in front of a banker, whether it's a man or a woman, we do not adequately explain what our policies are, and so people walk out of our offices, or we walk out of their offices, with an inappropriate impression. That would be one specific example that in our case we are tackling.

Ms Bethel: In terms of actually showing, we all know that the survey of the Canadian Federation of Independent Business made it quite clear. They said that women are actually paying 0.5% more.

I know what you're going to say because we've been through this before. You don't believe their data or you don't think they're quite right.

Ms Sutherland: No, it's not the data. It's the interpretation.

Ms Bethel: What I point out to you is that there is no statistical data from the banks to prove otherwise.

Ms Sutherland: But that's like saying that the only correlate to any particular loan decision is gender, and that's not realistic.

Ms Bethel: Oh, I understand that.

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Ms Sutherland: It's a multidimensional process.

One of the things that's wrong with the CFIB's.... It's not the data that's wrong; it's the correlation and the twinning that they did in the statistical analysis.

Not being a statistician by trade, I'm not in a very good position to explain in detail to you at this point, but those are some of the differences.

What it comes down to, though, is that, regardless of the statistics, we know there's an issue. All of us know that there is gender bias in our society and there is gender bias in banks. The issue is to bring it back to the marketplace. I'll repeat the quote: any private sector corporation that ignores the women's market does it at its peril and deserves to go bankrupt.

Women have the power, Ms Bethel. They have the power to choose the account manager they want to deal with. If they don't like the service at our bank or at the Hongkong Bank of Canada, then they should get up and go and find somebody who will serve them better. That's the power of the marketplace, not regulation.

Ms Bethel: We talk about responsibility in terms of defining the barriers that are there and putting in place action plans much like the Bank of Montreal with its employment equity.

Ms Sutherland: Yes.

Ms Bethel: I have difficulty in understanding why we can't do that here.

I would like to ask the Toronto-Dominion Bank how they monitor their bank account managers to make sure that there's no gender bias.

Mr. Leckie: We monitor it through regular customer survey indexes similar to what Anne described at the Royal Bank. There are questions in there - soft questions, frankly - vis-à-vis gender issues, for the reasons Anne explained: customers take offence at being too specific on those kinds of attitude questions.

Again, to come full circle, we think the way to go is a survey and getting two-way feedback - information from our account managers on the survey and information from women entrepreneurs - and having the survey group interpret that for us. That should become the beginning of the benchmarking process that - I agree with you - we should have.

In terms of programs at the TD, Catherine Taylor, who was at this committee in April representing us, is national director, women entrepreneurs. She has done countless numbers of seminars back and forth from Halifax to Vancouver, meeting with women entrepreneurs and also with our staff and our lenders and explaining and training and educating about the better approaches that can be made when dealing with entrepreneurs.

Ms Bethel: Mr. Leckie, then there's no way of statistically showing that what you've done has had an impact on ensuring equity to access of capital to -

Mr. Leckie: It's in the customer survey index. It would pop out. There's an opportunity in there. If we were being prejudiced, then it would come out. It has been tracked for years. We would see a change in trends in that that would help us.

With this survey there will be an opportunity to begin to track it.

Ms Bethel: If we can talk about the survey for one moment, my understanding is that your annual sample survey will include loan approval rates by gender and data on the number of loans and the amount to women, broken down regionally and -

The Chairman: As a way of proceeding, rather than getting into a piecemeal account of what would be included, would this be a time to ask for an explanation of the survey? If after that there's a lack of clarity, then we can revisit it.

Ms Bethel: Sure, but it would be really nice if it were just a yes or no on that one.

The survey does include...?

Ms Fedoruk: We're talking in a frame of reference different from yours. I'll be talking about companies, not loans. So, no, there will not be.

Ms Bethel: The answer is no?

Ms Fedoruk: The answer is yes, with a different frame of reference.

Ms Bethel: Mr. Chairman, this is extremely important.

Will the survey include data on loan approval rates by gender? I think the answer to that one is yes.

Ms Fedoruk: Yes.

Ms Bethel: The second part of that question is, will it include data on the number and amount of loans to women?

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Ms Fedoruk: It will include data on the number of loans given to women customers. It will include the amount as well.

Ms Bethel: It will include the number and the amount.

Ms Fedoruk: Yes.

The Chairman: Okay. We keep describing an elephant and we've never met one. It's this thing.

I think since there has been so much talk about surveys, we obviously want to know, in this specific context, about the survey you've proposed to address the gender issues. Let's have the big picture. Let's have the survey picture out there. What are you proposing to do?

Ms Fedoruk: Thank you. First I'd like to talk about the survey, and then about the process we're going to use to develop it.

We've determined that the most appropriate method to gather the number of pieces of data you've requested is a single, annual survey. As you've mentioned, it covers loan approvals and turndown rates for recent loans. It will also look at the factors that will be affecting SME access to debt capital in general, including the reasons for recent loan declines. It will look at satisfaction with financial banking relationships and turnover among account managers. There will be a host of items covered through that one survey.

Here's how we're going to do that. Our objective is to draw a sample and survey a population such that our sample is representative of the small- and medium-sized business population of Canada. We will not merely be drawing from a list of existing customers or members, as in the case of the CFIB, because this can include an inherent bias.

We are going to use a large and widely accepted database, such as the one maintained by Dun & Bradstreet or another one called the Canadian Business Information database. They are essentially an almost exhaustive listing of every small- and medium-sized business in Canada. We will draw randomly from that population.

We expect the survey to include both current borrowing and current non-borrowing customers. We're opening up our frame of reference quite widely. We also expect to collect information on informal loan requests as well as on very formal loan applications.

Overall, we hope that the survey will highlight where banks are servicing business customers well and will demonstrate exactly where the gaps lie in financing.

If you like I can go into some more details about the sample size and so on.

The Chairman: Why don't we now locate that with the gender issue? Let me ask a prior question.

Sorry. Ms Bethel.

Ms Bethel: Mr. Chairman, I think the survey is going to survey beyond gender. I have general questions on the survey, not specific gender-related questions.

The Chairman: It's really a question of how we can best understand a concept by having a description of the whole and understanding how part of it relates to the whole. Since we were just talking about it, that's why I suggested an example of some detail you might want to get into would perhaps be the portion that relates to gender.

Ms Fedoruk: I have a couple of comments about gender. First, it's our view that a survey is currently the most efficient means of identifying female-led businesses, since the sex of the owner or manager is not currently contained on our electronic customer files. This survey would allow us to get projectable estimates of female participation in SMEs.

The Chairman: Sorry. We're having a problem with hearing. You'll have to speak up.

Ms Fedoruk: Okay. We believe the survey will provide us with projectable estimates of female participation in SMEs and for some subgroups such as -

The Chairman: An SME is a small- and -

Ms Fedoruk: And medium-sized enterprise. Sorry.

For some subgroups, such as new customers or those not currently borrowing, we will also be able to get some estimates of the size of the female participation versus the male participation.

I believe we can get this information at a high level of accuracy because it will be declared by the respondent we are serving as opposed to being recorded by a third party. I think I've alluded to this earlier.

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We can collect this gender information in a far more appropriate context than at a loan interview. It will be in the context of some scientific research rather than in the process of some commercial dealings. I think we have less risk of offending businesses and people of either sex if we collect gender information at that time.

The Chairman: May I ask a question? Would I interpret correctly, then, that you would ask of both sexes the same kinds of questions so that in the unlikely event that there's a paranoia somewhere in the business community, you could measure, as it were, male paranoia versus female paranoia so you could talk about differences? Don't accept the terminology, but you see what I'm getting at. You would be measuring male against female.

Ms Fedoruk: We would interview businesses randomly drawn and identify small and large, male and female, borrower and non-borrower. In the analysis we would look at all those different subgroups; that's right. Gender would be treated as any other subgroup would be.

Mr. Shaughnessy: It's very important and I guess it's one of our challenges today to make sure the banking industry and the bank leave the impression with the committee that we, like Ms Bethel and all the members of the committee, absolutely cannot permit any bias in the system. There may be a bias there. If we find it, we have to eliminate it. Gender cannot enter into a lending decision at the CIBC or any bank in Canada.

How do we do that, though? One way of doing that might be to establish a huge statistical database. I don't know if that is going to solve the problem, though, because the most important thing here is the view of the client.

As Candace said, it is the client who is going to self-declare the ownership. That is very important. If I owned a small business, for whatever purposes, I might put the shares in my wife's name, or if my wife owned a small business, she might put the shares in my name. The shares might be in a family trust name. The common shares might be in my children's name and the preferreds might be in my name, or something of that nature.

So if we attempt to come up with a statistical database and a statistical definition of just who owns the business, I don't think we're going to be serving our customers' or our constituents' needs. It is very important that it is our customers who declare who owns a business.

