FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 22, 1998

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.): Ladies and gentlemen, good morning.

I want to call these groups to come forward: the Insurance Brokers Association of Manitoba, Portage La Prairie Mutual, Shelter Canadian Properties limited, TelPay-A Division of CTI-Com Tel Inc., and Wawanesa Mutual. If we have representatives from these organizations would you kindly come forward with your name tags as well?

I'd like to call the meeting to order and welcome everyone here this morning in Winnipeg. As you know, the finance committee is travelling across the country seeking input on the report of the task force on the future of the financial services sector. We look forward to everyone's comments here this morning.

We will hear first from the Insurance Brokers Association of Manitoba, Mr. Gerry Corrigal and Brent Gilbert. Welcome.

Mr. Brent Gilbert (Past President, Insurance Brokers Association of Manitoba): Thank you, Mr. Chairman.

It is our privilege to be here today to offer the remarks of the Insurance Brokers Association of Manitoba on the MacKay task force report on the future of the Canadian financial services sector.

My name is Brent Gilbert, and I own and operate an independent property and casualty, or P and C, insurance brokerage firm in Portage la Prairie. With me today are two other independent insurance brokerage firm owner-operators, Mr. Ron Vandenbosch of Saquet & Vandenbosch in Ste. Rose du Lac, and Mr. Gerry Corrigal of McElhoes & Duffy here in Winnipeg.

We are a voluntary membership trade association representing 1,154 of the 1,370 licensed insurance brokers in the province. Our member brokers serve the insurance consumers of Manitoba out of some 316 brokerage firm offices spread throughout the province.

We are independent small-business operators who act as intermediaries between P and C insurance companies and our clients. This role is often misunderstood by federal policy decision-makers.

We provide a thorough independent analysis and review of our clients' property damage and legal liability risks. We assist our clients in determining which risks they can afford to manage on their own and which risks they would like to transfer to an insurance company or combination of insurance companies. As well, we purchase the client's required insurance coverages from the company or companies that provide the best combination of coverages, claim service, and premium costs for our client. After the coverage is placed we continue to provide an ongoing consultative role for our clients in the areas of mid-term changes, risk management, and claims assistance.

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We are here today to ask that the government maintain its commitment to fairness and to a competitive level playing field by not giving banks any special privileges to market P and C insurance. We are extremely disappointed with the findings of the MacKay task force. The recommendation that banks be given special privileges to distribute P and C insurance is seriously flawed.

You may ask if independent insurance brokers are scared of competition. The answer is a resounding no. We compete for our business every day. In fact, we look forward to it. We compete fairly and on a level playing field. But if the banks are given special privileges they will have an unfair competitive advantage over us. Here's why.

The first advantage is readiness to purchase. Consumers are generally in the market to buy insurance when they are about to buy something. Before their purchase they generally approach a bank about a loan. Therefore, the banks will always know before us when the person needs to buy insurance. Being first in is always an advantage in any marketing situation.

Another advantage is coercion. Whether real or perceived, consumers will be pressured by the banks to buy their insurance product as a condition of getting a loan or getting the best loan terms possible. The MacKay report suggests that there should be specific rules against this practice. However, we wonder how effectively they would be enforced.

Use of credit information is another advantage of the banks. Banks have enormous databanks and information about their credit customers that they could use to market insurance to their advantage. The MacKay task force has recommended that privacy rules be put in place, but who is going to police this?

Another advantage is use of privileged information. As a routine part of our work we have to provide banks with copies of our clients' insurance policies containing privileged coverage and premium information. Banks could use this very information that we have supplied to them to then compete against us unfairly.

The final advantage they would have is doing business with a competitor. Like almost every other small business, from time to time independent insurance brokers require loans, mortgages, and lines of credit. If banks are retailing insurance, we will be forced to do business with a direct competitor. We will have to provide confidential financial information, including our business plans, to the very institution that will be competing with us. Where is the fairness in that?

It is our contention that this competitive advantage would have a serious impact on the future of our members, who are an important part of the small-business sector here in Manitoba. Over the years we have been a strong and stable contributor to the economic well-being of our province. Our ability to do so in the future will be seriously hampered if the banks are given an unfair advantage over us. This is a matter of importance, given the uncertainty of our economy.

Today in Manitoba insurance consumers are well served and have ample choice when it comes to P and C insurance. We provide our clients with insurance coverages from any one of the many quality insurance companies operating in Manitoba, some of which I am proud to say are homegrown companies headquartered right here and operating across the country.

Insurance brokers are located in 150 communities in this province. The key word here is located. We are there living in the same communities in which we serve our clients, creating jobs and economic activity. We are not a 1-800 number answered in some distant call centre. We have a stake in the communities in which we live. They are where we work and raise our families.

The MacKay report says that giving banks special privileges will increase competition. We say that it will have exactly the opposite effect. Consumers will have less choice, not more. The banks' unfair advantages over us will be to the detriment of small business, the insuring consumer, and to the overall economy of Manitoba.

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In conclusion, we are strongly opposed to the bank insurance recommendations contained in the MacKay report. Banks, who have been given a privileged and protected existence in Canada, would be given an unfair competitive advantage that would put at risk the livelihoods of hundreds of small businesses and the jobs of thousands in Manitoba.

The federal government's policy is to foster and support small business. The fair competition rules put into place in 1992 struck a balance between small business and big banks. We ask that you reaffirm this policy to maintain the health and intense competitiveness of the P and C sector.

Thank you.

The Chairman: Thank you very much, Mr. Gilbert, I'm sure we will have questions for you in the question and answer session.

We are going to hear from Portage Mutual Insurance Co., Tom W. McCartney, vice-president. Welcome.

Mr. T.W. McCartney (Vice-President, Portage Mutual Insurance Co.): Mr. Chairman, good morning.

First of all, I'd like find out what is the timing and what are the terms of reference. Mr. Mitchell from Wawanesa Mutual is with me. How long do we have for a presentation?

The Chairman: You have approximately five to seven minutes, and thereafter we will engage in a question and answer session.

Mr. T.W. McCartney: Is that five to seven minutes for both Mr. Mitchell and myself?

The Chairman: It's five to seven minutes for you, and five to seven minutes for Mr. Mitchell.

Mr. T.W. McCartney: Fine, thanks very much.

The Chairman: Thank you.

Mr. T.W. McCartney: Ladies and gentlemen, I'm here to present a brief on behalf of the insurance industry and on behalf of the company I work for, which is the Portage Mutual Insurance Co.

In the packet you have a copy of a brief Mr. Mitchell and I presented to the task force on September 18, 1997, in Winnipeg, and we are resubmitting this brief because what we said then is true today.

I will just review the brief with you. To start with, we would like to point out that we represent two insurance companies that started in the province of Manitoba, each being over a hundred years old. We make no apologies for wanting to serve the P and C industry throughout Canada without the unfair advantage and influence of the banking institutions.

We have heard for quite some time now that the banks wish to expand into the insurance business in order that they may address the global marketplace. The reasoning appears to be that they need unrestricted access to the P and C and life insurance industries in order to attain this. We suggest that this is a very shallow argument, as the banks are quite successful with their present mandate. It follows that the banks' reasoning is not good enough, and they should continue to be prohibited from selling insurance products from their branches, as is presently the case under the 1992 regulations.

It is noted that the banks are doing very well, with record profits and with a 20% return on equity. We suggest this is very difficult in the P and C insurance business because of the fierce competition of over 200 companies operating in the country, as opposed to five or six dominant players in the banking industry. We also have witnessed the takeover of trust companies and investment dealer sectors. The banking industry certainly does not appear to be an industry in distress.

We suggest that we should be wary of the suggestion of global competition because it is a smokescreen to take over completely all financial services, and we suggest that the consumer may be the loser if freedom of choice is restricted.

Profits are not a bad thing, and we acknowledge that the banks already compete for the P and C insurance under the 1992 reforms, but this is far enough. Changes are not needed to make the banks competitive internationally, but perhaps the lack of competition in the banking industry should be looked at by this committee and the task force at the time.

By this we are suggesting that a greater number of banks should be competing for the banking business in Canada, as the six major banks appear to have had it very good in Canada under a protectionist environment. Perhaps the lack of competition due to the protection they have enjoyed over the years should be looked at by the task force.

There's a lot of competition in our industry, as mentioned before, with 200 P and C companies competing for business in Canada at the present time. No one company has more than 7% of the market share, even with some banking intervention indirectly by their subsidiary companies. Three-quarters of the P and C companies market products through independent brokers, who are active in most communities in Canada and who are responsible providers of insurance products as well as very important employers.

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We'd like to add that both companies represented here today believe in the independent broker system of marketing insurance products, and we ask that you take a serious look at the consequences on them and other P and C insurance companies resident outside the Toronto hub.

There are approximately 100,000 employees active in all facets of the business in Canada, and they are distributed throughout Canada. The industry is very active in streamlining the delivery systems through all channels, and we take exception to the criticism by the banking community that our industry is lagging behind. Our business is a personal business that requires personal service in matching appropriate coverage to people's most important assets—that is, homes, cars, and small business. It is interesting to note that the Royal Bank announced that they are buying a telemarketing system from Co-operators, who is a direct writer in the P and C industry in Canada, which would indicate that even our large banking institutions do not have all the answers to delivering services.

We appeal to you to let us continue to do our job and let the reform of 1992 prevail.

Leverage is the sole reason for the banks wanting the rules eliminated. They have the means to pressure people to buy all their products, and the P and C insurance industry would be another part of their strategy. May we suggest that this has nothing to do with wanting to provide insurance, settle claims, and so on; they just want to be able to generate more income and add to their service fees for the benefit of the shareholders.

Even under the 1992 reform, the banks will affect our industry, but they have to compete on a fair playing field. We suggest that the protection of personal financial information should be seriously considered as this information should not be allowed to leverage sales of insurance, and under the present rules at least there is some control.

In Manitoba we have a proud history of providing security on assets with the establishment of numerous companies in our province. Presently in Manitoba we have Portage Mutual, Wawanesa Mutual, Red River Valley Mutual, and Grain Insurance & Guarantee. These are all Manitoba companies that started here and continue to protect the assets of Manitobans and, indeed, Canadians across this great country.

We have a network of brokers who have not forsaken the small towns in the same way that chartered banks have when closing branches.

The next paragraph in the brief then deals with the history in Manitoba.

We are in the business of security on assets, and the banking institutions have traditionally financed the purchase of these assets. We suggest that this is the way it should remain. Our business is the spread of risk, and letting the banks consolidate defeats this very basic principle of insurance. If our Canadian banks are to thrive, they should do so on the world stage, not by consolidating their hold on financial services.

In my package are a few exhibits to which I'll briefly refer. The first is a pamphlet that was distributed in the province of Alberta from CIBC Insurance. If you look at the pamphlet, I have it highlighted in yellow. Our complaint here is that they are promoting mid-term cancellations, which would result in a short-rate cancellation on the existing insurer, which does not do the consumer very much good, and I would suggest that this flies in the face of all rules that insurance companies deal with. The life insurance industry has had that to deal with over the years, but this is the first time it has really become a problem in the general insurance. My correspondence to the Superintendent of Insurance is included.

Also in the package is an exhibit from the same banking institution, which came out in the monthly bank statement to our individuals, and I would suggest to all CIBC clients, encouraging them to call the 800 number. It says:

Remember, even if your auto insurance policy is not up for renewal in the next 60 days, you can still take advantage of the savings.

That's another exhibit on short-rate cancellation.

The next one is Scotia Insurance. It's interesting to note that you can find out all you want to know about general insurance in seven minutes, and you can also save thousands of dollars. And I don't know the qualification of the person who answers the 1-800 number.

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Lastly, I have a press release from Mr. Gregg Hanson, the president and the CEO of the Wawanesa Mutual Insurance Company. This is his response to the MacKay task force finding.

Thank you.

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

We'll now hear from Wawanesa Mutual, Ken E. Mitchell, branch manager. Welcome.

Mr. Ken E. Mitchell (Branch Manager, Wawanesa Mutual): Mr. Chairman, thank you for the opportunity this morning.

In the spirit of the timeframe allotted, I will take a few minutes to discuss an issue regarding industry service to the consumer and the community.

The insurance industry in Manitoba has more than met the needs of the consumer through some 133 property and casualty companies licensed in Manitoba. And with our distribution source of brokers totalling 340 offices and 1,370 licensed employees, we have tackled some catastrophic challenges. Examples are three storms in 1993 resulting in some 15,000 insured sewer back-up losses totalling $165 million, and a hail storm in 1996 with another 16,000 reported losses totalling $40 million.