The second thing is on the turndown. The most dangerous thing is to attempt, as a committee, as a government and as a bank, to define at what point a client makes an application for a loan. If I walk in and see Steve and I have an informal conversation with Steve about my desire to have a new widget-maker, and Steve says ``Kelly, that's the dumbest idea I've ever heard in my life'', is that a turndown or is that an informal discussion I had with Steve?

The Chairman: Or is that typical of Steve?

Some hon. members: Oh, oh!

Mr. Shaughnessy: I can't comment, Mr. Chair, because I've never asked him for a widget-maker loan, but if I do, I'll let you know.

But very seriously, we have to look at this through the eyes of the clients and of the constituents. The most important thing I want to know at the CIBC is what my clients think of the CIBC. I want my clients to tell me whether or not they think they've been turned down as opposed to an account manager tracking loan turndowns and going down a list and saying ``Whoops, the client didn't cross over that bridge, and therefore it wasn't a turndown''. If the client thinks it's a turndown, to me it's a turndown.

By the same token, if the client thinks the small business is owned or managed or run by a particular gender, to me that is the gender that's running that business.

Mr. Schmidt: What result will we have when the survey is finished? What will we know?

Ms Fedoruk: With respect to gender or with respect to all the statistics that are being gathered this way?

Mr. Schmidt: Whatever. This survey is going to do something. You're going to spend a lot of money doing this survey. What will we know?

The Chairman: What will we know then that we don't know now? Is that what you're asking?

Mr. Schmidt: That's right. What will the survey give us that this other stuff doesn't give us?

Ms Fedoruk: You will have a view of the opinions, behaviour and treatment of the entire market of small- and medium-sized businesses in Canada, so you'll have a very broad picture that's representative of the universe. That will be in terms of use of credit, loan turndowns, their impressions of account management, their satisfaction with their dealings with their financial institutions, their methods of accessing debt other than banks. A whole host of questions that have been raised during the course of these hearings can be answered from this very large sample survey.

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Mr. Schmidt: The key words in that answer were ``can be answered''. My question is, will they be answered?

Ms Fedoruk: Yes.

Mr. Schmidt: Okay. The second question deals with the reliability and the validity of the survey itself. To define ``reliability'' in this context, if either I or John conducted the survey, would we get the same results as you would if you conducted the survey?

Ms Fedoruk: Yes. In fact, the survey results will be quite reliable for several reasons. First of all, we're drawing from a very wide sample frame. Secondly, we're going to pull a sample of somewhere between 2,200 and 2,500 responses, which is very large. And, thirdly, we are going to insist that we have a very high response rate.

In surveys, often the difficulty is that we ask 1,000 people some questions, but we only get answers from 100 or 150, and those 150 are not representative of the whole 1,000. If we control for non-response, that means the people who do complete the survey are really representative of the whole. We aim to control for that in this survey.

Mr. Klein: A point that I can add to that for clarification, too, is that the survey framework she is talking about is in tender process. It will be done independently of any bankers or the CBA. So it is the same kind of a survey that you might be able to commission yourself.

Mr. Schmidt: The third question that I have is on the validity issue. What assurance do you have that what you intend to measure by the survey is in fact what the survey will measure?

Ms Fedoruk: These are excellent questions.

We hope to use questions that either our member banks have used before and have validated, or questions that have been used by the Statistics Canada surveys or the CFIB surveys. In other words, we hope to use things that are in the common ground and in the academic literature, and that truly represent and measure accurately real feelings and real behaviour.

We'll be pleased to share the questionnaire with you at the time when we give you the results.

Mr. Schmidt: That was going to be my next question. You're anticipating. That's great.

I just want to be reminded of this, if I could, and quickly: It's going to be a single survey, it's not going to be mixed up with other surveys, and it's going to be done on an annual basis.

Ms Fedoruk: That's what we're proposing. We certainly expect that this year it will be a one-time snapshot in time. It is not collecting data over a whole year. It will be a picture of the market as of about January 1996.

Mr. Schmidt: It may make a difference that some bias may be contained not in the questionnaire itself or in the survey, but could be determined by the time of year when this particular survey is taken. So will it be taken from year to year at the same time of year, or is there going to be some other variable that could contaminate the data?

Ms Fedoruk: Normally, in my bank - and I think it's the same at all the other banks - when we measure customer satisfaction or anything of that nature repeatedly, we always try to do it at approximately the same time of year. I thought for a moment you were going to give me the opportunity to survey over a three-month period and I was going to be very grateful.

Mr. Schmidt: No, I wasn't going to do that. It was a good try, though.

Ms Fedoruk: We would endeavour to try to do it and hold as many variables constant as possible.

Mr. Schmidt: Thank you, Mr. Chairman.

The Chairman: I have one last question here, and I think we should then try to wrap up and move on.

Mr. Mitchell.

Mr. Mitchell: Thanks, Mr. Chairman.

Is the actual surveying going to be done by an independent firm?

Ms Fedoruk: Yes. I should have clarified that from the outset. We have a surveillance group, if you like, a working group that guides the design and the execution, but it will actually be done by an external firm of the variety you would be familiar with.

Mr. Mitchell: Who will be that firm's client?

Ms Fedoruk: The Canadian Bankers Association.

Mr. Mitchell: It is the CBA, then.

Ms Fedoruk: Yes.

Mr. Mitchell: Does the CBA commit here today that they will release the results of this survey regardless of what they show?

Ms Fedoruk: Sure.

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Mr. Mitchell: Okay. I have some specific questions.

You are going to survey the low approval rates by gender. Are you going to break that out by industry code and by geographic area?

Ms Fedoruk: We'll break it down as far as the statistics will permit.

Mr. Mitchell: So if you have a sample from British Columbia, if it is one of the geographic areas that we agree on, you will give us the survey results for British Columbia, for Ontario, for whatever?

Ms Fedoruk: If we have sufficient respondents to break it down, yes.

Mr. Mitchell: You also mentioned customer satisfaction levels. Will you report that by individual financial institutions?

Ms Fedoruk: I believe the answer is yes.

Mr. Mitchell: Did I hear correctly that you are going to survey account manager turnover?

Ms Fedoruk: We're going to ask customers how recently their account managers turned over, or ask them something along the lines of how many account managers they have had in the last year or the last three years.

Mr. Mitchell: Will you report that data by bank?

Ms Fedoruk: Yes. We intend to report all the data that is in the questionnaire - all of it.

Mr. Mitchell: But will it be broken down by individual financial institution? In other words, can I see that the Royal Bank's turnover would be six months, while at the Bank of Nova Scotia it would be four years or something like that? Will I be able to make that distinction?

A voice: Yes.

Ms Fedoruk: If I might just interject, this would be an example in which survey information gives better information than our information databases.

Account management turnover in most of our organizations is tracked by someone moving from one job to another, but this survey takes it from the customer's perspective. For example, if I'm not managing my centre well, I would move my customers around to different account managers even though I'm staying in the same job. Do you see what I'm saying? I could hold a position number in a particular business centre, in a branch, and not change. But because I have four or five colleagues, maybe my manager is going to move some accounts around or move clients around to different account managers. So the benefit of this survey is that it tells us what the customer sees, as opposed to just providing us with a statistical collection of internal job movement.

Mr. Mitchell: I have one last comment, and this relates back to our specific request as a committee. We will be receiving loan approval rates by gender, by geographic region, by postal code, done by survey.

Ms Fedoruk: It's extremely unlikely that we'll have enough respondents to do each of those rates within one another. But we can give you, for example, loans turned down by sex, by region - each individually, not sex within region or industry code within sex. Are we speaking the same language?

Mr. Mitchell: You will be able to give us industry code for across Canada, and you would be able to give it by geographic region, but what you can't do is give it by industry code by sex within British Columbia.

Ms Fedoruk: I doubt we will have enough to be able to do that.

Mr. Mitchell: Okay, I understand.

Thank you very much.

The Chairman: I neglected to recognize Mr. Shepherd. Perhaps you can get in the last question.

Mr. Shepherd: As I understand it, where we started off with this whole operation was access of capital for small- and medium-sized businesses. Isn't the sample you're selecting here skewed because you're basically going to people who are established businesses? They've already been around. Dun & Bradstreet are an example. We don't hear from the people who had a good idea, went to the bank, were rejected, and therefore never got off the ground in the first place.

Ms Fedoruk: I agree that we may miss some individuals who are thinking of starting a new business and do not appear on anyone's list. That's possible, but what we will capture is the large number of entrepreneurs who have established one business and then go on to establish a second or third, which I think is a very common pattern. They will be tapped through this survey.

Mr. Shepherd: But by definition, the survey is skewed because we're talking about access to capital. These people have already been successful.

Ms Fedoruk: While they may be successful at one endeavour, that doesn't necessarily mean they would have immediately secured financing from whatever means for the second. So we'll be asking about their experiences in securing financing.

The Chairman: I think that's a very interesting point, and again it is a very important and rich question. The question is how you get at a universe of people who are not identified in one of the regular places, whether it's Dun & Bradstreet or anywhere else.

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Can I add that to our list of discussions that will take place between a smaller group of you and a smaller group of us to try to determine in a constructive way whether there is some way of getting at the very elusive but important group of people to which Mr. Shepherd refers? I have no thoughts about how that might work, but I think it's something that we shouldn't let drop.

So let me try to summarize where we are.

Ms Bethel: I have one more question for clarification. I didn't get this clearly. I wonder if you could kindly point me to the page number where it talks about your surveying based on loan approval rates by gender - that would include the number of loans - and amount.

Ms Fedoruk: I didn't hear the first part of the question.

Ms Bethel: In this request for a proposal - you provided each of us with a copy - on page 2, you will see where it says ``The research project will examine those factors that may correlate to gaps in access...''.

I wonder if you can show me. I see them providing break-outs by gender of ownership, sales levels, number of employees, age of business, sector of operation, and region, but I don't see the part where it says you will be able to break out the number of loans to women and the amount.

Ms Fedoruk: This was the distinction in language I was making earlier. We'll look at the total number of businesses that we've surveyed, the percentage that have loans, and the percentage that have loans in which the company is led by women versus men.

Ms Bethel: So you'll be able to compare men and women?

Ms Fedoruk: So we'll tell you x percent of the companies led by women had borrowing of this or that type and y percent of the companies led by men will have...that's the basis of the comparison.

Ms Bethel: Thank you.

The Chairman: Thank you. This is a very important discussion. I think it's very helpful because it relates to survey questions more broadly based than those that are simply on the gender issue. We now better understand the nature of that survey. I think I say for all my colleagues that this is obviously a very important exercise.

To return to Mr. Schmidt's question, both we and the banks will understand a number of things in a much more scientific way than has ever been understood before in this country. This is a very important survey.

We also understand from you that you hope to have the results available by March. So when we meet, not at our next quarterly meeting, but the one after that, that might well form the main purpose of the discussion. We will all learn enormously from that survey.

We also understand that where there are these suggestions of the sort that Mr. Shepherd has made in trying to get at people who are outside that universe, that's an interesting problem that we will try to pursue in a smaller group arrangement.

Is that roughly where we are? Okay.

Moving right along, we have basically three items left on our list before we switch over to the ombudsman question. Those items are 1(e), 1(f) and 2. Perhaps we can group 1(e) and 1(f), because 1(e) is number in loan authorizations. This is the difference between ``operating'' and ``term'', as one distinction, and 1(f), which deals with new borrowing connections as a category.

Perhaps we're falsely rolling them together, but let's try. Mr. Leckie, if you could get someone to address the ``operating'' and ``term'' issue and the ``borrowing connection'' issue from your point of view, and then we'll get into it....

Mr. Leckie: Can you go ahead with that?

Mr. Glossop: I guess this is one place where we are moving away from customer to product. Many customers have both an operating loan and a term loan, so we have to be very careful how we generate this information, because it won't add up to the total.

So I think most banks can actually produce this information now. I would like to ask them. We certainly can, and I think the others can as well. So I don't see any problem in actually producing it, but we would caution that we should not forget that we're talking product here, as compared with the actual customer.

The Chairman: So there's not a technical problem with it.

Mr. Glossop: Not a technical problem.

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The Chairman: Okay. Before we move on to the new borrowing connections, is there a technical problem with that?

I see Mr. Shaughnessy.

Mr. Shaughnessy: I thought, Mr. Chair, we'd come to an agreement on that.

The Chairman: Right.

Mr. Shaughnessy: We thought that on the new business we had agreed - correct me if I'm wrong - that some banks were going to be able to produce that information at various stages through 1996 with the remainder of the banks saying that they'll produce that information by the end of 1996. So I don't think we have an issue there.

The Chairman: Mr. Mitchell, do you want to help us out here?

Mr. Mitchell: Mr. Shaughnessy, that's not what I understood from this morning, which was that there were the three categories of employees, sales and age of business, which you would have to wait to produce until the end of 1996.

The issue now is whether you can tell us, without that breakdown, the number of new borrowers you've acquired in the previous quarter.

Mr. Shaughnessy: Okay, it was my understanding from those discussions that, by the end of 1996, we would provide the committee on a quarterly basis with the number of new loans, new clients, or whatever that we grant in that past quarter. We would break it down by employees, sales and the age of the business.

Mr. Mitchell: No question. You need to upgrade your computer systems in order to provide that.

My understanding is that because it's a figure that's collected by your accounting system, you would know the number of new clients in the small business market that you put on in the previous three months. I know you can't break it down by any of those subcategories, but you can tell me how many new accounts you've had in the previous quarter.

The Chairman: I have the figure of 20,000 floating around.

Mr. Klein: Mr. Chairman, if I could interject and just talk to this issue for a second, the data we're talking about for collecting that we're going to start doing, in our case, in mid-1996, will at the same time allow us to capture actual sales.

Today, what we can all capture is a net position. That is not what you're asking for here. We all can report net positions. We've been doing that to basically increase our customer base net. That doesn't show what's leaving us or what new sales we have. As a result of the new fields or systems, depending on which bank we're talking about - the timeframe issue comes into play here - we will be able to also report the sales at the same time.

If I could just put one more point on record just to clarify something with respect to item (e), we all agree we'll provide this information, but there is a definitional issue between what ``operating'' and ``term'' credits are. There are various opinions as to how we capture ``term'' in our database. We will definitely have to purify that particular aspect so we can report apples and apples and not a mixed bag of tricks.

The Chairman: Let me understand this. On the ``operating'' and ``term'' question, it's doable, with the caveat that we have to make sure everyone is agreeing to the common definitions. That is the kind of thing we might want to chat about in smaller groups so as to simply be informed of that discussion. But you're not objecting to providing it.

Mr. Klein: No, definitely not.

The Chairman: So all we're trying to do is make sure that we've got a good solid basis of comparison. I wonder if I am going too fast. Have we signed off on 1(e)? We've done 1(e).

Mr. Jentsch: We agree.

The Chairman: Okay. Let's come back to the new borrowing connections. Mr. Mitchell.

Mr. Mitchell: I'm having a significant amount of difficulty here. If you're telling me and this committee that you don't know the number of new borrowers you've acquired in the previous quarter, how do you evaluate the performance of your account managers, whose primary responsibility is to acquire new business. That's if you don't have any way of tracking exactly what new business they're putting on the books.

Mr. Leckie: Again, part of the answer to that is that we are decentralized. We've been delivering these products, which are loans, through local branches across the country, and the local branch manager knows how his or her people are behaving. We are collecting data in total.

I couldn't agree with you more. We would like to get it the way you're suggesting, and we will get there. We're not trying to hold off here at all. It's a good measurement. I would like to have it in my job to see how things are going across the country.

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The other thing I want to add is the definition of what's a new business. We're dealing with products more and more. Alone isn't alone any more. It can be a foreign exchange contingency line of credit that we've set up so people can do trades with us. They will have made an entry onto our system, so when a real direct borrowing comes onto the system after that, it doesn't get treated as new.

We'd like to work with you on these issues, but we need to standardize the definition. I think it's the kind of thing we should do in a break-out group.

Mr. Mitchell: I want to relate a personal experience from my previous life, when I worked for one of the chartered banks. The person to whom I reported, in evaluating my performance, knew how many new connections I had acquired for my company in the previous three months and evaluated me on that basis.

Mr. Leckie: Right.

Mr. Mitchell: I suspect they continue to do that, and I suspect so do the other chartered banks.

Although I can understand why you can't yet break it out by various sub-categories, I'm having difficulty in understanding that you cannot tell me how many new loan connections you acquired in the previous quarter, because you must be evaluating that by account manager.

A voice: We are.

Mr. Jentsch: Maybe I can speak to that as a person who is just coming out of the system where I evaluated branch managers involved in this process on a very regular basis. Certainly that was a key question that was asked at performance review time, but it was not an automated system. It was a manual process and it was conducted from each branch. There's no system, certainly in our organization, that this time we track the position through an automated method and have it centralized. It simply doesn't happen.

A key thing we looked at and a thing I evaluated on was the net position of the branch. If you had an increase of 100 new customers or you lost 110, that's what gave me concern. So it was the net position of your connections.

Mr. Mitchell: Are you suggesting - perhaps you are - that there is no reporting process in your banks by which your account managers report how many new connections they've acquired in the previous quarter?

Mr. Williamson: Let me try this, Mr. Mitchell.

I think that is what we are saying, that the collection of data relative to the performance of an individual account manager is based on the statistics between that individual and his or her direct reporting officer. In our case, there is no national system to centralize that data. The only data that is centralized is the net position, and in some particular areas it would be more important to look at things such as business retention rather than business addition. So it depends on the community you're involved in.