I will leave you this morning statistical information on the numbers of company personnel located in Manitoba, including underwriting, marketing, administrative support and claims staff. To complement this, we deal through a network of independent adjusting firms, which add a further 102 qualified people to the mix. Finally, we have at least eight highly qualified restoration contractors to perform the work, with some 210 employees trained in customer service and satisfaction.

In our opinion, Mr. Chairman, consumer demands and expectations are being met in a prompt and efficient manner by the system currently in place.

Thank you.

The Chairman: Thank you very much, Mr. Mitchell. That was compact, precise, and to the point.

We'll hear from TelPay, a division of CITI-Com Tel Inc., Mr. William Loewen, president and CEO of TelPay bill payment service. Welcome.

Mr. William H. Loewen (President and Chief Executive Officer, TelPay Bill Payment Service): Hello. Thanks very much for giving me the opportunity to present our views here.

I would like to present a proposal in the area of bank services that was not really dealt with by the MacKay report. We have made representations to them and to the Senate committee on finance, and copies of those representations will be made available to you.

First, I'd like to distinguish the area we want to deal with and what is traditionally banking. The major part of banking of course that's visible to the public is that of an intermediary. They take money on deposit and lend it at risk. They usually refer to themselves as deposit-taking institutions, whereas in fact the unique part about them is that they are risk-taking institutions. That part of the business is governed by the Canada Deposit Insurance Corporation and the Superintendent of Financial Institutions.

The service part of the business, and the particular area we are interested in serving, is a $2.5-billion-a-year business. It's the business of allowing people to access their bank accounts, to write cheques on them, to transfer funds and to generally make use of the funds that are on deposit at a particular bank. In the current situation, the only party from whom you can receive such services is basically the bank at which those deposits are held.

With the advent of electronic transactions, which are becoming of course the major part of the transactions consumers and businesses carry on, there is the very definite possibility that other service providers could provide those services in competition with the banks and vie for that $2.5 billion worth of revenue.

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As the banks have gotten into other businesses, other businesses have not been able to get into this aspect of banking. It's controlled by the Canadian Payments Association, and that organization manages to maintain a very solid wall protecting the banks from participation by other service providers.

I'll now read from my presentation starting on the third page, in the middle of the page.

Up until the 1990s, financial transactions had been largely paper-based. Participation in the clearing system by many organizations providing financial services was difficult. A direct clearer had to participate in a number of locations across the country or an arrangement had to be made with another direct clearer in those locations where they were not represented.

The situation has dramatically changed as we approach the end of the century. Interac, telephone banking, and ATMs have meant that many financial transactions can be carried out virtually anywhere one can find reasonable communication facilities. This technological change has resulted in demands from brokerage firms and insurance companies for the right to handle their transactions independently of a direct clearer. There will no doubt also be other demands from other organizations such as payroll service firms.

TelPay Bill Payment Service, which CTI-ComTel operates, is in a similar situation. TelPay could expand its services to the public if it were possible to process a debit to an account online, as is the case with the Interac system and the ATM transactions. Such a service would of course be very competitive to services offered by the banks themselves. It would result in significant competition to the banks in the area of customer service charges and therefore is strongly resisted by the banks.

Their vehicle for effecting this resistance is the CPA. The CPA was formed in 1980 and had as its object to establish and operate a national clearings and settlements system and to plan the evolution of the national payments system. The CPA did not establish a national clearing system, as it existed for many years and continues to exist in that form, with the exception of electronic transactions.

The direct clearers themselves, without any participation by the CPA, operate an exchange process whereby the transactions that originate from consumer services are cleared from one bank to another. Each balances the transactions presented and advises the Bank of Canada of the amounts drawn on them and the amounts that have been presented to other direct clearers. The Bank of Canada then posts the charges and credits applicable to each direct clearer to its own account. No direct clearer ends up owing money to or having money owed by another direct clearer as a result of clearing operations. Rather, it is the Bank of Canada that effects the settlement and would appear to become the debtor or creditor where transactions between one direct clearer and another result in balances owing or due to the other.

It is clear from the above that the CPA does not operate a national clearing and settlement system. It has one office in Ottawa. It is connected to the system on a daily basis in order to collect statistics but does not handle any transactions in any form.

The third objective of the CPA was to plan the national payment system. It didn't do this either. It had nothing to do with the development of the Interac system, although the same parties that control the CPA did develop that. There are other instances where in fact it would seem to have had a negative effect on the convenience the public had received prior to its existence.

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What the CPA does do—and this is really all it does—is establish rules that govern items that pass through the clearing system. These rules impact all parties having anything to do with the issuing of financial transactions. They affect every individual, every business, and every competitor of the banks. They are claimed to have the force of law, and quite possibly that is the case, in spite of the fact that the parties enacting them are not answerable in any meaningful way to any elected body.

In fact, I was recently advised that there's a proposal that any direct or indirect clearer not obeying CPA rules or enforcing its rules on its customers would be subject to a $250,000 fine. The fact is that some of the CPA requirements are quite irrational and therefore widely ignored.

Although the CPA was not created as a regulatory body, that is in fact the only function it carries out. A body that makes rules that impact the entire gamut of financial transactions throughout the country and is run by the five major banks is illogical, inappropriate, and undemocratic. I doubt that is the manner in which Parliament intended it to operate when it was formed in 1980.

The conventional wisdom has been that banks must have full control over their customer's accounts. Presumably that is for reasons of safety and confidentiality. In reality, these arguments are self-serving and are primarily there to eliminate competition.

It is essential that new principles be established as to who has the right to control access to personal and corporate bank accounts. That party, of course, should be the owner of the account itself. The owner should have the right to that access by means other than just the means offered by the customer's bank. That is the only way to give consumers of transaction services access to competitive prices, innovative services and greater choice. Failure to do that is certain to result in the transaction-processing business being largely U.S.-controlled. There are already arrangements being made between the major banks and Microsoft. There is a surprising number of transactions that are managed by the banks that are already being processed in the U.S.

The idea of giving consumers control over access to their account is not a new concept. For many years, account holders have been able to authorize third parties to access their accounts. Examples are numerous, and the volume of transactions is very high. They include pre-authorized debits processed by insurance and mortgage companies. Bill payment firms such as TelPay are given authorization to carry out their customers' instructions to debit their bank accounts. Payroll companies have processed billions of dollars worth of pre-authorized debits to collect payroll funds. Some of these processes have been in use for many, many years. What is missing now is the right to process these transactions on an on-line basis, rather than as is presently required. This could be achieved through the Interac system, although the banks managed to successfully deflect that suggestion in the Interac hearings of the spring of 1997.

While the technical means exist for allowing the public to access their accounts through third-party service providers, there will be many objections raised by the financial institutions to such access. These objections need to be analysed on a case-by-case basis.

The following is a situation as it relates to TelPay where access is initiated by the customer.

As to security of access, TelPay customers access bill payment service in every bit as secure a manner as if they were using a service offered by a bank. In fact, there have been situations where the security provided by the banks has been seriously flawed.

On confidentiality of information, TelPay privacy guidelines have always greatly exceeded those of the banks. We have, in fact, advocated strong privacy legislation against the opposition by the banks. The use by banks of confidential customer information for competitive and other purposes has been complained about for years. In certain instances TelPay provides an answer to those concerns.

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As for efficiency, TelPay probably operates the most efficient bill payment service available. This is in part because we have developed our system to provide maximum certainty that the customers' instructions are carried out accurately. Some financial institutions have ignored these requirements.

On security of the clearing system, TelPay currently processes hundreds of millions of dollars' worth of transactions through the clearing system, with no suggestion from anyone that risk is being created. We are obviously the most concerned about prohibiting any illegitimate use of the service.

The banks constantly wave the red flag of counter-party risk and systemic risk without defining what they mean and without an analysis that shows specifically where the risk exists. This is a scare tactic that has worked too well with legislators and bureaucrats. Expecting the CPA as presently structured to permit online access to accounts would be like expecting Telecom Canada, Stentor's predecessor, to have voted for competition in telephone services.

To create a situation where TelPay can function as an effective competitor to the banks for provision of financial services, TelPay must be able to provide online access to accounts rather than overnight access, as is the present case. For that to happen and for many other reasons, it is essential that the regulation of the clearing system be removed from the control of the banks and placed in the hands of an independent body. That body could then adjudicate among the interests of consumers, businesses, and financial institutions. Such a change would initiate a new era of innovation and improved service and lower prices to consumers. It would help ensure that the cost efficiencies resulting from electronic commerce are passed on to consumers.

Unfortunately, the MacKay report did not deal with these issues. I sincerely hope the Commons committee will.

Thank you.

The Chairman: Thank you, Mr. Loewen.

Now we'll hear from Shelter Canadian Properties Limited, Mr. Arni Thorsteinson. Welcome.

Mr. Arni C. Thorsteinson (President and Chief Executive Officer, Shelter Canadian Properties Limited): Thank you, Mr. Chairman.

My name is Arni Thorsteinson. I am president and chief executive officer of Shelter Canadian Properties Limited. I hold the chartered financial analyst designation, and I've been involved in corporate financial activities for over 30 years.

Our company is headquartered in Winnipeg and has been since its inception in 1971. Our company is a medium-sized family-owned real estate development and management company operating in Canada and the United States. We have developed and managed 110 rental apartments, condominiums, hotels, office buildings, shopping centres, industrial buildings, and even a water pipeline. We employ over 600 people in the operation of these properties.

However, I want to point out that my personal roots are deep in rural Saskatchewan. I was born in Rosetown, where I own our family farm, which has been cultivated by four generations since it was homesteaded by my grandparents 113 years ago. In fact, it's in Mr. Nystrom's stomping grounds in the Wynyard district.

I'm pleased to be able to provide you with our views on the MacKay report. In my opinion, it is a thoughtful and important document, and I agree with its broad direction to competition in the financial services market and the development of world-class and world-scale financial institutions in Canada.

Our support for much larger Canadian financial institutions that would result from the two proposed mergers reflects our company's experience as a buyer of corporate financial services. As a multi-branch real estate operation in Canada and the U.S., with 110 projects, low-cost and effective electronic cash collection and management systems are essential to our business. In our opinion, it's likely that only a very large financial institution with a North American network can provide what we require in a cash management system. Currently it doesn't exist in the fashion we require. Theoretically, much bigger Canadian banks can justify the investment in technology to develop these services and to expand into a network throughout the U.S.

As you are very well aware, our market is becoming North American rather than Canadian, and Canadian companies suffer without full access to the U.S. systems.

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Much more important to mid-size real estate companies than the cash management system, of course, is an adequate supply of mortgage and other investment capital. It is our firm conviction that big banks are the best source of capital for companies like ours. Our experience shows the big financial institutions have consistently been able to provide us with lower rates of interest; have demonstrated a much higher tolerance for risk in financing new projects; have the personnel and resources to be much more innovative in developing alternative types and terms of loans and finance; have much more sophisticated lending personnel that can specialize in specific types of businesses; and the big financial institutions in Canada are the only ones that can provide transnational lending for companies like us in the United States and Mexico.

Canadian real estate companies have historically been very active and successful in the United States, and one of the reasons is because of the support from the Canadian banks in financing the activities in the United States. The U.S. banks have traditionally been reluctant to finance Canadian companies because of the differences in law and corporate residence.

Finally, in the inevitable circumstances where loans need modification and restructuring, the big banks have proven to be much more flexible and accommodating in working with customers that have difficulties. So for those six reasons, our experience has been the big financial institutions, the Canadian banks, have been very important and instrumental in our success.

In terms of consumer choice and competition, the combination of four of our biggest banks into two is potentially concerning. However, with appropriate deregulation, as recommended by the MacKay report, I believe there will be a rapid evolution of new, specialized financial institutions. In short, I see the best of both worlds for corporate borrowers such as ourselves. We will have two big world-scale banks, plus an expansion of boutique and specialized lenders. There will be much greater choice and competition for borrowers like ourselves.

Finally, I believe the two mergers present an opportunity to secure important long-term commitments of service and loanability to rural Canada and small business respectively. Under the terms, commitments and covenants the MacKay report indicates could be attached to big bank merger approval, rural branch service and small business lending would be secured at a level much in excess of the current situation. In effect, the merger covenants could protect rural Canada and small business against any diminution of the services currently available, and more importantly enhance the lending available to small business.

Mr. Chairman, I hope my comments have been helpful to the deliberations of your committee. I look forward to any questions you may have.

The Chairman: Thank you very much.

We'll now move to the question and answer session. We're going to have a ten-minute round, followed by a five-minute round. We'll begin with Mr. Epp.