Is that a good and sufficient way to run a sales organization? No.

Mr. Mitchell: Could I have one last shot at it, Mr. Chairman? Maybe the people who deal with systems can answer this.

I suspect that, in your accounting system for loans, as you put new loans on the books, new connections, you assign an account number to them. Can you not simply go back and say that between January 1 and March 31, which is a quarter, you had to assign 4,000 new account numbers, and you can generally assume, therefore, that you have 4,000 new borrowing connections?

Mr. Williamson: That is a very interesting approach. I would say that is worth our looking into, because, yes, we do assign a client identification number. I don't know specifically how we could roll it up. That's something that Ms Sutherland and I will go back and look at. But you're right: in our case there is a descriptor for the client.

Mr. Ianno: But it's done manually.

A voice: Not that last part.

Mr. Williamson: No. It's done manually, but because it's registered into the loan system, it is 100% accurate, because the books have to balance.

Mr. Mitchell: So, just to recap, to exit out of this, for me anyway, if we can find a way, then you'll do it right away.

Mr. Williamson: Yes.

Mr. Mitchell: So I think, Mr. Chairman, we can put that onto that committee, and if we can find a way, then they'll do it.

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The Chairman: Okay.

It's been a very helpful discussion. I think it - sorry. Mr. Shaughnessy.

Mr. Shaughnessy: Mr. Chair, I think it's also very important because I believe all my colleagues have committed to giving this information. I agree with you, Mr. Mitchell. If we can find a way to give this to you tomorrow, we'll start giving it to you tomorrow.

I think it's also very important now to refer those questions of exactly what a new loan is and what a new connection is to the small working group that is being proposed. I think it's just as important to a client and it's just as important to what this committee probably wants to track, which is to see our willingness to lend new money to existing connections and things of that nature. This is probably one of the definitional questions that can be hammered out in the smaller group so that we will be prepared and we will be giving the apples-to-apples type of data.

The Chairman: Great. I'm hearing agreement. We agree that it's good information to collect and that there are some important definitional issues that have to be grappled with in a smaller group. We have agreement from the banks that as with some of our other categories they will provide them as soon as they have them available. We will not wait for the convoy approach. If some banks are out of the chute a little faster, they will deliver as soon as the information is available. We will create the Mitchell prize for the first ones to do new borrowing connections.

I think we've handled that. See, now I have two prizes going.

Mr. Williamson: I have one brief comment, Mr. Chairman. Relative to this sub-group you're talking about forming, I think it's very important to put a fixed date on the decisions to be made by that group. Let's not let it float out to -

The Chairman: Absolutely not. It will be a good working group. I have some ideas in mind. In fact, I've been doing a little chatting with my colleagues over lunch.

The last point we have not talked about under benchmarking is number 2, which is loan to loss ratios broken down per. We've had a bit of a discussion about this before. This was the argument about calendar versus fiscal.

Mr. Leckie, perhaps we might get someone from your group to remind us where we are with this discussion. Then we'll perhaps get someone.... I see Mr. Murray offering to come in on this one.

Mr. Leckie: Thankfully Mr. Glossop's going to jump in on this one.

The Chairman: Okay.

Mr. Glossop: I think we agreed that it would be very difficult to supply loan loss information other than at the fiscal year-end. I hope that's been agreed on by everybody.

When it comes to breaking it down along the lines of 1(a), (b), (c), (d), (e) and (g), we again run into the problem of confidentiality. And again, if we were to take the matrix and work this through, it means we'd have about 17,000 observations. When we have that number - and hopefully we don't have that many bad loans - it means we would not be able to drill down to that extent.

We could supply it by dollar band and maybe geographically, but once we start talking about industry and other areas, employees and sales, it would be very difficult to supply information that would pass the confidentiality test.

The Chairman: Okay. Mr. Murray.

Mr. Murray (Lanark - Carleton): Thank you, Mr. Chairman.

On this question of annual versus quarterly, do the banks already track loan losses on a quarterly basis? Anybody who wants to can answer that.

Mr. Leckie: Before we do answer that, I think we should go back and define provisions for loan losses versus write-offs.

Write-offs are a natural hit, if you will, that we take when it's recognized that a portion of the loan is simply not going to be recoverable. We tend to figure those out and put what you could call a large SWAT team on it towards the end of the fiscal year of a bank.

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Over the course of the year, depending on how things are going, provisions are made and trends are looked at. Frankly, the provision part is much more of an art than a science. Beginning with that, it's very easy to stumble over the two, provisions and write-offs, but they are very different. In that, if you understand it, you realize that's why only once a year can we actually come up with a solid number that's agreed on, goes to our board of directors, and ends up in our annual report.

Mr. Murray: Does that mean we'd just be looking at write-offs when you're done with loan losses? We're talking about write-offs, not provisions. Is that what you're saying?

Mr. Leckie: Right. That happens at year end, and that process starts in September through October in our bank.

The Chairman: I guess the good news is - but there's never good news about loan losses - we would have that information for our next quarterly get-together. But we wouldn't have an update until a year later, basically.

Mr. Mitchell.

Mr. Mitchell: Can I get read-outs of loan loss history by bank, by industry sector?

Mr. Leckie: Yes, provided it doesn't run into privacy issues.

Mr. Mitchell: So it's the same provisions. We'll have a loan loss history as of October 31 by bank, by industry sector, unless it breaches confidentiality?

Mr. Leckie: Right.

Mr. Shaughnessy: The sample size for the loan losses, thank goodness, is so much smaller than the overall that what we probably should do -

The Chairman: It hits the confidentiality wall faster.

Mr. Shaughnessy: Well, I think what we should do is attempt to do it that way, table it with the committee and see if it works.

The Chairman: Maybe even prior to our next meeting that can be one of the small group discussions. What we're looking for is useful information, not a whole lot of blank cells, basically.

Is there anything else on that point, then?

Boy, it sounds like this little committee is going to be doing quite a lot of work. We've actually gone through the benchmark document. I can't quite believe it. But before we move on, let me make the suggestion - and I have talked to some of my colleagues about this and put the finger on them - that we then....

Sorry, Mr. Rocheleau.

[Translation]

Mr. Rocheleau: I would like to ask a question about the suggestion made in the first paragraph of page 17, in the English version, about information regarding loan turndowns. I would like to know whether you consider it feasible to provide us with information on these turndowns.

Mr. Hudon: Mr. Rocheleau, I think that the answer to your question is provided in the discussion we just had on the survey issue, a survey aimed, among others things, at determining what was the experience of the respondents when their loan requests were turned down.

They will recall that it was established that the most important thing was to measure the customers' perception. We must therefore compare the survey results and the perception that the bank may have of the situation since the banks' perception is assuredly very different from the customers' perception of the manner in which the loan request was turned down. We feel that the survey will provide more reliable answers to the questions and the concerns of the committee on the matter.

Mr. Rocheleau: I would simply like to underline how important this request is within the framework of the committee's work. It was always present during our long reflection on this matter as well as in the testimonies we have heard, when we were trying to find out whether there was a credit crunch. According to the banks, there is no credit crunch and no substantially identifiable turndowns, merely less customer demand.

So, to determine whether there will be a credit crunch or merely less customer demand, we need this information. It is extremely important.

Mr. Hudon: I repeat that it is one of the main goals of this survey. The customer's perception of the matter may provide us with more useful information on the banking industry's capacity to finance businesses.

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[English]

The Chairman: Well, then, I suggest a small working group - and I have talked informally to colleagues about this - that will talk to you directly.

I suppose you might be the point man, Mr. Leckie, until otherwise advised. I have asked Andy Mitchell - that's a big surprise to many of you - to basically chair this little sub-group. I have asked Tony Valeri to join him. I've asked both opposition parties and they've agreed that they will be singly represented by Mr. Schmidt. We will attach Tony to our researcher to assist on the technical side.

So we have a group of four who will be following on these issues we have left on the table. I will trust you, Mr. Leckie, to talk to Mr. Mitchell to coordinate the timing so we don't lose track. I think there's universal agreement that we want to push on in this.

Let me also try to summarize what we have agreed upon.

There are statistics as of September 30 this year, which will be delivered to us by roughly January 3, 1996. We hope to get the following.

One, the number and amount of authorizations by dollar breakout on the bands proposed.

Two, the number and amount of outstanding loans by dollar breakout.

Three, the number and amount of authorizations broken out by somewhere between five and ten geographic areas, once our sub-groups have chatted.

Four, the number and amount of authorizations broken out by seventeen SIC codes by dollar band and by geographic band, understanding that this is always subject to the caveat of the rule of thirteen and the cell, and also understanding that we may, in our mutual interest, as an interim measure, try to find some way of identifying the knowledge-based industry sector, however crudely, until the new SIC codes come in. That's subject to negotiation as well.