Mr. Ken Epp (Elk Island, Ref.): Thank you very much, Mr. Chairman.

Thank you all for coming here today to give us your collective wisdom. It's of course a great delight to us that not everyone agrees so that we get into interesting debates.

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I'd like to preface my questioning by my usual statement, which is a warning. I worked as a teacher and an instructor for 31 years and I use the technique of asking questions to try to find out what you really want to say. I do not, by my questions, tell you what side of the story I'm on. So please don't draw any previous conclusions when I ask you some tough questions.

I'd like to begin by asking that big question with respect to insurance. I want you to defend yourselves as hard as you can, because I'm going to say something here I'm sure you disagree with, but I don't know whether you can defend it. I'm looking at what the banks are offering, and if they are going to give a lower price for insurance so consumers will go to them in such large numbers that your industry will be threatened, then that has to be good for the consumers, because they are getting lower rates.

If they are not offering lower rates then you have nothing to fear, because by your own admission you give much better personalized service. You have people right out there in the field instead of a 1-800 number, so these people know you and you have a competitive advantage there. No one will leave a good service unless there is a substantial competitive advantage, in other words a much lower cost.

What's your answer to that? Take turns.

Mr. Brent Gilbert: Thank you, Mr. Epp.

On behalf of insurance brokers, my response would be that we don't fear the competition from bank-owned insurers as it stands today. They have the right to own insurance companies; they have the right to market directly to Canadians and they have done so since 1992. We do not fear fair, level playing field competition whatsoever, speaking on behalf of independent insurance brokers.

What we fear is the special privileges that have been recommended in the MacKay report that would allow the banks to market out of their branch networks right at the time of the loan transaction and use their privileged information to compete against us. We will compete with anyone any day on a level playing field, but in our opinion the MacKay report would tilt the level playing field severely in favour of the banks.

Mr. Ken Epp: Okay, who else wants to say something?

Mr. T.W. McCartney: I would just like to respond by saying one of the problems you have is that there's leverage; there's an unfair advantage, as Brent Gilbert has alluded to. If you go to a lender and ask for money and one of the conditions is that you buy insurance there too and you want to take out a mortgage, the decision is fairly easy.

The other thing we have to understand is that bankers are bankers and insurance people are insurance people. We are problem solvers after a disaster or a catastrophe happens. They have a vested interest because they come first.

The other thing I would like to draw to your attention that was in my pamphlet is there's an indication there of just how they are going to operate. They will put the consumer in a very awkward position of making changes they don't like, and once they're committed I'm quite sure they will be committed for a long time.

Brent used the terms “level playing field” and “a fair marketplace”. We would suggest that's not fair and they will use their leveraging ability to accomplish their goals. The insurance business doesn't just collect premiums; it solves people's problems.

Mr. Ken Epp: But if they offer a service and don't have a clean hassle record, then what's wrong with the consumer doing this? You talked about access to privileged information. Perhaps the consumer can benefit from this, because if—and this is really a tough one and I almost hate myself for saying this—there's a whole bunch of insurance people and others who are no longer on the payroll of the insurance buyer, then obviously the insurance will cost less because that is a component of buying insurance as well as to cover the losses. So there will be a dramatic downsizing of your business and the consumer will pay a whole bunch less. He'll still get the service; he'll still get the pay-outs.

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Mr. Brent Gilbert: I guess, Mr. Epp, my response would be that if they provide the lower price, that's not a problem, but if through their special privileges, as recommended in the MacKay report, they have a competitive advantage over us and drive us out of the business, perhaps in the short term the consumer would notice a reduction, because as you say, not all of us would be hanging on the payroll of the consumer. But what happens when there are five insurance companies left in Canada? Say that because of the unfair advantage and special privileges recommended in the MacKay report they drive the 200 P and C insurance companies and 40,000 insurance brokers in Canada out of business. In three or five years from now, will there be lower prices for the consumer in that scenario of five competitors instead of two hundred?

Mr. Ken Epp: Well, right now we have five banks, and you're talking about five insurance companies. Isn't there adequate competition from five banks? One of the witnesses here said there was.

Come on, don't let me down.

Mr. Brent Gilbert: Is that adequate? No. In my opinion, no, there's inadequate competition.

In my community, we have the five banks. As for the difference in terms and conditions between them, I haven't shopped lately, but my understanding and feeling from speaking to my customers and other business people in my community is that it's a pretty tight-knit situation.

Mr. Ken Epp: Okay. Do you think that the banks, and now also insurance companies, will use their almost monopolistic situation to put prices up unreasonably? They won't get away with it. Consumers won't go for it. They would never be like the gasoline companies that all charge the same price even though it's 20% too high. They would never do that, would they?

Mr. Brent Gilbert: The banks?

Mr. Ken Epp: Yes.

Mr. Brent Gilbert: Yes, they would.

Mr. Ken Epp: Do you think so?

Mr. Brent Gilbert: Having a competition of more than 200 P and C insurance companies in Canada is going to be far more beneficial to the consumer than if by these special privileges—this is not through level playing field competition but by special privileges granted—they reduce the competition in Canada. I think that's going to be a detriment to the consumer in Canada in the long run.

Mr. Ken Epp: Okay, so what you're saying is that they will use their unfair advantage because of access to information and their financial funds and—

Mr. Brent Gilbert: Tied selling.

Mr. Ken Epp: Tied selling.

Mr. Brent Gilbert: There's also being the first on the scene.

Mr. Ken Epp: Okay. So they'll use all those advantages to give the consumer a lower price, and you are against giving the consumer a lower price.

Mr. Brent Gilbert: I don't think the consumer will get a lower price in that situation, Mr. Epp.

Here's my scenario. Say there's a young couple going to buy their first home. They fall in love with it. They're sitting in front of a loans officer. They're a bit short of qualifying for the mortgage. Then the loans officer says, “You know, if we bundled in the life insurance on the mortgage and if we bundled in the general insurance on the house you're buying, I'm sure I could get this mortgage approved”. They would then sign on the line if it were 40% higher than what I could offer on the market because they're being pressured to get the loan to buy the bundle of products the bank is offering them regardless of price.

I don't think a young, unsophisticated consumer is going to walk out of that loans officer's office and say that he's going to get other prices before he signs for your insurance, when he really wants this house and this one person has their future in his or her hands to say yes or no to the mortgage. I don't think that's going to happen.

Mr. Ken Mitchell: Mr. Epp, they may use all those things in the early stages to offer the consumer lower prices, but I don't think we should be so shortsighted as to just look at what happens in the early stages and not down the road. As Brent said, as the number of insurance companies is reduced and as the number of banks is reduced through mergers, the choice for the consumer will not be there, leaving the control in the hands of the bank to do what they wish with pricing.

Mr. Ken Epp: So you really do buy into the conspiracy theory. The banks are conspiring together to grab this business. Then, when they are all finished, they will be very predatory in their pricing and the consumers will really be big losers. You're all quite convinced of that happening.

Mr. Ken Mitchell: We are very concerned that this will not be in the best interests of the consumer down the road.

Mr. Gerry Corrigal (Vice-President, Insurance Brokers Association of Manitoba): Mr. Epp, I think that right now, at this point in time, we're in competition with the banks, because the banks are offering insurance products and, as Brent mentioned, they are in the business, so they can own. So we are already in business with them.

• 1055

What we're concerned about is what we find on pages three and four of the proposal. We are quite concerned that perhaps there might be some short-term benefits, but there certainly won't be any long-term benefits.

Mr. Ken Epp: Let me address the question of some of your unfair advantages. One is the fact that the banks have access to your financial information.

Now, how can it be bad for the consumer if the bank, with which I have a mortgage or something like that, knows that my insurance is due because you had to tell them and they phone me or make a written communication at that time to offer me a lower rate? How can that be bad for the consumer?

Mr. Brent Gilbert: Going back to what I said, if that power is used to eventually cut back on competition not immediately but three, four, five, or ten years down the road, then I think it will be bad.

Mr. Ken Epp: Would you have objection to continuing the way it is now such that bank-owned insurance companies can presumably compete with you at arm's length? That's the reality now as I understand it. What MacKay is suggesting, according to your interpretation of it, is that they can bring that component of their business a little closer to the main operation and run it right out of banks with across-the-counter selling, and so on. But if they stayed the way they were, would you have objections or would you wish also to remove even that part of what they are doing now?

Mr. Brent Gilbert: Independent insurance brokers, both in the Canadian association, which is our mother association, as well as in our provincial association, have no objections to the fair competition rules that were instituted in 1992. This said that banks could own insurance companies and market insurance directly to Canadians but they couldn't do it at the branch level nor could they have access to the privileged information in their databanks to target markets in an unfair position against the rest of the industry.

Mr. Ken Epp: As you know, this committee has, as its primary concern, what is good for the Canadian, the taxpayer, and the consumer. I think that when you make a presentation like this to this committee, in all fairness, I'd like to think that you have at least some of that concern. But you're also here I think to kind of protect your own jobs and businesses. What's the proportion of those two motivations on your part?

Mr. Brent Gilbert: I guess, obviously, our ability to compete fairly, earn a living, provide jobs, and create economic activity in our local small communities throughout Manitoba is very important to me personally because I have a family, university is coming up for the children, and all those sorts of things, and it's important to make a living.

Maybe somewhat secondary to that, I worry about the effects on these rural economies. Small towns in Manitoba may have two, three, or four independent insurance brokers with two to nine people on staff working, volunteering, and keeping those communities vibrant and alive. If those are gone and are replaced by one branch or a toll-free number that's answered in Houston, Texas, or Toronto or Vancouver, then I have very great concerns for the economic future of rural Manitoba under that scenario.

Mr. T.W. McCartney: I would like to address that from the companies' standpoint. Look at the history of Manitoba and how we've looked after ourselves here in terms of securing our assets. I would suggest that we have a very unique history with companies like Portage La Prairie Mutual, Wawanesa Mutual, Red River Valley Mutual, and Grain Insurance and Guarantee. We were all formed because of a need. You're looking at two companies represented here today that are owned by their policyholders. We had a need to be formed, we are still addressing that need as security on assets.

We have not gotten into the lending business because these things are poles apart. There's is a conflict there. So as for our terms of reference, especially as far as Mr. Mitchell and I are concerned, we work for organizations in which that's our sole purpose. We are very proud of our industry. If there's one thing we've done wrong it's that we haven't told our story very well.

• 1100

If we could turn back the clock on the regulations that are in existence right now with banks owning insurance companies, we would welcome that, but we know that's not realistic. To allow the banks to have more freedom and appoint an ombudsman, an investigating regulating process, is... I tried to present to you in my pamphlet examples of exactly where they're going to go. Ombudsmen and regulators are just going to get in the way periodically. When you deal with dominance and the largeness of these institutions, I think they're going to be very hard to regulate indeed.

The Chairman: Okay, thank you.

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

The Chairman: Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Thank you, Mr. Chair. I want to welcome everybody here this morning. We also heard the brokers from Saskatchewan a couple of days ago making a very moving case for the large group behind them in Saskatoon.

I wanted to first of all ask Arni Thorsteinson a couple of questions. That's a good Icelandic name, and Wynyard—my hometown community—is, I guess, the second largest Icelandic community outside of Gimli, Canada, if my recollection is correct. One of my first recollections of seeing a celebrity is when I was a kid in school. The schools were let out and the President of Iceland paid a visit to the Wynyard hockey rink, and he was in Gimli and Winnipeg and so on. It's quite an interesting part of our history.

I wanted you to explain, Arni, why the ordinary person on the street in Wynyard would think big is better in terms of banks? We've had Mr. Godsoe, the president of Scotiabank, saying they do very well. In fact Scotiabank has more overseas operations, or foreign operations I should say, than the other banks in the country. They seem to do very well in the United States and elsewhere. Why would being a bit bigger make them better for the ordinary person on the street in Rosetown, where I hope to be tonight, and Wynyard? They're still going to be fairly small, like 19th or 20th in the world. Why is it important to the person on the street?

Mr. Arni Thorsteinson: I think, looking at rural Canada particularly... I'll give you an example from quite close to home. In the 35 miles west of Winnipeg at Elie, there's just been a world-class strawboard plant constructed. This is the first one in North America. It's a relatively new technology from Europe. Because of the unproven technology there was risk in the construction of the $150 million plant. It uses straw that's chemically treated and compressed into a substitute for wood chipboard. That was financed by one of the major Canadian chartered banks to the extent of $70 million or $80 million. I submit that without a large bank that could afford to tolerate the risk associated with that project, it wouldn't have happened.

Mr. Lorne Nystrom: It did happen under—

Mr. Arni Thorsteinson: Because there were big banks that were sophisticated and had the expertise to assess the risk of the technology and the markets that would be available for the product. With the result of the Crow rate abolition, you know there's been substantial capital investment in agri-business in the same small community of Elie: the first flour mill in 75 years has been constructed in Manitoba.

Again, you need large institutions that can provide that amount of capital. The local credit union does not have the capacity or the sophistication to undertake these projects. They're very substantial. In Manitoba we're talking about the possible construction of another two of those straw board plants, which would be a $300 million capital investment. That's mega-scale capital formation that's required. Only very big financial institutions can do that.

• 1105

Turning to another aspect—

Mr. Lorne Nystrom: If I can just interrupt, they're already doing it. They're big enough to do that. In my previous life, for example, I was out of Parliament for four years and one of my clients was Alliance Pipeline. They had a megaproject of some $3.8 billion, and I think 43 financial institutions got together to handle that. So that's already being done. Canadian banks are participating in that and in many projects. Why would being a bit bigger make them better? If you put on another hundred pounds, are you a better man?

Mr. Ken Epp: Yes.

Mr. Arni Thorsteinson: If the institution is bigger, it can tolerate more risk and can afford to provide better service. One of the crucial things in these agri-business investments is not only the capital but the expertise. A small institution cannot form the people experience and the expertise to evaluate and structure these financings if you're small-scale.

I perceive that with the mega-banks in Canada we will be able to locate in Winnipeg. The banks will be able to have the scale of operation to afford and provide specialists in agri-business finance, not somebody in New York or Toronto who is assessing an agri-business assessment in Elie, Manitoba. There will be somebody in Winnipeg who can do it. That's one of the benefits rural Canada will obtain.

One of our great problems has always been that we've had to make our case for investment and loan accommodation to some unknown face in Toronto or New York. If you can get local specialists, that will help us considerably.

Turning to another facet, I think the mergers are a tremendous opportunity for communities like Wynyard and Foam Lake to secure the commitment of long-term financial services in their communities. We've seen small town after small town lose their services in Manitoba and Saskatchewan. If you leave the status quo, that's likely to continue. I think we have an opportunity to secure services at a high standard, a national standard, for those communities by making it part of the merger approval process.

Mr. Lorne Nystrom: People like Hal Jackman, who used to be the owner of National Trust, and Doug Peters, a former Liberal minister who used to be the chief economist at the TD bank, Charles Baillie and many others have said the mergers are really all about getting a larger domestic market, not about global competition. Our banks do fairly well globally. It's about increasing their market share here domestically. Part of doing that is putting these people out of business.

Do you agree with the part of MacKay that says the banks should start retailing insurance to make them bigger and more powerful, have more capital and do what they want to do? Do you think that would be a good thing to do?

Mr. Arni Thorsteinson: In the broad sense, I'm a believer in free markets.

Mr. Lorne Nystrom: But is that a free market? They're saying it's not a level playing field.

Mr. Arni Thorsteinson: In a broad sense they're free markets. We've had a long history in the western world of regulation of financial markets, so there have to be appropriate protections for depositors and customers built into the mechanism. To the largest degree possible there should be a free market with protections for the customer and the depositor.

In every business you see today there have to be larger scale opportunities. When you combine these institutions into bigger ones, it creates the automatic opportunity for a specialist or a boutique operator to come in underneath.

Mr. Lorne Nystrom: You're being more political than I am in terms of your answer. Do I interpret you as saying you would agree with the part of MacKay that the banks should be allowed to retail insurance out of their branches?

Mr. Arni Thorsteinson: Yes.

Mr. Lorne Nystrom: I wonder if one of you wants to respond to him on that.

Mr. Brent Gilbert: He mentioned a free market, but I think the way the banks operate in Canada it's not a free market. They have been given a protected place in society. The term we've used before is that banks in Canada have been given a privileged status and a protected place in our society to promote commerce, not to compete with it.

If it's going to be a true free market, then throw out all of the 10% ownership rules on banks and let's all go for it. But it's certainly not a free market as it stands today.

• 1110

Mr. Arni Thorsteinson: Essentially the MacKay report says free market conditions have to be created by deregulation. Any impediments to the formation of new institutions would be removed and in fact new institutions would be encouraged. So it would have to come as a whole package.

We can't look back to life as it was twenty years ago. We're in global markets. There's no such thing as the Canadian market any more. It's the North American market, and any corporations that want to grow have to be prepared to recognize that and look at the market as all of North America. It's not to say that some people can't specialize in regions, but companies that want to grow and be the low-cost service providers have to have the scale and operate throughout the continent.

Mr. Lorne Nystrom: In terms of your philosophy about a free market, one thing Mr. MacKay worried about in front of our committee is the whole theory that if these banks are merged they might be too big to fail. If one failed, it would bring down the Canadian financial service industry. If that is the case, wouldn't that put them at a very unfair advantage because if they were so big they couldn't fail, the government would have to bail them out. There would have to be some option. The government couldn't let them fail.

Wouldn't that put them at a very unfair advantage, in that you would know you were more secure going with a megabank than with a smaller financial institution? Is that the free market? Is that a level playing field?

Sometimes big banks fail. Look at what's happening in Japan. That's a very serious concern we're hearing across the country. It's like you getting into the ring with Mike Tyson. Is that really fair? It's not really a level playing field.

Mr. Arne Thorsteinson: We've had recent examples in the international markets where governments have had to intervene and lend support to financial institutions because it was deemed in the national interest or the international interest that they be temporarily supported so it wouldn't disrupt the overall market. That's happened for many years and will likely happen in the future.

Hopefully with the regulation that is much improved in the international banking industry, with new requirements from banks for international settlements as to the capital structures of banks that operate internationally, there will be less of that in the future. But there's no assurance in any country that a problem can't develop. At that time a decision has to be made whether there should be support provided or you should let the market act. Those decisions are made every day.

Mr. Lorne Nystrom: I want to ask a question of the insurance brokers, Mr. McCartney or Mr. Mitchell. If Mr. Thorsteinson's opinion prevails and the Minister of Finance and Parliament say yes, we can go ahead with these mergers and the MacKay report in terms of the banks retailing insurance, or even if the mergers do not go ahead and banks are allowed to retail insurance, which is an important part of MacKay, what would happen to your industry five or ten years down the road? I'm told in Quebec the caisses populaires can now retail insurance, and about 25% of the brokers have disappeared.

Regardless of what happens to the mergers, but just hypothetically say this part of MacKay goes ahead and banks are allowed to retail out of their branches, if Mr. Thorsteinson's point of view prevails and you're back here in ten years, what will you tell us? How many of you will be left? Will there be 200 insurance companies? Will there be 100,000 people in your business? What is your vision for the future under that scenario?

Mr. T.W. McCartney: Mr. Nystrom, you bring up an interesting parallel because in the province of Quebec I think you can see what the future is. Our company doesn't operate in the province of Quebec, but I have spent some time there. When you take personal lines insurance, for instance, La Caisse centrale Desjardins du Québec and another one have tremendous leverage. They have, indeed, affected the insurance market.

There are other things that are different about the Quebec scene from other provinces, as far as legislation and that kind of thing, but it has indeed changed the marketplace, and I suggest it would change it here too.

Mr. Gerry Corrigal: Mr. Nystrom, on your question on what the insurance industry would look like five or ten years from now, I don't have a crystal ball, but I see the same effects in Quebec happening right across Canada.

• 1115

This committee is looking at what is good for the consumer. Perhaps I can indicate our concerns with an example. It's not in the general insurance end of it, but it's in the RRSP end and stuff like that.

We had a member who was a relative of a member insurance broker. He went to a bank to get financing for an RRSP. The loan would have been approved as long as the bank was able to do his RRSPs. It wasn't better for the consumer, but it was better for the bank. When the consumer wanted to go back to his broker, who at that time was a general broker and also in the finance end of it, the bank told him he wouldn't be able to get his loan. There were only a couple of days, so they said go ahead and deal with the bank. Is that good for the consumer? No.

Is losing 25% of the industry good for the consumer? Absolutely not.

Mr. Lorne Nystrom: I have one last comment here. I maintain that if the banks are allowed to sell retail insurance out of their branches then it won't be long before the credit unions do the same thing. Again it's the argument of a level playing field. How could the provinces then say no to the credit union movement in Saskatchewan, Manitoba, or elsewhere, as in Quebec?

So you're up against not just the banks retailing insurance, but you mentioned rural Manitoba and the credit union movement. I'm a very strong supporter of credit unions, don't get me wrong, and the movement is very strong in rural Saskatchewan, rural Manitoba, and so on. So you'll have the double whammy within months of the banks being allowed to retail insurance. Am I not right on that?

On the Quebec figures, one of your colleagues told me that in Saskatoon 25% were put out of business because of the caisse populaire. That's without the banks retailing insurance in Quebec. So if you put the two together it might be an awful lot worse. In five years you might have, I don't know, half your members gone. I'm not sure of that.

Mr. Gerry Corrigal: That's quite possible. And there again, reiterating what Brent mentioned in this, we are not afraid of competition at all, but we are concerned about the level playing field.

Mr. Lorne Nystrom: About fairness?

Mr. Gerry Corrigal: Yes, absolutely.

The Chairman: Thank you, Mr. Nystrom.

Mr. Valeri.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman.

Mr. McCartney, in your presentation you make reference to the CIBC insurance pamphlet and the idea of mid-term cancellation. You go on to say that it's traditionally been a problem in the life insurance industry and regulators in general have been against this. Is there a regulation that prevents this type of advertising in the insurance industry? Do other insurance companies do this type of advertising to encourage mid-term cancellation?

Mr. T.W. McCartney: No.

Mr. Tony Valeri: Is that a regulation or is that just something that's not done?

Mr. T.W. McCartney: It's just good business ethics, because the consumer will be subject to a short rate cancellation, which has a penalty.

And my argument with the regulator, in this particular case, is that the consumer is eventually going to ask for help. It won't be the CIBC insurance that will be happy to answer the question; it will more likely be the company that lost the business.

Mr. Tony Valeri: I'm just drawing on your example here. CIBC is saying the consumer would save 20% on average and that's the enticement to cancel your policy. If you were then short-term charged, would the consumer in any way benefit? Besides the aggravation of knowing that you've been overcharged—and yes, it's in the mind of the consumers, because they're being penalized when they go to get the other insurance—are they in any way better off, in your experience?

Mr. T.W. McCartney: Are they going to be better off? They're going to be more than likely saying to themselves “Why would I go through all this mess? It didn't save me the 20%.”

Mr. Tony Valeri: So that's been your experience?

Mr. T.W. McCartney: Sure it has.

Mr. Tony Valeri: I have another point. Under the category of use of privileged information it says as a routine part of your work you have to provide banks with copies of your client's insurance. I know most often you just mail the policy or the schedule of coverages from the policy. Couldn't you just send a letter to outline what in fact the coverages were, and not disclose the premiums, since you're concerned about the fact that they have access to the premium and coverage and that would be a competitive advantage for them?

• 1120

Mr. Brent Gilbert: Mr. Valeri, in my experience, the insurance contract names the financial institution as basically—this is the term—“loss payable” or “mortgagee”, and they have legal rights under that contract in their position of lending the money for the insured to buy the insurance.

Mr. Tony Valeri: Why should they have legal rights? They have legal rights to know what the coverage is, but—

Mr. Brent Gilbert: They want to see the contract. To my knowledge, we've never gone to banks and said that we weren't going to tell them the policy.

Mr. Tony Valeri: I'm not suggesting that. I'm suggesting that you were able to demonstrate to them what the coverage is—this is the concern—and that they shouldn't really be concerned about what the premium is, as they should really be concerned about the coverage because that's what's going to protect them. Would you be able to just pass on to the financial institution what the coverages were? If they ask what the premium is, you can tell them to go take a flying leap. What do they need to know the premium for?

Mr. Brent Gilbert: We could do that, I suppose, but they still have my customer list, which is my property under common law. They have the amounts of insurance. They have the policy terms. They have a lot of advantages that I don't have when competing with Gerry. I'd love to have Gerry's customer list in my office, but he's not going to give it to me. Yet I have to give this to the bank. Regardless of whether they know the premium or not, they still have an advantage over us on a level playing field.