Five, the number and amount of authorizations broken out by operating and by term.

That is my understanding. Actually, Mr. Mitchell has been keeping a better track record of what was agreed to as of September 30, to be presented in January. That's the first category.

The next category is as of October 31, to be presented by the end of January, and that is loan loss history broken out by bank and by industry sector.

Then we have as of December 31, to be presented by February 1997; we are looking ahead here.

One, the number and amount of authorizations for new loans recorded by employees, by dollar bands, by geographic bands and by SIC bands, always subject to the rule of thirteen.

Two, the number and amount of authorizations recorded for new loans recorded by sales, by dollar bands, by geographic bands and by SIC bands.

Three, the number and amount of authorizations for new loans recorded by age of business, by dollar bands, by geographic bands and by SIC bands. I'm beginning to get the chorus of this.

Four, the number of new loans granted in the previous quarter.

We will accept early submissions with gratitude, and of course the famous prizes are awaiting the entrepreneurial amongst you.

We expect the results of a survey that will be undertaken in January 1996 and delivered in March 1996, in time for our second meeting from now, so to speak - not the next one, but the one after that. One, loan approval rates by gender, by geographic region, and by industry code. That's through a survey.

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Just to reiterate, we've agreed generally that all sales will be reported if they contain fourteen or more clients. The annual survey for matters beyond that includes customer satisfaction levels by bank and account manager turnover by bank; that's going to be captured by the survey. All data will be reported by individual banks when confidentiality is not breached. The sub-working group will actively engage with you as soon as possible, and if there are any issues that seem to be beyond simple definitional ones or are really having to change the direction of what we've agreed to, then they'll report to the committee and ask for our guidance as a committee. This sub-group is an operational group to administer this arrangement.

I thank Mr. Mitchell for his careful record-keeping on this. Let me make sure that that seems to be what we've agreed to this afternoon. Does that sound right? All right. Hooray.

Ms Fedoruk: I have one point of confirmation. With respect to the survey information, we might not be able to provide useful information to you using the cut-off of thirteen respondents. That's fine when we're dealing with the entire population, but for a sample that might be too low.

If we gave you a number based on thirteen respondents, then our confidence interval would be so wide that we would not be able to have a valid -

The Chairman: Understood. Thank you.

Ms Fedoruk: We'll be using slightly larger numbers for the sample.

The Chairman: All right.

We'll move briskly to the second major topic of the day, which is the question of ombudsmen, of alternative dispute-resolution mechanisms, and of the big announcement.

We shall take a five-minute break for coffee and for rearrangement of chairs.

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The Chairman: We now turn to the last item of business on our agenda, which is a brief discussion of the situation with the individual banks with regard to updating where they are on the ombudsman question, internally. Then there will be an announcement from Helen Sinclair, who we welcome to the table. Perhaps we can have a very quick update from individual banks about how they're dealing with the ombudsman ADR question. We can just go around the table. I'll start with the National Bank of Canada and end with the CIBC.

Mr. Cormier: The ombudsman program was put in place in April at the same time as most of our colleagues across Canada. It's running very smoothly and is being managed at the regional level through our regional vice-presidents. On October 31 we announced that Mr. Rolland Robichaud, who is with us today, will act as the ombudsman for the National Bank. He has been in office for a week. He answered his first phone call yesterday, as a matter of fact.

We're well on our way and we intend to monitor it very closely. The instructions have been out to our network for a week now. Obviously, there hasn't been much feedback other than isolated phone calls that have come in. We intend to continue to follow it very closely by monitoring its progress and results. We will work closely with the other banks and the industry ombudsman on an ongoing basis.

The Chairman: It might be useful when we have finished all this to have a release coordinated by the CBA with updated information sent to all MPs that would include who the person is, who to telephone and the final telephone number.

Mr. Jentsch: Our code of conduct in the ADR process was also introduced April 1, 1995. The education of our staff members was supported by training materials and presentations to ensure their awareness. The results of the recent CBA survey indicate we were successful in our staff education in ensuring that our people are aware of the various processes.

We also, as an organization, undertook to be more effective in dealing with some of the concerns of business people on both the retail and commercial sides. On October 26 we announced the appointment of our ombudsman Mr. Bill Bailey, who is sitting behind us.

The Chairman: Welcome.

Mr. Jentsch: We believe the system is working well and look forward to ongoing monitoring as we go forward.

The Chairman: Thank you. Royal Bank.

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Mr. Williamson: As with the other banks, the alternate dispute-resolution system was put in at the same time. Our experience has been excellent to date. We have had eight mediations settled to the satisfaction of both parties. We have had two actually settled without mediation, so we're very pleased with the way it's going. We have followed up with all of our account managers in terms of a video presentation to them on the mechanisms and are very satisfied with the way it's going.

We're pleased to announce today the appointment of our ombudsman. Unfortunately, he can't be here today. We have a press release to share with members, if you're interested.

Mr. Verne G. McKay will be assuming this responsibility, reporting directly to our chairman, John Cleghorn. Mr. McKay has an extensive banking background, coming into the position of ombudsman after being senior vice-president and general manager for our Asia-Pacific area. We're looking forward to his arrival.

The Chairman: Thank you. Mr. Leckie.

Mr. Leckie: Mr. Chairman, TD, as you know, was one of the first banks in late 1984 to launch an ADR and a code of conduct process. Both of these remain the cornerstone of how we are trying to change the approach to small business, in terms of explaining in more detail reasons for approval or declining of loans, so customers can understand the process better and, ultimately, get an approval for their requests.

So far we have had only two clients go through the alternative dispute-resolution process. I think it's fair to say it was a mutually satisfactory outcome. We have the survey, as mentioned by my colleagues, that indicates the awareness level of our account managers is very high. So we're fairly comfortable that we are expressing to our clients the availability of the ADR and the code of conduct.

We would like to announce the appointment of TD's ombudsperson, Doug King. He has been working throughout the day on a couple of complaint issues, so his awareness level on a client basis, seems to be working.

The Chairman: We would like to hear now from the Bank of Montreal.

Mr. Hudon: Mr. Chairman, as with our colleagues, earlier this year we introduced our code of conduct known as ``A Promise is a Promise'', as well as our ADR process known as the ``First Bank Mediation Process''. We're also pleased to say a recent survey shows that awareness levels are quite satisfactory within our account manager ranks with respect to these processes. It's interesting to note that to date the ADR process has not been called upon by any of our customers.

It's our pleasure to have with us today Mr. Al Horton, who is a retired senior vice-president of the Bank of Montreal and has joined us as our ombudsman. Al has over 45 years of experience in banking, and we are delighted to have him assist us in making sure we are carrying out our responsibilities toward this segment.

The Chairman: In what period did you hire child bankers?

The Hongkong Bank.

Ms Giacomazzi: Thank you, Mr. Chairman. Our code and ADR, much like everybody else's, were announced at the beginning of the year and have been working fairly successfully. The awareness level, as a result of the survey, is extremely high in our organization, which we're proud of.

We announced on November 1 the appointment of an ombudsperson, Sarah Morgan-Silvester, who is a senior vice-president of the bank. Unfortunately, she could not be here today; she's at home looking after some of those customers we've been referring to.

We've had quite an extensive customer complaint process in the bank for a number of years that has worked very well for us. I think that's probably why to date we haven't had anybody avail themselves of the ADR process. Thank you.

The Chairman: Thank you. What is the name of the person from the Hongkong Bank?

Ms Giacomazzi: Sarah Morgan-Silvester.

The Chairman: These names will all be listed with telephone numbers and faxes for members of Parliament and others.

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I'll go to CIBC.

Mr. Shaughnessy: Mr. Chair, I have with me at the table today Cliff Shirley. Cliff Shirley has been the CIBC ombudsman for slightly less than two years, and I think most of the members of the committee have met Mr. Shirley or heard him speak in the past.

Cliff is going to talk to us very briefly about his experience with his ombudsman's office, the code, and the ADR at the CIBC. From my point of view, and I think it's safe to say that a lot of my colleagues would agree with me today, Cliff personally - and his office - has set the standard for the internal ombudsman in the banking industry.

Cliff.

Mr. Cliff Shirley (Executive Vice President and Ombudsman, Canadian Imperial Bank of Commerce): Thank you, Kelly.

Members are generally aware of the activities of my office, so I'm only going to comment briefly on a few aspects.

First I want to address the issue of the numbers of complaints. We've now dealt with 350, which is up from 186 when I reported to you at the end of March. Not surprisingly, 80% of those complaints are credit-related, which is to say the issue is one of credit decline, unfair collection practices, and so forth.

I think you also know that in the interests of good communication and expeditious handling of complaints, I bypass the organizational system of CIBC. At the early stages of a complaint, the only question I and a few of my colleagues, those people working for me, will have is who is your account manager and how do we reach him or her?

It's truly amazing what happens when you go directly to the source of a complaint, first with the client and then with the account manager. It's no coincidence that we are resolving those complaints with an average turnaround time of six days.

Secondly, I thought you'd be interested in knowing that in 45% of the complaints we've been able to improve the situation with CIBC's clients. That 45% is broken down into 30% of the complainants who are totally satisfied with our resolution and another 15% who are partially satisfied.

Thirdly, my foundation is really the code of conduct of CIBC. This is our service commitment to business. I have responsibilities for that implementation, and both Kelly Shaughnessy and I have worked very hard in talking to all of our managers. It is not simply a code of the bank written on a piece of paper, it is a living, breathing document on the part of everybody at CIBC who is in the small business market. That's really what's going to make the code work, not having it embodied in a brochure.

Our awareness and understanding of the code across the bank is very high. It's higher than the industry findings. As regards alternative dispute resolution, we again have a good awareness across the bank but we have no experience. We've endeavoured to have some experience, but for whatever reason we do not have anyone who has gone the ADR route within CIBC.

An important advantage of the internal ombudsman is the ability to assess those complaints that have to do with the lending business. An ombudsman cannot and should not establish himself as an alternative credit system in the bank, but my experience over close to two years has shown that he certainly can inject himself into this process and make desirable changes, both as regards specific complaints and through his recommendation to executive management.

I was taken by the comment of the U.K. ombudsman in his testimony before you last week. He does involve himself in what he calls mal-administration aspects of credit, such as where a loan is verbally promised by a branch manager but subsequently declined by the bank's credit department.

An internal ombudsman, because he's inside the bank, can go much further than that. He can question the aspects of the credit, the terms and the security of the loan, and of course the fairness of it all, which is of paramount importance.

Furthermore, the ombudsman can have influence into issues of credit policy. The very fact that he's not part of the operating division of the bank where the accounts are managed, coupled with his reporting directly to the chairman, should give him considerable influence. The chairman of the board and the directors themselves want me to ensure that the customers are treated fairly; it's simply not good enough to take CIBC's side in a dispute.

To repeat, the ombudsman does have influence. An ombudsman can exercise that influence, and in fact he should be doing that very thing. I say that because I think it's great for small business and I think it makes good managerial sense. I have found there is a public perception out there on the role of an ombudsman, because people complaining want to know that the ombudsman is not a defender of the bank. They want decisions, they want fairness, they want, shall I call it, a higher standard than that of a normal complaints officer.

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So that's where we stand at present. I think it's working for us at the bank, I think it's working very well, and of course I'd like that to continue.

The Chairman: Thank you.

It will be recalled by regular members of the committee that last week we interviewed, as Mr. Shirley pointed out - actually, it was a week ago - by the first-ever international video conference of a standing committee of the House, the British banking ombudsman. At that time we were really informing ourselves about what a national ombudsman would look like.

I would somehow like to be able to take credit for what is about to happen. I'd like to say that we think about things in one week and they happen in the next. If you believe that, then I suppose you'll believe anything. But it's in that context that I would invite the chief executive of the Canadian Bankers Association, Helen Sinclair, to make an announcement.

Ms Helen K. Sinclair (President, Canadian Bankers' Association): Thank you, Mr. Chairman. As I will elaborate on later, I think you should take credit.

I wasn't here at the beginning of your session, but I want to put on the record my congratulations to you, Mr. Chairman, on your appointment, which, based on the part of the session I was able to witness, has been a very judicious one.

What I would like to do today is pick up on the announcements that have been made around the table on the appointment of individual bank ombudsmen and speak to you briefly about a new ombudsman service that the industry is announcing today and will be an addition to our existing complaint-resolution structures.

I should at the same time introduce Doug Melville, who has been with you all day today, who is our director of commercial affairs, who has worked intensively on this service, as well as on the data that is going to be coming forward over the next few months, and who I think is known to a number of you through past contacts.

The new service is building on less formal systems, which have been in place in the banks over the past few months, as well as on the experiences of the CIBC, which has had a formal ombudsman service in place, as Mr. Shaughnessy has said, for just shy of two years.

It is going to be a two-tiered system.

First, at the level of the individual banks, you have heard about the appointments of their individual ombudsmen.

What I want to elaborate on in a couple of minutes is a common set of standards to which we've agreed for the internal ombudsman services in the individual banks. At the same time I would like to speak to the industry-wide ombudsman, who will deal with complaints that have not been successfully resolved by individual banks and will be available at the option of the customer after he or she has gone through the internal mechanisms of those banks. So I'd like to cover off both of them and tie them together.

Let me start with the internal ombudsman service. What I would like to do is describe to you a set of standards and parameters that you will find in place in each of the individual banks.

First, in terms of the banks that are going to be members of the service and will appoint individual ombudsmen, the big seven have already made their announcements.

It would be our intent in due course to have all banks that are members of the deposit insurance system also have internal ombudsmen and be members of the service. When I say ``in due course'', I'm alluding to a proposal that is currently being considered by government to allow banks that don't deal with individuals or with small businesses to opt out of the deposit insurance system. So, effectively, what we are saying is that any bank that deals with small- and medium-sized businesses and with consumers would come into the service in due course.

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In each of the individual banks, the individual we're talking about will be called an ombudsman or an ombudsperson. The title will be standardized throughout the industry. It will be a senior bank officer who comes from a different business unit from that which deals with the customer account; i.e., there will be a separation between the day-to-day customer function and the office of the ombudsman.

The ombudsman will report to the chief executive officer. As of November 1, the big seven have all identified an individual who, at a minimum, is dealing with complaints related to small- and medium-sized business. Once the service is up and running - and, in a couple of cases, as I speak - the service will be extended to consumers. The intent is to have it cover the full spectrum of our consumer and small- and medium-sized business customers.

What will the ombudsman deal with? The ombudsman will deal with credit and service complaints. The function, though, will not be to question bank policy. Bank policy with respect to pricing and risk management will remain the prerogative of management. What the ombudsman will do, however, as part of his or her duties, is ensure that bank policies are being abided by, and in those cases where a complaint would suggest that is not the case, it would be judged a valid complaint.

There will be service standards elaborated on by each bank, in particular with respect to turnaround, but possibly as well with respect to other service issues in the ombudsman service.

There will be reporting by each individual bank to the industry ombudsman, and I'll come back to that in a minute, but that reporting will take place on a confidentiality basis. Files will be referred to in anonymous form; names will not be passed out; customer confidentiality will be preserved. When a customer chooses to go to the industry ombudsman, clearly that customer's name will become known at that level, but individual banks will not release the names of customers who have gone through their internal service.

Just to begin the transition into the industry service, a customer who has been through a bank ombudsman procedure will be informed of the existence of the industry ombudsman, so clearly a customer who is not happy with the treatment he or she has received at the bank level will know there is a further court of appeal.

Let me go on to the industry service. I should say it's been carefully designed to dovetail perfectly with the individual bank structure. An individual who has gone through a bank structure and has been told that his or her particular complaint qualifies for consideration by an individual bank will know that complaint would also qualify for consideration by the industry ombudsman, if it hasn't been dealt with to the customer's satisfaction at the level of the bank.

Once again, it would be our intent in due course to have all CDIC member institutions covered. The service will be governed by a board, which will be made up of bankers and a couple of independent directors - people from outside our industry. In this sense, this board will mirror the kinds of boards you would see, for instance, in the world of stock exchanges. You would see a couple of independent directors on the boards of those exchanges. These are people who are not in the investment business, but they are seen as representing the public interest in a general way. There will be a couple of those outside directors on this board.

The industry ombudsman will not be a banker or a former banker or the spouse of a banker or from the immediate family of a banker.

The Chairman: Three people in the country left, aren't there?

Some hon. members: Oh, oh!

Ms Sinclair: The service will initially deal with small- and medium-sized business complaints, and in due course will also include consumer complaints. The same type of complaint as would be covered within an individual bank can be referred to the ombudsman, so credit complaints can go there. In that respect, we differ from the British model.

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I think the experience of the Commerce and the very high percentage of its complaints that actually deal with access to credit, persuaded us that we had to include credit, not just at an individual bank level, but at the industry level.

Only complaints that have gone through an individual bank's system can go up to the industry ombudsman, so the ombudsman at the industry level who receives a complaint from an individual who has not been through his or her individual bank's system would help that individual connect back with the ombudsman in the bank concerned, and the process would begin at that level.

There will be performance standards at the level of the industry-wide ombudsman, again focusing primarily on turnaround. The recommendations of the industry ombudsman, as at the bank, are non-binding, and there we differ again from the British system. Therefore, a bank that has made a credit decision that in its heart of hearts it believes was correct would not, at the end of the day, have to accept the industry ombudsman's recommendation.