Mr. Tony Valeri: This is to Shelter Canadian Properties. You mentioned that the potential merger talks that are going on would in fact present some opportunity for rural parts of Canada to be able to negotiate the longer-term service of a particular institution. Are you then saying that you're supportive of what MacKay talks about in terms of being able to ask for legal undertakings from the banks that want to merge? You say to them—I'm just sort of picking a couple of things here—that you are not going to be able to close banks in areas that may have only the two of you in a population of this much, so you must continue to maintain your staff at this current level. Are you supportive of that type of approach?

Mr. Arni Thorsteinson: Yes.

Mr. Tony Valeri: That's even though you also indicated that generally you're in support of a free market?

Mr. Arni Thorsteinson: Yes, but I don't think the banks have offered up their willingness to make commitments that give security to a lot of small communities in rural Canada such that they will have banking services in perpetuity.

Mr. Tony Valeri: You're saying they would.

Mr. Arni Thorsteinson: They would, yes. I think it's an opportunity for those communities and the government to obtain those commitments in return for the mergers and the banks that are willing to provide them.

Mr. Tony Valeri: I'm not agreeing or disagreeing with you; it's just that some people have come before the committee and said that this is not reasonable. You're suggesting that legal undertakings would be reasonable if they do want to go forward and merge.

Mr. Arni Thorsteinson: Yes. In addition, it would increase small-business lending by contractual agreement as well.

Mr. Tony Valeri: So it's something along the lines where if these two banks want to merge and we're being provided with a certain amount of statistics, you would not have a problem with the government saying that potentially your ratio of small-business lending to large-business lending should be at this level in the real estate sector.

Mr. Arni Thorsteinson: Yes.

Mr. Tony Valeri: You have no difficulty with that?

Mr. Arni Thorsteinson: No.

Mr. Tony Valeri: Okay. Consider the access to the payment system. MacKay essentially says, Mr. Loewen, that the same-day availability of funds is rare and should be valued. He's speaking of the payment system. He says it's possible because the participants in the system have reasonable assurances about the creditworthiness of all the other member institutions that are issuing payments. Also, if new institutions join and are felt not to be as creditworthy by the existing members, the latter might refuse to make funds available until cheques presented to them actually clear, and consumers would be inconvenienced.

• 1125

He goes on to say that the membership is restricted, that the government needs to look at this and it needs to be more open. But he really does not address, as you indicated, the non-financial institutions.

When he talks about the expansion of business powers, he does say a recommendation would be that the Minister of Finance, rather than the Governor in Council, should have the power to approve certain bylaws they may come up with, or the power to issue a directive to the CPA to require a change in the bylaw. I guess my question is if it's not sufficient, is it at least a move in the right direction? Do you find any comfort in that?

Mr. William Loewen: Very little. Certainly the Department of Finance has been helpful in some of the issues we've had to raise in the past, but for them to approve the bylaw, presumably the bylaw has to be created by the banks in the first place. So I don't think it should be up to the banks, the five major banks primarily, to be the only party initiating changes to the payment system. Everybody who's affected, which is everybody, should in some manner or other have the ability to have some impact on that.

You wouldn't put the CRTC under the control of Izzy Asper and Ted Rogers. I don't think you'd do that. But in fact you put the Canadian Payments Association under the control of the five major banks. You know, we've had significant experiences of suppressing competition, taking unfair advantage, and creating rules that make no sense except to eliminate competition.

As I indicated in my brief, they've created the impression—it's very strong and getting stronger as I see it, and I've been at this for quite a few years—that they are the legal body as far as financial transactions are concerned. To have that body making laws for this country is just a bit much, especially given the experience we're having with those laws. They're unfair, they're restricting consumer choice, and they're causing increased costs. As the MacKay report has mentioned, they're claiming things such as that allowing too many people into the clearing system would create risks. Well this is this risk thing the banks keep coming up with—everything is a risk, and everybody buys it.

We're all in the clearing system; every time we write a cheque we're a participant in the clearing system. Every day we are sending maybe $1 million, maybe $20 million—well certainly it's $60 million to $100 million a month—of transactions to our bank. Those transactions go into the clearing system. Our bank settles with us. What's the difference if we were to present those transactions, which is what Comcheq used to do, to each individual bank, which is what you do if you're in the clearing system? This barrier they put up is unnecessary.

Comcheq is a company I started in 1968, and we were clearing over 10 million cheques a year. We submitted a lot of our clearing transactions to each individual bank rather than to one bank, because some of those transactions would go through the clearing system faster. That's exactly what we would do if we were a member of the CPA. The only difference is we had to pay those banks.

Mr. Tony Valeri: Correct me if I'm wrong, but you're almost advocating the CPA be treated as a public good or a public utility and regulated as such by the government. Am I correct?

Mr. William Loewen: That's correct. Actually, if you look at the Competition Bureau's study of the Interac system, they concluded the Interac network should be a public utility, but then they didn't follow through.

• 1130

It's the same thing with the whole clearing system. Everybody is involved in it. As long as you limit its use to a few major users, they have control over everybody else. The mutual fund companies, the insurance companies...a lot of organizations could be far stronger competitors if that system were opened up.

Mr. Tony Valeri: Okay.

In your final paragraph you say that the system should be removed from the control of the banks and placed in the hands of an independent body.

Mr. William Loewen: Yes.

Mr. Tony Valeri: Can you give me an idea of how you would visualize that independent body? What do you see? What would it be comprised of?

Mr. William Loewen: I'm not too sure how you select people who sit on the CRTC board and who their support staff is, and I'm not saying that the CRTC board is the ideal model, but maybe that experience would suggest to you an approach.

There's an idea that the clearing system is magical, and very complex and hard to understand. The fact is, I think I've fully explained the whole system in what I've said here. It isn't a complex system.

So I think a separate body... The changes that are coming, that are happening on a regular basis, sometimes take some study to understand just where this is going and whether there are risks involved in it. But right now, you argue with the banks as to whether or not there are risks, and there are always risks.

It was interesting in the Interac studies that the retail industry wanted to be direct participants in the Interac system. The argument was, as I heard it, this would put the system at risk. Well, it was actually the retailers that were handing out groceries and everything else every day and then hoping to be paid through the clearing system. The retailers were at risk, not the banks.

So you have to get past that idea that there's some risk involved, and start looking at the actual situation. I think you'll find that it's an easy industry to regulate, but it shouldn't be regulated by the people it's regulating.

Mr. Tony Valeri: Thank you.

The Chairman: Ms. Bennett, do you have a question?

Ms. Carolyn Bennett (St. Paul's, Lib.): Yes.

As you know, one of the problems with public policy is it's much easier to do good public policy if the public has already decided that's the right thing. It's easier for government to do things the public has already decided.

On page 95 of the Mackay report, it says that consumers haven't yet matched your industry's level of concern in terms of the banks being able to sell. It says actually less than 30% of consumers are concerned about banks being able to sell insurance, and yet it does go on to say that there has been some concern that there would be too much consumer information and that competition would increase only in the short run.

I think certainly across the country we've had grave concerns from your industry that there might be a sort of loss-leader approach, to particularly the P and C part, or maybe even free, in order to eliminate the competition. Why do you think the public is not on this sort of bandwagon, and are there any examples of things that have happened in Quebec that would illustrate your concern? Are there situations in Quebec that would illustrate the point as to why the consumers should be concerned?

Mr. Brent Gilbert: I would say, perhaps, that general insurance, property insurance, and casualty insurance aren't up on the sort of, if I may say, level of everybody's day-to-day conversation. I don't think it's an item people think about a lot.

• 1135

With respect to the Quebec situation, if a consumer got what they wanted from the lending institution, which was the mortgage for their nice new house or this new business that they were so excited about, but they felt they got a bad deal on the insurance but the only way to get the financing was to get the insurance, are they going to complain?

The big item is getting their dream, and if they have to do a few bad things to get that dream, they're not going to go out and admit it and brag about it. They had to do it, so that's the way it is. I don't think they're going to complain.

I don't know if that answers your question or not, but—

Ms. Carolyn Bennett: My concern is that a bargain is only a bargain. It's only when people actually have a claim that they realize this wasn't a bargain—

Mr. Brent Gilbert: Exactly.

Ms. Carolyn Bennett: —or this person hadn't customized their product for them.

Mr. Brent Gilbert: Exactly.

Ms. Carolyn Bennett: As a family doctor, I've found that with disability insurance. People didn't realize they had the cheap version until they realized, if they could work at all—

Mr. Brent Gilbert: I can give you a personal example of that.

The local credit union in Portage la Prairie decided a number of years ago, through a subsidiary, to try to do some marketing of insurance with their loans. I got a panicked phone call from a consumer saying that they need to buy insurance now. I asked why, and they said they bought it from the credit union through CUMIS—I believe that's their organization—and the loans officer had given them the name of the person and had given the information to CUMIS.

They had a claim, and lo and behold, the adjuster arrived and said “This isn't a homeowners'; this is a file.” So they got sold the cookie-cutter package, which didn't fit their requirement. I don't know whether the claim got paid or not, but the guy said “We're giving you 15 days' registered notice of cancellation; get out of here. We just do what fits the little cookie cutter.”

So it has happened, but whether it happens to enough people when the claim occurs... This could go on for 20 years, with them not knowing that their insurance doesn't suit their needs. But you're right; when something goes wrong, that's when the complaint is going to arise. It certainly has happened.

Ms. Carolyn Bennett: It was surprising that in the tied-selling polling, a lot of Canadians have experienced that kind of power differential and been asked to buy something right then that maybe they hadn't thought they'd have to. Okay.

I have a question for Mr. Thorsteinson. Throughout your presentation you talked about big financial institutions, and the straw plant and those things. What the committee is hearing from lots of quarters is that the financial institutions here are viewed to be big enough and that there hasn't yet been a huge case for why they need to be bigger.

Whether it's the straw plant or whether it's... We hear that it's not necessarily the biggest bank in Canada that may be the lead on loss of syndicate. Do you know of people who have not been able to get a loan here in Canada and have had to go to the United States? Aren't the Canadian banks generally able to lead a syndicate to get their consumers the kind of loan they require?

Mr. Arni Thorsteinson: There are two answers to that.

In the case of very large-scale projects with high risk—and with the pipeline's high risk, that would fall into large scale, and typically mining-type projects—they can't be financed just within Canada. You have to go outside of the country, because the institutions aren't big enough to accommodate that size of loan. So there is a circumstance where the banks aren't big enough.

For Canadians who think the banks are too big, it's myopia. The banks are tiny compared to—

Ms. Carolyn Bennett: No, I don't think we said “too big”; we said “big enough”.

Mr. Art Thorsteinson: Well, “big enough”...that's myopia, because compared to the rest of the world, they're very small. If you bought that argument, there would be no reason—

Ms. Carolyn Bennett: But with this recent merger in the United States, I guess people are saying these little tiny Canadian mergers are nothing and that you still need the skill to be able to lead a syndicate if you're actually looking after your clients. Have you known situations where the Canadians couldn't look after them at all and they had to take their business somewhere else?

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Mr. Arni Thorsteinson: Yes. In the case of large-scale projects they required international syndication, which is more time-consuming and typically more expensive. I'm talking from the perspective of much smaller projects that aren't syndicated.

I'll give you an example of a $3.5 million agricultural implement dealership—state of the art, world class—located in rural Manitoba. That falls outside of the lending criteria of most financial institutions, except the big banks can do it under their corporate credit authority. There's an example that only a big bank can provide that credit accommodation because of the general lending policies and authorities of most of the financial institutions.

Ms. Carolyn Bennett: As you know, these particular mergers are not really what this committee should be looking at. We have to look at MacKay's recommendations on the merger review process in a big way. Some people feel that if these were allowed, that if the two banks then wanted to merge themselves, at some point the public interest or the Competition Bureau or somebody would say that's enough. At a certain point if you only had one bank left in Canada there would be some concern.

Do you believe that this informal doctrine of big shall not buy big should be abandoned? Or should there be some exceptions? Are you confident in what MacKay puts out there as a review process? Is that adequate, or is it too onerous? What role should the public have, and who should do the public interest review? Do you think that the variables MacKay puts there in terms of what pertains to the public interest are just basically good for Canadians? Of all MacKay's recommendations, would you agree with his recommendation on merger review?

Mr. Arni Thorsteinson: Yes. As I said, it's a very thoughtful document. It cautions that we Canadians must recognize that financial institutions, as other large-scale businesses, are becoming much bigger, globalized. We can't stand in the way of progress or we hurt ourselves by not creating the opportunities for Canadians and Canadian businesses abroad.

It also cautions that the merger proposals, as they come along, should be subjected to Competition Bureau review as other large-scale combinations in other industries are subjected to the review. In fact, the Competition Bureau has served Canadians well in sorting through the business combinations that have been presented to them, in restricting those that are anti-competitive and allowing the other ones to go through. It's served its purpose in public policy very well.