We don't think there are going to be very many of those situations, but it is a non-binding system.

What gives the systems its glue, in our view, is a public reporting system whereby annually the ombudsman will report both on his or her own behalf cases that have come up to the industry-level service, and also cases that have gone through the individual banks' system. So four times a year the banks' individual ombudsmen will refer their data up to the industry ombudsman and there will be full detailing of the number of accounts that have gone through the banks' individual services as well as the industry service, along with the disposition of those complaints.

You will see the number of cases in which the industry ombudsman's recommendations have not been accepted. That will be available to you, to the media and to the public at large.

Those are the essential elements of the two-tiered system, Mr. Chairman. Once again, they do complement the code of conduct, which, as you're already heard, is in place in the industry, along with the alternative dispute-resolution system that deals with credit problems.

We have borrowed heavily from your thinking. We haven't adopted every last element of the British system. In some respects we've gone beyond; in other respects we have not gone as far as they've gone.

It is our initiative, it is funded by us, but we believe in a very real sense that it also going to be a system held by all of our constituents. In our view, the reporting will, first of all, speak eloquently to the issue of the independence of the ombudsman. If the ombudsman is not seen to be independent, it will be out for everybody to see and to judge, and the reporting will also give you, we believe, a very clear indication of the effectiveness of the system in giving recourse to our customers.

Thank you very much.

The Chairman: Thank you very much.

I understand from this that not all details have been fleshed out. There's still work to be done on the proposal. Let me start by saying how pleased we are that this is being announced today. It certainly goes beyond what we had expected.

The committee actually said things like, we'll look at it and if the need arises, we'll...but you've gone ahead of us on this and we congratulate you for that.

Perhaps I might now turn for some quick comments or questions from colleagues, understanding that you may not be in a position to give us the desired level of detail at this moment.

Mr. Schmidt: I'll start the comments. I'm particularly pleased to hear this. I think it is far beyond anything I expected would come.

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I'm particularly tickled by the fact that every one of the chartered banks, the big seven, has agreed to appoint an internal ombudsman. I think that's desirable, and I certainly hope that the process will work as effectively as apparently it is working in Britain. It sounds like a very good system. I hope that it will work out well and that the business people will be the beneficiaries, as well as the consumers of the banks. In particular, I think it should augur well for the purpose for which this committee was struck in the first place and in the interaction with the banks.

Thank you very much.

Mr. Ianno: I don't think all of us share exactly the way you professed it, but it's a beginning.

I would like to note that our colleague Paul Zed was very active in this field in terms of having an ombudsman, independent and national in stature, maybe not to the extent the banks or the CBA have put in place.

I'm talking about the specific banks, because we saw the CIBC's in action in terms of speaking with Mr. Shirley and, from the limited information we have, I think it is working somewhat.

I think the other is very positive, especially the TD, which led the way with the ADR.

If the appeal process, or the one you have that's above, or the two-tier system, or whatever term you want to use, does not have any form of ability to bind the decision-making process to the banks, then what is the point of having that person other than just to redirect them to the specific bank?

Ms Sinclair: Effectively, the person would not be redirected to the bank at that point, but the person would have gone through a two-tier process, firstly at the level of the bank and secondly at the level of an independent person.

There are cases where the customer is wrong, as well as cases where the bank is wrong, Mr. Ianno.

Mr. Ianno: Sure.

Ms Sinclair: We feel that, having gone through that two-tier process, if the industry ombudsman who has, and has to have, credibility - it will be up to you to judge - says that the customer was not entitled to what they were seeking, then we would consider that to be the end of the road.

Mr. Ianno: Assuming that the ombudsman who is hired by the CBA, or the banks, somehow, if ever, would indicate, after the individual, small business, or consumer has gone through the individual bank and not succeeded and then gone through this appeal process, then says, ``Yes, the bank was wrong'', even though they stated otherwise, what would be done?

Ms Sinclair: I'm sorry; I think I probably misanswered your first question. You were asking what would be the point of having a court of last appeal where the decision isn't binding.

Mr. Ianno: Right.

Ms Sinclair: I'm sorry; I didn't answer your question correctly.

I suggest that we should wait to see how many of the ombudsman's decisions are not actually followed by the banks concerned. I think there are going to be precious few.

If you find that there are a lot of them, then in my view the question would be a very valid one. But I would be extremely surprised if you found the decision of an industry ombudsman not being followed in very many cases.

Mr. Ianno: In other words, the term ``not binding'' is really relative.

What term do you use for the second, the industry, ombudsman?

Ms Sinclair: Industry ombudsman.

Mr. Ianno: If the industry ombudsman found that one of the banks was not correct, then you're suggesting that peer pressure, or something of that nature, would in effect encourage the ombudsman of the individual bank to change their decision?

Ms Sinclair: It wouldn't be so much the ombudsman of the individual bank; it would be the bank itself.

Mr. Ianno: So it would be the CEO, in effect, because that's who the individual bank ombudsman reports to.

Ms Sinclair: That's right. It's the bank at the level of its highest executive officer who ends up making a decision and being held accountable for it.

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Mr. Ianno: So the person who doesn't adhere will not necessarily be the ombudsman of the individual bank but in effect the top of the ladder.

Ms Sinclair: That's right; it's the bank itself.

Mr. Ianno: Thank you very much.

The Chairman: I just want to make a comment before we turn it over to Mr. Mitchell. I have a feeling that the term ``industry ombudsman'' does not exactly sing. Maybe it should be Canadian banking ombudsman. It's just a thought. We'll have to talk about it.

Ms Sinclair: I'm sure we'd be very pleased to look at titling, and indeed we should to make a clear distinction between the ombudsmen who are specific to individual banks and the industry-wide ombudsmen.

Mr. Ianno: I suppose you're not in any way suggesting that somehow the government is involved in that process.

The Chairman: That's also the case for the British. The government is not involved, is it?

Ms Sinclair: No.

The Chairman: All right, that's window dressing.

Mr. Mitchell.

Mr. Mitchell: Thank you, Mr. Chairman.

I have a couple of questions, one building on Mr. Ianno's comments. You obviously are going to track the number of times that the industry ombudsman would find against the banks and how many times the banks would not adhere to that finding.

Ms Sinclair: Right.

Mr. Mitchell: Would you commit that if you find that is a significant number, you'll revisit the issue of binding and/or the issue of compensation?

Ms Sinclair: I think we could commit to a review in any event, Mr. Mitchell, so the answer to your question is yes.

Mr. Mitchell: Now, on the matter of independence, the office of the ombudsman is going to be directed by the CBA?

Ms Sinclair: No. I'm sorry; I should have explained this. This board will be independent of the CBA. We haven't finalized the structure yet. We do know there will be a couple of outside directors and there will be representation from the member institutions. When I say ``member'' I'm talking about the institutions that are members of the service as opposed to institutions that are members of the CBA.

Mr. Mitchell: For instance, if there were seven banks that were participating and you had a board, then there might be seven directors from the banks, one from each institution, and three from outside the banking industry?

Ms Sinclair: Something along those lines.

Mr. Mitchell: I take it, though, that the majority of the directors and the participating members will be from the chartered banks.

Ms Sinclair: They will.

Mr. Mitchell: That is the entity to which the ombudsperson would actually report to?

Ms Sinclair: That's right.

Mr. Mitchell: How do you answer the question, because it will come up, that this is not sufficient independence? In the U.K. model they have a body between the directors and the ombudsman that's totally separate from the banks to maintain independence. I wonder how you would respond to that.

Ms Sinclair: We are looking at a world of trade-offs. One of the features of the system we're looking for is independence. We think a couple of outside directors will clearly give it independence. We're also looking for efficiency.

The U.K. model is not the only one we've looked at. I could cite the Japanese, the Belgians, or the Swiss, who have a system that is entirely run by their industry. There are a number of models out there.

Mr. Mitchell: I have two last questions. Have you estimated a budget for this? Where will that money come from?

Ms Sinclair: We haven't yet estimated a budget, Mr. Mitchell, and the money will come from the participating institutions.

Mr. Mitchell: Thank you.

Ms Sinclair: I should mention that the service will be at no cost to the user. It will be paid for by the participating institutions.

Mr. Mitchell: Thank you.

Thank you, Mr. Chairman.

The Chairman: I'm assuming as well that a decision to go to the ombudsman by no means precludes a decision for the customer to go to law, for instance.

Ms Sinclair: That is correct.

The Chairman: Mr. Shirley.

Mr. Shirley: I'd like to add to what Ms Sinclair said in response to Mr. Mitchell and Mr. Ianno about a Canadian banking ombudsman who gave a ruling against the bank and what might happen coming back to the bank.