Ms. Carolyn Bennett: Does anybody else have any comment on the MacKay recommendation on the merger review process?

Mr. T.W. McCartney: Yes, I do. From our point of view, it may appear that we're totally against the MacKay report. I don't think that's the case. There's a lot of cleaning up of the situation that we are silent on, partially because we're not bankers and we may not know just what it all means. We basically have targeted what affects us and our policy holders who are consumers.

Bankers generally—and I haven't checked to see if my banker is in the room, so I have to be careful—are our partners. We in our business have always felt that, and we think most consumers do too. I don't think they've actually answered the question on why great bank dominance in financial services is good. Insurance today, perhaps sell groceries tomorrow. Is this bigness necessarily a good thing?

• 1145

Tied selling—we had one example of where if you go and get a loan to buy an RRSP, you'd better be prepared to buy the RRSP at the institution you're getting a loan from. The other thing is personal information. Do we want our personal information bandied around?

Loss of jobs—in Manitoba we've already seen a loss of jobs due to banks closing down branches. Our suggestion is that the bank is the kingpin in a lot of communities. If the local broker who is a major employer finds out he or she can't continue, there's more loss of jobs. That's where we're coming from—a loss of jobs.

The Chairman: Mr. Loewen.

Mr. William Loewen: As Arni would expect, I disagree with most of what he says. He says you need to have a large organization in order to have innovation. The fact is the banks are the last people to come out with innovations. On the one hand, it's the small organizations that do the innovating and come out with new ideas that have the flexibility to do those things. The banks generally get their innovations from U.S. technology. They buy a system once it's been proved in the States.

As far as their being able to handle risk assessment, I'm reminded of an article in a business magazine a number of years ago. It talked about the wonders of Dome Petroleum and the magnificent things Dome Petroleum had done and the participation that four of the major banks had in this so-called huge success. It said the Bank of Nova Scotia wasn't a participant in the lending to Dome Petroleum because they didn't have the expertise to handle that kind of loan. Within a year or two Dome Petroleum was history. So you don't necessarily get sophistication or the top intelligence from being bigger.

As far as being able to be served in the U.S., first of all, you would consider what's good for Canada and how the banks will serve Canadians. I'm sure Arni can find a U.S. bank to serve his needs down there. And the banks would hope that U.S. companies coming to Canada would find Canadian facilities they could use.

Another thing about largeness is this confidentiality of information. There's been some really serious breaches of that and it's been complained about by many people. The confidentiality problem gets bigger when you cover more of the marketplace.

Currently you have five banks. Let's say they have 15% of the marketplace and they want to search their database for information about a particular person, which has happened. They have one chance in six of making a hit. If you have two banks, your chances of finding the personal information about the individual you're looking for becomes considerably greater. It's a whole area that needs to be dealt with legislatively. At any rate, that's a scary thing from a personal point of view.

Going back to the Bank Act, the Bank Act used to say, and perhaps it still does, that banks can conduct such business as appertains to the business of banking. The principle there, as I thought it should be, was that every other business has to have a bank. The banks are there to serve business, not to compete with business.

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The Bank Act actually says something like that now, but it's not the case. There are a lot of businesses the banks compete with, and those businesses need banking services. And of course the fewer banks you have the more difficulty you have in getting any kind of independent service provider.

All in all, I think we have probably too few banks now, rather than the other way around. And I think if you analyse our banking situation with respect to other countries you will find it's generally the case that we have fewer banks based on gross national product or population or whatever you want than most countries have.

Ms. Carolyn Bennett: Do you feel that you can't support the recommendation on merger review by MacKay? You don't believe that his outline of a process would catch your concerns along the way in terms of the Competition Breau or public interest assessment, or you would want it different?

Mr. William Loewen: Yes. As an individual and a business person, I think it should have been discarded on day one. As a competitor, it doesn't make much difference. Right now, as far as I'm concerned, in business we compete with the Canadian Payments Association. It's like the five divisions of General Motors: sure they're somewhat separate entities, but there's a single basic control, either through the Canadian Payments Association or the Canadian Bankers Association or just the club itself.

Ms. Carolyn Bennett: On the Canadian Payments Association, the finance department report last year I believe was supportive of opening that up carefully, and MacKay said that too. Do you feel that this is coming?

Mr. William Loewen: I don't think either have gone anywhere near as far as is needed to be effective in any respect.

The individual brokerage firms will become, if the MacKay report is accepted, indirect clearers. It says direct clearers, but I don't think they really understand the difference between a direct clearer and an indirect clearer, and an indirect clearer doesn't have much influence at all. The votes are taken on the basis of the number of items you clear. The funding of the organization is based on the number of items you clear. So who's paying the bills, and who has the votes? It's wrong, and indirect clearers are I think quite ineffective in that.

Ms. Carolyn Bennett: So by opening it up where the votes are basically still on the number of clearances there would still be an overriding influence by the major banks?

Mr. William Loewen: That's right. It isn't going to have any impact. It needs to be independently reviewed so that I can go there and say I'd like to introduce this service, is it okay? And I'm not going to my competitors who for sure are going to say no, it's not okay.

Ms. Carolyn Bennett: Did you have an opinion on the merger process?

Mr. Brent Gilbert: I was going to say that our association doesn't have an official opinion on the merger side of it, but individually, when you have one CEO of one of our major banks saying that it's a terrible thing and three or four others saying it's a great thing, it's confusing when you have that kind of dichotomy of opinions in the banking industry today. So we don't pretend that we have an opinion on it, because we're not bankers, as Mr. McCartney had stated earlier.

Ms. Carolyn Bennett: Thank you.

The Chairman: Thank you, Ms. Bennett.

I have a question to the Insurance Brokers Association of Manitoba. There are 124 recommendations in the MacKay report, and in your conclusion you basically say that you're strongly opposed to the bank insurance recommendations contained in the MacKay report. This exercise is about designing the future of the financial services sector. Why have you limited it only to issues that deal with your particular industry and don't speak to the future in any meaningful way?

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Mr. Brent Gilbert: Sorry, the last part of the question is speak to the future of the banking industry or...?

The Chairman: The task force report is entitled Change, Challenge and Opportunity. It's about the future of the financial services sector. Your presentation speaks very much to the present. I'm wondering why the only thing you focused on was more or less the fact that banks shouldn't be allowed to retail insurance. Is your industry only concerned about that?

Mr. Brent Gilbert: No, and I'm sorry if that's the impression you got. We're not concerned about banks retailing insurance. They do it now. They're competing—

The Chairman: With their branches.

Mr. Brent Gilbert: —with us today. They compete with us today. But what we're saying is from our standpoint as an association the recommendation in the MacKay report strictly relating to insurance, which is of course what we're most interested in, gives them an unfair advantage over us in competition in Canadian society. We don't think that's fair. But that's as far as we went. We don't have research staff to analyse the future of the banking industry in a worldwide context, all those sorts of issues. We just dealt with what is important to our members at this point in time, and that is the issue of fairness.

The Chairman: Can I ask you a question?

Mr. Brent Gilbert: Surely.

The Chairman: I gather from reading your text here that you have a great deal of respect for consumers and clients and their opinion and ability to think.

Mr. Brent Gilbert: Absolutely. We deal with them every day directly one on one.

The Chairman: How many customers do you have?

Mr. Brent Gilbert: My office? I didn't check. I have maybe 3,000 files.

The Chairman: Three thousand files, and you said you see them every day?

Mr. Brent Gilbert: No, I didn't say that.

The Chairman: I gather not.

So the quality of service is a big part of your business, the fact that you can deal with people on a personal level. I can tell you honestly that I write my broker a check and send it in. I may see him sometime, although it's usually not work-related. I'm a pretty simple guy that way to deal with. Send me a policy, I sign it. I sign your check, it's renewed and life goes on.

As a consumer, should I have the choice if I wanted to go to a bank and get my insurance? Why should I be limited to that? Why can't I be given that extra choice?

Mr. Brent Gilbert: You have that choice now. You could walk into any bank in Canada that has an insurance subsidiary and ask for their 1-800 number to phone them for a quote. There's no restriction on that right now.

The Chairman: Then what's the problem with them retailing?

Mr. Brent Gilbert: We don't have any problem with banks retailing insurance. As I said in the report, they do it now. What the MacKay report says is that they can do it from their branch level—

The Chairman: That's what I'm talking about.

Mr. Brent Gilbert: Okay. The problem we have with the branch level are the tied selling and coercion issues and the use of privileged information, the information that we have supplied to the banks on our customers, to compete against us. All of the things that I have outlined—the readiness to purchase, coercion, use of credit information, use of privileged information—is what we have the problem with. It's not fair competition to us.

The Chairman: So let me ask you a question. You know how in these hotels we have those house phones with which you can call up the room? If we put one of those phones in the branches, would you be okay with that if it was a direct 1-800 line?

Mr. Brent Gilbert: They could do that today, so—

The Chairman: They can do that, right?

Mr. Brent Gilbert: As far as I understand, they can walk into the bank and say “What's the 1-800 number of your subsidiary? Could I borrow a phone to make a phone call?”

The Chairman: If that phone is right on the premises, it's okay with you then? The point I'm making—

Mr. Brent Gilbert: Let's get to the coercion issue. We have said in there, “whether real or perceived”. So if there's any feeling that this consumer is going to be in a better position to obtain either the loan to begin with, meaning the financing, or to obtain it on better terms, and if it would grease the situation a little bit when they deal with the bank, that to me is still an unfair advantage over the rest of the industry. So as for putting the phone in there to maybe make it a little easier to grease the situation, I don't agree with that.

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The Chairman: Let me understand something about a little bit of the essentials of marketing. There's quality of service, price, and convenience. Let's say I find it convenient to go buy insurance at my branch. If I find it convenient as a consumer, why should I be denied that right? Why do you feel that you have to make a decision for me? What is it about you or what is it about me such that you feel you need to tell me where to buy things?

Mr. Brent Gilbert: I guess I'm not telling you where to buy. As I say, you have that choice now. You can go into your branch and do that now.

What we're saying is this. Say that while you are getting your loan you say, “By the way, do you have an insurance subsidiary you can get a quote from?” The loans officer says yes, certainly, here's the number, and you can pick up the phone and call them. Or under MacKay's recommendation, the loans officer is sitting right across from you saying that in order to get this approved, they want to have your mutual funds, house insurance, and the life insurance on your mortgage. I don't think that's in the best interests of the consumer. That's our opinion.

The Chairman: So you're saying that's not happening now?

Mr. Brent Gilbert: It's not happening now? Under the 1992 fair competition rules that were passed, my understanding is that banks cannot use information to market insurance to their customers. They can't “target market”. They can't use their database to target market.

The Chairman: But as soon as that person walks into their branch, it's a totally different ball game.

Mr. Brent Gilbert: I'm sorry, I missed your point. Do you mean it's different today from—

The Chairman: Yes. I'm saying that if they were allowed to retail insurance, then you're saying that all of a sudden they would be using the information.

Mr. Brent Gilbert: That's right. That's what the MacKay report says. It says they should be able to use that information with rules put in place. We're saying how do you police those rules?

The Chairman: Let me ask you a question. It's not really about... What are you protecting, exactly? Is it your job you're protecting? Are you protecting consumers? What or who is it, exactly, you're protecting?

Mr. Brent Gilbert: Who are we protecting? Well, okay, we're protecting our livelihoods and the ability to create economic employment in small communities all across Manitoba. We think that if the MacKay report goes through with the recommendation on allowing insurance out of bank premises and the use of information, that will be gone.

The Chairman: This issue is really more about the concentration of power, isn't it? I don't know if having all these insurance brokers is the most efficient way to deliver a service. I'm not sure. I don't know if you need 1,300 of them, or whatever number that is. I'm not sure about that.

Mr. Brent Gilbert: I'm sorry, but I'll interrupt. You can buy directly from insurance companies that operate on a direct basis. If one feels that the broker is taking too much out of the system, then Canadians have that right to deal with direct writers.

The Chairman: I also know that somebody's paying all these 1,300—whatever number it is—brokers, and that's probably added into the price because it's usually the consumer who pays at the end of the day, right?

Mr. Brent Gilbert: Yes.

The Chairman: Isn't it really about power? Isn't it about perhaps giving too much power to a single entity? Isn't that really the argument you should be pushing, rather than quality and that? Quite frankly, quality of service and all these other issues are consumer-driven issues. They'll decide whether you give good service. You probably have excellent brokers and you probably have some lousy brokers. People are still trying to figure out how they got their licence, right?