Speaking for our bank alone now, I would have a great deal of difficulty if a Canadian banking ombudsman ruled against CIBC and I were to do nothing. I really would have difficulty there. I don't think I would be any different from Mr. Shaughnessy or our own chairman or our president. I think you should take it as a given that something is going to happen, at least within our bank, as a result of that ruling.

Mr. Shaughnessy: I think also if we see cases where there was a high level of non-compliance with the ruling of an industry ombudsman, there's something wrong and we have to get back in this room or back within the directories and say something isn't working here. There has to be an extremely high level of compliance.

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The Chairman: Mr. Discepola.

Mr. Discepola: On the question of independence, or the appearance of independence, I'm relieved to know it's not going to be a banker or bank-related individual, etc. However, are you open to making sure it is a small business person who occupies that post?

On the question of binding decisions, if the CIBC is speaking on its own behalf but is implying that some of the other banks will probably follow suit, why is it - I'll ask the question conversely - that you don't make it binding arbitration, and then change the ombudsman or make it unbinding if you discover your ombudsman is overruling the banks too often? If you're so prepared, or if your industry is so confident that this person will be impartial and not make any rash, irrational decisions, why not give the confidence to the small business community as opposed to giving yourself the advantage?

Ms Sinclair: The answer to your first question, Mr. Discepola, is that I won't guarantee it is going to be a small business person. I would think somebody in the legal profession, or maybe even an ex-politician, might do a very good job. So it could be people from various walks of life.

On the question of why we would not make it binding, the way I approach it is to say that once you put credit in there and you are dealing with the risk management of the organization itself, it is very important that the bank continues to be on the line and continues to be accountable to its shareholders. The bank should never be in a position of saying to its shareholders that it was forced to lend the money by somebody on the outside.

So credit is going to be an important part of it, as I think it already is from the sounds of the experience of the Bank of Commerce. It seems very fundamental to me that although the moral suasion will be very strong, the ultimate, final decision rests on the shoulders of the bank.

The Chairman: No further comments, Mr. Discepola?

Mr. Nunziata.

Mr. Nunziata (York South - Weston): This is a job interview, by the way.

Some hon. members: Oh, oh!

Mr. Nunziata: This person, no doubt, will be based in Toronto.

Ms Sinclair: No, there is no geographic specificity in the terms of reference, Mr. Nunziata.

Mr. Nunziata: How does a small business person in Revelstoke, British Columbia, or St-Louis-du-Ha!-Ha!, Quebec, or any small community anywhere throughout the country, access this person? Did your industry consider regional ombudspersons? I think it's a giant step in the right direction, but, practically speaking, how do you service people who don't live in Toronto or Montreal or one of the major cities? How will this office be set up nationally?

Ms Sinclair: This is something the ombudsman himself is clearly going to have to ensure. It may be by using electronic communications in part. It may be by on-site visit. It may be by bringing the complainant into the major centre. It is a world of trade-offs.

I don't think our plan is to have people across the country. We actually fully expect, Mr. Nunziata, to see a very high percentage of complaints resolved at the level of the banks. We do not expect to have a huge number of referrals to the industry ombudsman.

One thing I did mention in my introductory comments is that a bank that has had a customer go through its own internal process will be under the obligation of assisting that customer to make contact with the industry ombudsman if the customer is dissatisfied. You'll remember I noted that the customer must be informed of the existence of the ombudsman, which would also obviously include means of contacting that person.

Mr. Nunziata: Can I ask you about the rules of evidence, if you will? What rules of procedure will apply, and will these rules be articulated in writing?

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For example, will this person receive a complaint? Will the entire file be available to the complainant? Will there be any information the complainant doesn't have? Do you envision a hearing of some sort? Do you envision a system to be done in writing? Have all those matters been considered yet?

Ms Sinclair: The chairman has already alluded to the fact that they have not yet been worked out. What you have at this point is a higher level of detail than the one you're requesting. Clearly the first board and the first ombudsman - he or she - for the service will need to be working very conservatively at the outset to operationalize the service and to ensure that people in the individual banks as well as the public at large know how to access it.

I'd like to make a suggestion, Mr. Chairman. Once this person is appointed and has had time along with his or her board to work out those details, it might be well worth your while to call him or her in person.

Mr. Nunziata: I have one final question with respect to the budget. Of course the industry can assist with the effectiveness of this new office in terms of the moneys they allocate.

Will the board determine the budget? If the ombudsman wants an individual in each of the provinces, a provincial ombudsman as a second layer, can that person ensure the money will be there in order for that to happen?

Ms Sinclair: That will be up to the ombudsman to discuss with his or her board, Mr. Nunziata. The principle of access is absolutely understood up front. How that's best achieved will be up to the initial board and the initial ombudsman to determine.

Mr. Nunziata: Thank you.

The Chairman: Mr. Mayfield.

Mr. Mayfield: It is a delight to hear you make this announcement this afternoon. Credit is due to you and to all those who've taken part. I was very impressed with Mr. Shirley and with the ombudsman's office we visited in Toronto last summer.

What will be the attitude of the banks to the ombudsman? Would this be a cooperative exercise between the industry ombudsman and the banks' own ombudsmen? Or would this be a contest in which the national ombudsman would be there to umpire between the customer and the bank?

Do you have any idea of how that relationship between the industry ombudsman and the in-house ombudsman will work out?

The Chairman: May I intervene? I see a look of tentative curiosity on the part of my colleagues who are wondering for whom the bell tolls. It tolls for a vote that will be deferred. If it keeps tolling we'll reconsider. I'm sorry to interrupt you.

Mr. Mayfield: I am always admiring your timing. I finished my question just as you spoke.

Ms Sinclair: It's a very interesting question. To some extent I would say it probably depends on the personality of the industry ombudsman as well as the individuals in the banks. The ideal would be a very cooperative working relationship in the day-to-day...but one with always a little bit of creative tension.

Mr. Mayfield: It would be the intention of the banks to make available.... Would you make available your information, your file? Would you see it that way, Mr. Shirley?

Mr. Shirley: Yes, I would. We would be totally cooperative. This is a collaborative effort. If for whatever reason we are not able to resolve a complaint and that complainant goes to the Canadian banking ombudsman, then yes, we will cooperate totally and make the file available.

Mr. Mayfield: Thank you very much.

Mr. Shirley: I think that's what we should be doing.

The Chairman: This is a very exciting day.

Mr. Mayfield: Indeed it is.

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The Chairman: Credit has to be paid to my predecessors, Mr. Berger and Mr. Zed, and to the committee I was so lucky to inherit. They have brought us to this point, both through Taking Care of Small Business, which laid very important groundwork, and through the precise work on the benchmark document, which referred both to the statistical measures and to the ombudsman question - work that took place last April and during the course of the summer.

I think we have a collective right to feel proud of our work and to declare something of a victory on these two very important files.

Again, in the spirit of cooperation, if perhaps our small working group can be of any assistance as you bounce ideas around in the refinement of the ombudsman project, please consider us available, through them, for consultation. We look forward to hearing more detail in the future.

Congratulations. Thank you for listening to what the committee has said, both at the individual level and at the national level.

Mr. Valeri: I have a quick question. I just wanted to refer to a comment you made a little earlier.

You said you didn't want to be in a situation where CEOs of banks would have to tell their shareholders that they were forced to lend money to someone because of a national ombudsman ruling. But earlier, in response to Mr. Mitchell's question, you also said you would consider making the authority of the ombudsperson binding as well as perhaps looking at compensation if required.

I'm just trying to reconcile philosophically that on one hand you aren't prepared to have that scenario develop at the shareholder level for the banks, but on the other hand you would be prepared to revisit it if required.

Ms Sinclair: I guess I'm saying I think we can have our cake and eat it too, and if we can't, then we will be in the world of saying, which is the nature of the trade-off? But I honestly don't think it's going to come to that.

Mr. Valeri: But you're open to it if required?

Ms Sinclair: Well, we are certainly open to discussion if need be. If the system isn't working, there may be any number of explanations and there may be any number of fixes. We would certainly be very open to discussing the full range of them, including what you're suggesting, if the system proves to not be working.

Mr. Valeri: I just wanted to clarify what I thought was a contradiction.

Ms Sinclair: It is a contradiction, Mr. Valeri. Unfortunately the world is full of practical contradictions. We don't think we're going to be in one, but as I say, if the system proves not to be working, we will definitely expect to find ourselves back here discussing the alternatives with you.

The Chairman: When do you expect to make an announcement of the person, and when do you expect the office to be functioning?

Ms Sinclair: We expect the office to be functioning by next April. We will begin the search for the person immediately. I can't tell you exactly when he or she will be named, but as soon as it can be practically done.

The Chairman: Great.

Well, we've actually managed to finish ahead of time. I want to thank everybody for their patience and for their cooperation. I think we can declare this was a successful format.

We thank all of you for coming and for being so cooperative, and we look forward to working with you in the future.

We're adjourned.