Mr. Brent Gilbert: Right.

The Chairman: It happens in every business, doesn't it?

Mr. Brent Gilbert: Yes, I agree.

The Chairman: So isn't it really about power?

Mr. Brent Gilbert: It is, Mr. Chairman. I guess what we're saying in here is that if we don't keep those regulations that were put in place in 1992, it will result in a concentration of power in the banking sector.

The Chairman: Thank you.

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Mr. Thorsteinson, you must believe that... The financial service sector is a big, big sector and the world's a big place. There are a lot of deals happening every day, everywhere, right? There are those who think we should have five almost equally weighted banks, and there are those who believe maybe we need a large bank to deal with large deals, to make things happen at a certain level. Can a society sustain that type of split in an industry? We have your variety store, we have your big supermarkets, and you have... What do you think about that?

Mr. Arni Thorsteinson: Absolutely, I think Canada can sustain two large banks, maybe eventually three large banks, but world-scale, that accommodate the risks necessary to support Canadian industry.

The Chairman: Now, Scotiabank is an interesting bank in the sense that it does a lot of work abroad and it's quite successful. Do you think it can continue to do that, let us say, after banks A and B join together? Do you think they would still have room to...? Do they have a niche? Is that—

Mr. Arni Thorsteinson: Yes, they always have had that.

The Chairman: Whenever there's consolidation in the financial services sector, or for that matter any sector... Let me go back to MacKay for a second. He speaks of the development of the entrepreneurial financial services side. Do you think consolidation will enhance that? In other words, will you get more financial services sector start-ups as a result of people coming together?

Mr. Arni Thorsteinson: It won't necessarily be because of the consolidation of four banks into two banks, but I think where the start up of new institutions will come from is the other MacKay recommendations of making it easier for small entities to grow and new entities to start.

The Chairman: I'm going to ask one final question before I go back to Mr. Epp.

Since this is an exercise about the future of the financial services sector, I'd like to get a quick one- or two-minute response from each of you as to where you see the sector going and what the characteristics of this 21st century financial services sector are.

We'll begin with Mr. Gilbert.

Mr. Brent Gilbert: If I could start maybe with your concern about being in the present... One of the concerns we have had from day one is this exercise—the breaking down of the four pillars. Somehow property and casualty insurance got dragged in as a financial service.

We provide security insurance for catastrophic loss. None of the other pillars do that, and we tend to get dragged along in that process. But since we are now—we've been dragged into it and continue to be... I guess I'm speaking more personally now, Mr. Chair, than I am on behalf of the association, but I see a continuing move, unfortunately, I guess, to bigger is better. There is somehow a desire in all sectors, not just in the financial services sector, to say larger is better, and I don't think we'll see that slowing down in the financial services sector, either with insurance company mergers or with what the banks are trying to do.

I do get concerned about the concentration of economic power, both within one industry and within one or several regions of Canada, and about not having bank branches and services for smaller communities, not just in Manitoba but all across Canada. But I guess in a general sense I do see the merger, the urge to merge, carrying on into the future.

The Chairman: Thank you.

Mr. Loewen.

Mr. William Loewen: Just speaking generally, I think allowing the banks into more and more industries is bad. When you look at the past history, maybe in some cases there are good arguments for and good results from it. But we've seen in my period of time, in my working life, the disappearance of the finance companies, the virtual disappearance of the trust companies, and a tremendous reduction in the number of independent brokerage firms.

• 1210

As soon as the banks get into a field, two things happen. Some of the people in the business recognize their competitive disadvantage, so they sell out, and that's what has happened in a good many instances. The banks are on the move for market share, so they buy up the business. The final holdouts then struggle on for a fair while and languish, and you end up without that industry.

I suspect that's exactly what will happen in the insurance industry. You're going to see bank takeovers. Remember when the Royal Bank tried to take over London Life? I'm not sure that's what the MacKay report allows. But the more you allow the banks into that industry, the more likely it is it will disappear—not totally disappear, but be totally dominated by the banks.

Looking to the future and the age of electronic transactions, you'd probably be surprised if you knew how many Canadian transactions are currently being processed in the U.S. I suspect the Canadian Payments Association will become an affiliate of the U.S. clearing system if you allow things to carry on under the direct control of just the banks, in spite of what they might have said and what I've heard them say to your committee or other committees about them being very committed to Canada.

In the case of the payroll business, we sold to the CIBC because we couldn't become a bank. The problems were just too great to get to where we wanted to be in that field. We sold in 1993, thinking we were selling to a very responsible party. We had a $100 million to $150 million trust account under our control. We didn't want to see that go to just anybody. We had over 10,000 corporations that relied on us for their regular pay cheques, and 475 employees. So we decided to sell to a bank. At the same time, we were being offered a much higher amount by a U.S. company, and we said that isn't the right thing to do. In the past year that U.S. company has bought two other banks, and the other two banks, including the CIBC and its Comcheq service, have been sold to either ADP or Ceridian, both American companies. About 90% of the payroll service business is now U.S.-owned.

I don't see that commitment to Canada I would like to see our major corporations have. So I think you need to make sure Canadian banking is done in Canada. Canadians who want to bank elsewhere will find their banking where they want to go.

The Chairman: Thank you, Mr. Loewen.

Mr. McCartney.

Mr. T.W. McCartney: You're asking us to tell you what we think the future will be. I'd like to clarify why you would buy insurance from a broker. A broker is an insurance buyer, and he or she has these different companies he or she goes to to buy the products you require. It used to be you had agents, and the agent was almost like an employee of a company. An insurance broker goes to other companies and finds the best deals, so they're professional buyers.

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With regard to the future, I think there will be mergers in this country. What will happen will depend on where you are in Canada. I think what we're seeing in Quebec right now is possibly the future unfolding. We will see more credit unions in small towns looking after the needs of people who want to deal locally. I think we're going to see more need to service.

As far as selling insurance is concerned, I think you're going to see test projects in metro areas designed specifically to target consumers and related to whoever's data base is being used. I think you're going to see the banks experiment with this. We see it in Alberta right now.

In the rural areas, it might be a little different. It might be a little slower coming. I think the jury is not going to be in on selling insurance when it comes to deciding whether it's effective marketing or not. I think whether or not it will be depends where you are in Canada.

I think the real stumbling block is how you are going to control these monsters. I think suggesting there's going to be an ombudsman and a process to ride herd over these big institutions is going to be a problem, and it is going to be hard to decide.

I would suggest that there will be mergers. The banks are going to get bigger, however they do that. I think insurance will be experimented with more than it is now, and I think we're going to have problems with trying to regulate this.

The Chairman: Thank you, Mr. McCartney.

Mr. Corrigal.

Mr. Gerry Corrigal: Thank you.

I've been told that I have to try and speak up a little bit. I must apologize. My family is into sharing, and my eight-year-old daughter is sharing her cold with her father right now.

I believe when you take a look at the industry, with not more than 7% dominated by one insurer, it's extremely competitive right now. You have choices. You have independent brokers. You have direct writing insurance companies. You have the bank, if this is what you prefer.

There is no question that right now in the industry there is a tremendous amount of consolidating happening. From an insurer level, there are the mergers. I don't believe this will stop. I believe there will be some continuation of this. Some niche markets will develop out of this. There is some consolidation at the insurance brokerage level. If you compare what happened ten years ago to now, there have been publicly traded companies involved in buying up brokerages. There have been credit unions in other provinces that have invested in brokerages. There have been cluster groups, cooperatives of insurance brokers, coming together to be extremely competitive and to offer consumer choice. This will not stop. I believe it will continue.

The concern here is to make sure there is a very level playing field and consumer choice is not affected. It has to be in the best interest of the consumer.

We're not unique in this. Other industries are merging. Whether it's car companies or manufacturers, there is a lot of merging, and there is a concept that bigger is better. Personally, I'm not 100% supportive of that, but I think whatever happens in the future, as long as they look at the best interests of the consumer and a level playing field for business to operate, then that's the right direction.

Thank you.

The Chairman: Thank you, Mr. Corrigal.

Mr. Mitchell.

Mr. Ken Mitchell: Is the urge to merge necessarily right for the little guy or always just right for the big guy?

Our industry takes some pride in servicing our customers well and we're not going to apologize for that. Survey after survey has shown the P and C insurance industry is rated very highly by consumers in terms of service.

To take just one example, the National Quality Institute asked people to raise the level of overall service they received from 21 surveyed industries. Auto insurers were rated in the top third of all industries, and you may or may not be surprised that banks were rated in the bottom third.

We're not just here speaking for ourselves. We're here speaking for what the consumer believes.

Thank you.

• 1220

Mr. Arni Thorsteinson: Mr. Chairman, I believe your question was what is the financial services industry in Canada going to look like in the 21st century. The 21st century is here. All you have to do is look to the United States, and see the Travelers-Citibank merger, the Nations Bank, the Bank of America.

Look to Switzerland and the Netherlands, two countries that have been extremely successful in their financial services industries. They have contributed enormously to their economic growth and success, and Canada must be sure we don't fall behind these other leading nations in expanding and developing our financial services sector. We'll have fewer, bigger institutions, and they will give rise to better competition and more choice for consumers. If Canada doesn't keep up with this objective, it will be to the detriment of the country.

The Chairman: Mr. Epp.

Mr. Ken Epp: I'd like to ask one final question of an insurance nature, and then I want to talk with Mr. Loewen.

My last question to you is this. I happen to do most of my banking at a financial institution that is not one of the big five banks. In fact it's a credit union and it started out as a cooperative movement in the prairies, with which I'm sure you are very familiar. This credit union quite frequently sends out advertisements for cooperative insurance along with my statement. There is house insurance, life insurance, automobile insurance. There is even an offer that if I buy my house insurance in the same package as I buy my car insurance I'll get 10% off. How is this different from the tied selling you are trying to talk the banks out of?

Mr. Brent Gilbert: May I respond to that, Mr. Epp?

It sounds like the credit union is following the fair competition rules that were adopted in 1992 for the banks. Under these rules, the banks were allowed to send out information on their insurance subsidiaries, but they had to send it out to all their customers. They could not target market just the customers who were about to buy a house, or who owned homes. They couldn't target RRSP information at customers with a large bank balance. They could not use privileged information to target market and make their marketing efforts much more effective.

For me, that is the difference. As I say, we will compete on a fair market basis. This may include a financial institution like a bank sending out information to all of its customers to say it has an insurance company and it can offer these kinds of terms. These are the rules we compete under today.

Mr. Ken Epp: So even though they would be piggybacking their mail-out costs onto the cost of sending out their statements, that still gives them an advantage you don't have.

Mr. Brent Gilbert: Exactly, and we disagreed with that in 1992, but we felt it was the best we could come up with and the best balance of where the rules would fall out after 1992.

Mr. Ken Epp: Thank you. I just wanted to get your opinion on this.

I've been reading. When these other people are talking, our brains are able to run on two or three channels at a time. So I've been listening intently to what's been going on, but I've also been reading some of the material we have, which I hadn't had an opportunity to read before.

Mr. Loewen, I'm intrigued with your business. I have to admit that prior to today I knew very little about it. I'm just delighted to meet a person who can parlay a $15,000 capital investment into the successful business that you have had, and sold. And you have another successful business now.

The complaint that you seem to have throughout is that you weren't able to make your original business, the Comcheq Payroll Service, really work because you couldn't become a bank. You didn't have access to the clearing system. I have a few questions with respect to what you would like to see in the financial institutions. I've already heard you say, on the basis of what other people have asked, that you would like to see the payment system run by the government, perhaps as a public utility, and taken out of the control of the banks. Please correct me if I'm wrong, but I think what I've heard you say is that the banks not only operate the payment system, they also control it, and that their regulations are more based on what's good for the banks than on what's good for efficiency or what's good for the consumer.

• 1225

Now, if there were a government-operated payroll system, do you really believe it would be better? Are you suggesting a government agency could do even better than the banks?

Mr. William Loewen: That isn't exactly what I'm suggesting. I'm saying a government agency should regulate the banks. The government doesn't operate the television industry or the telephone industry, but it does regulate them. If somebody wants to do something new or different in those fields, they go to a body that has some expertise in the business and they get permission. We can't do that right now. We can only go to the Canadian Payments Association. Our experience there has been quite poor, primarily because, as a rule, we were proposing to do things the banks themselves hadn't gotten around to doing. Basically, from our point of view, there was a stalling process until the banks got themselves into a position where they could do what we were doing. That's not conducive to more competition, that's for sure.

Mr. Ken Epp: Yes. So I was right, in a sense. Their regulations are designed, at least partially, to keep their competitors out of the field.

Mr. William Loewen: Very much so.

Mr. Ken Epp: This is a question that has nothing to do with this committee, but it's one I'm very curious about. You sold Comcheq to CIBC. I read here that you did this even though you had a higher offer from an American firm. You did it because of your love for country. You obviously love Canada, at least that's what I've been reading here, if you'd give up actual dollars to keep that company in Canada rather than selling it to an American firm. And yet subsequently CIBC sold it to ADT anyway.

Mr. William Loewen: That's right.

Mr. Ken Epp: Now, do you regret having sold it? Do you wish now you had kept it?

Mr. William Loewen: Yes. I've made more than one mistake, but that was my biggest.

Mr. Ken Epp: Okay. I was just wondering how you reacted to that.

I have questions on the report you gave to us. First of all, I need a little bit of clarification, and maybe some education here. When I go to Pizza Hut, and you can tell by looking at me sideways that I go altogether too often, I give my credit card. It happens to be—I'll do some free advertising here—a Bank of Montreal MasterCard. At Pizza Hut, they run it through their machine and the clerk there tells me they have credited their own account out of mine as soon as they finish the transaction. Is this true?

Mr. William Loewen: I don't think it happens quite that way. I think those transactions are aggregated over the day, and possibly one credit goes through to the account. I'm not sure of this.

Mr. Ken Epp: Okay. Is your business presently involved in handling credit card transactions?

Mr. William Loewen: No.

Mr. Ken Epp: Are you strictly in payroll?

Mr. William Loewen: No. We're not in the payroll business.

Mr. Ken Epp: Oh, you're not any more at all.

Mr. William Loewen: In the process of trying to become a bank, we had developed what you might call a branchless banking system, whereby you could get your paycheques from a terminal and you could also access your bank account using the telephone. When CIBC bought Comcheq, they didn't buy that part of the business, so we carried on with the bill payment business. This is what we're doing now.

Mr. Ken Epp: Okay.

Mr. William Loewen: It is essentially the same kind of service the bank offers, a telephone banking kind of service.

Mr. Ken Epp: So you're involved in payment systems for consumer payments on utilities, this type of thing.

Mr. William Loewen: Yes.

Mr. Ken Epp: There is a sentence in your brief that just threw itself at me. Under (a) Security of Access, on page 8, you claim your business has as good security of access as that offered by a bank, probably better. Then you say, “In fact, there have been situations where security provided by the banks has been seriously flawed.” What do you mean by this?

• 1230

Mr. William Loewen: You have an identifier card that basically is your identifier to the bank, whichever system you're using. The banks tend to use a single identifier card, which is okay, but then you have to use a personal identification number, a pin number, that only you—

Mr. Ken Epp: It's four digits usually.

Mr. William Loewen: That's right. It's four or five digits—whichever.

One bank had a system—they may even still have it—whereby the same four digits would give you access over the telephone and via an ATM and probably also a debit card. That's a fairly risky situation. It gets a little bit technical, but basically a bill payment transaction is a less risky transaction than an ATM transaction. When you get money out of an ATM, you've got cash in your hand and you can spend it anywhere. Nobody can trace what happens, whereas with a bill payment transaction, both ends of the transaction are always traceable. So if somebody gets hold of your last four digits and goes to an ATM, conceivably, they could get cash and it would not be traceable. It was a flaw in that particular organization's system.

Mr. Ken Epp: With respect to security of access, here again, I guess this does fit our committee partially, because you are offering suggestions here about how, if there were a private business like yours with more accessibility to the payment system, the competition would improve the security, confidentiality, and everything for everybody because the other banks would be driven into it. They would have to compete with you. I sort of agree with that.

With respect to the confidentiality of information, you and your business obviously have principles. You don't sell your account lists. You keep all of the account numbers, passwords, and so on, very secure.

Mr. William Loewen: Right.

Mr. Ken Epp: Do banks not do that?

Mr. William Loewen: They certainly would keep their account numbers and passwords secure for sure. How do they deal with customer data that are passing through their hands? I think it's fair to say there have been instances where their principles would be different from ours.

Mr. Ken Epp: Okay.

I taught mathematics for 31 years in my previous life. Now I'm at a place where I can't teach the guys to even add a column of numbers and make the books balance.

Voices: Hear, hear!

Mr. Ken Epp: Well, they're learning slowly.

In my mathematical career, I did some computer work and so on, and I'm really quite interested in systems of encryption. I actually developed one myself, which I unfortunately never got around to marketing because I was tied up suddenly with this political life of mine, which was imposed on me unexpectedly. I'd like to know whether you use really powerful encryption methods in your transmissions.

Mr. William Loewen: Yes, we do. We actually got into this business fairly early on. We were doing our development work at the beginning of the 1980s. Our first step was to develop our own encryption system. Maybe yours would be better. We would be interested in it.

Mr. Ken Epp: Undoubtedly, it would be better.

Mr. William Loewen: So there are encryption systems used. Anybody handling private data will be using them, I'm sure.

Mr. Ken Epp: I've heard rumours that the amount of loss from ATMs and telephone banking that the banks are incurring is much greater than they are admitting to publicly. Whenever there is such a case, they just sort of sweep it under the rug, since they don't want to build any lack of confidence in that. Do you think there's any truth to that or is it unfounded?

Mr. William Loewen: I haven't heard that. I can't really comment on that. I do know that some of the bill payment systems have been the type that are not particularly as susceptible to fraud but are susceptible to error. It can be very hard to trace, it takes a lot of work to track it down, and you hear the odd case of individuals who pay the bill, yet it never gets credited to the account.

• 1235

How the customer settles this with the bank that took the money out of the account, I'm not sure, but that would possibly be an instance of loss.

Mr. Ken Epp: At least in the few cases I've heard of, I understand the banks have been very generous in making sure the customer has no public complaint with it.

Mr. William Loewen: Yes.

Mr. Ken Epp: The last item I'd like to talk to you about is the security of the clearing system. You're suggesting that you should have access to the clearing system. Relative to the big banks...relatively small... In your present business—although the Comcheq, according to what I've read here, came to the point where the amount of money you were handling was actually getting right up there with the smaller banks.

If we were to change the regulations so that people such as yourself and your business would be permitted into the payment system, would that not say, then, that companies A, B, and C right across Canada can get in?

We've already had a presentation from the insurance companies that are involved in regular disability payments and this type of thing. They'd like to get in there so they can do direct deposits without having to give the money to the bank and then letting the bank sit on it until it's transferred. According to them this is a fair amount of capital that's tied up while they're just waiting for the transfers to take place.

If we let you in, then we let them in; we let anybody else who wants in. Will that not decrease the security of the clearing system?

Mr. William Loewen: I'm not sure it would. It would depend on the circumstances, but it isn't necessarily being, as you put it, in the clearing system that I'm asking for.

We're all in the clearing system, whether we realize it or not, but what we're asking for is the rules...here's an example. Let's say we aren't ever a direct member of the clearing system. The Canadian Payments Association still makes rules that we can't present to our own bank, which is basically what we use for clearing, a certain type of transaction, because it's not acceptable under their rules.

We want somebody other than the banks' organization making those rules. The first big problem that we had as TelPay, as a bill payment business, with the Canadian Payments Association was that they passed a rule. Prior to passing it we had a lot of discussion with them about this rule. They said this wasn't going to affect TelPay at all.

Once they passed it, they interpreted it as saying that we could process customer payments that paid their utilities, their telephone bill, their hydro bill, and what not, but we couldn't process transactions that were in payment of a credit card, because those were variable payments and the other ones weren't variable.

That significantly reduced the value of our service to our customers; it upset them tremendously. At that time we were sending our transactions to each individual bank. So the CIBC, the Bank of Montreal, and the Bank of Nova Scotia said, well, you've been doing this all along before this rule came in, so keep on doing it.

The Royal Bank and the TD Bank said, no, you can't do that any more. So we had to tell all those customers who were banking with those institutions that we couldn't do this any more. Basically, it ended up causing us to change the direction of our business.

Four or five years after, the CPA finally did change the rule. I have boxes full of studies and correspondence and so on relating to this. They said variable payments were okay in certain circumstances, so you have to go through all that process to get something that made sense in the first place and that consumers obviously wanted.

• 1240

Mr. Ken Epp: I thank you very much. I'm looking forward to reading this other big one here that I didn't get through. I'll be reading that on the airplane while I fly away from here today.

Thank you for your presentation. It certainly has given me a greater insight into the necessity of allowing competition in an area like this to perhaps keep the big banks up on their toes to try to be as good as you are.

Mr. William Loewen: We still have a lot of innovations that we want to implement, and we can't do it with any certainty with the present situation.

Mr. Ken Epp: Thank you.

The Chairman: Thank you, Mr. Epp.

On behalf of the committee, I'd like to thank the panellists very much. As you know, one of the things that is becoming quite evident to members of our committee is that we do really have one of the finest financial services sectors in the world, and this is what everyone is saying. It's very important that we take stock of that, and we also realize that this is not only because of the regulation but also because of the great professionals we have working in all sectors.

As public policy-makers we try to be ahead of the curve, to define the future before it actually gets there, and that's our challenge. That's essentially what leadership is about. It's about the ability to paint the future. We have the benefit as Canadian parliamentarians to listen to individuals as yourself who understand the financial services sector and who give us great insight.

We are going to be guided by the fact that we want to develop a competitive system, one where the consumer is both protected and given a choice, given access to the greatest number of products at the best available prices. We also realize how important it is to have the type of system that is stable, because, as you know, the financial services sector has great input into the economic strength of a country and the generation of its wealth.

So on behalf of the committee once again, thank you very much.

The meeting is suspended until 1 p.m.

• 1242

• 1402

The Chairman: I'd like to call the meeting to order and welcome everyone here this afternoon. As everyone knows, we are here to study the MacKay report, to seek input from Canadians as to what the future of the financial services sector should look like, what the issues are that we should be looking at, and how we can, in fact, shape... If we can't predict the future, at least we can ask how we can help shape the future, which is really what this exercise is all about.

We have the pleasure to have representatives from the following organizations this afternoon: Allmar Distributors Limited; Mr. Bühler, Bühler Industries Inc.; Energy Consultants International Inc.; Farm Credit Corporation; Man-Shield Construction Inc.; and Ramboc Enterprises.

We will begin with Mr. Bühler, welcome.

Mr. John Bühler (President, Bühler Industries Inc.): My name is John Bühler. I'm the president of a small farm equipment manufacturing company.

My parents emigrated from Russia in 1929. I was not yet born. In 1956, with virtually nothing and a small loan from the bank, I bought my first business.

In my 12th year in school, that was in grade 9, I told my younger brother, who was already in grade 11, that I was going to borrow $1 million from the bank. He said I would have to increase the size of my paper route, and laughed at me. At that time I was dealing with the Royal Bank.

I had a problem. I knew what I wanted. I knew I would never be a scholar. So I quit school and went to work for the CPR as an assistant station agent. Soon I became a telegraph operator and then a station agent. I also soon learned that working for the railway is something like working for the government—I was getting to be an expert at doing nothing. So at the age of 22 I visited my banker again.

I wanted to borrow $5,000 to start a business. “How much money do you have?” he asked. I said “I wouldn't be here if I had any money.” I said “I do have $1,000.” He lent me $1,000; I started my business. Two years later I went back to the same banker for another loan. At that time he explained to me the debt-to-equity rule. I believed him, and I've lived by that one-to-one debt-to-equity rule during the rest of my 45-year business career, and still do.

I told him someday I would borrow $1 million from him. It took over 10 years, and I did. When I borrowed the $1 million, I established a new goal of $10 million. I reached that goal, and the banks willingly gave me the money.

I'm telling you this story because it drives home the point that guys like me, with only a dream, can make it with the help of a bank.

• 1405

I'm no particular friend of the bank. As a matter of fact, banks with me rate somewhere between lawyers, accountants, and consultants. But we need banks, and we could possibly do without the others.

Our business has grown over the years. We have two operations in the United States. Banks down south hardly know where Canada is, let alone understand our banking system.

The Canadian system is far above any American banking system I've ever had to deal with. We recently returned from the United Kingdom, from England, and I watched the news looking for some Canadian news. I could hear none. I could not even get the exchange rates, while the rates for all the smaller countries around there were published.

For Canada to become recognized we need to start somewhere. Swiss banks are recognized around the world. Why not Canadian banks?

If you must regulate, regulate the salaries of the CEOs of the banks. But don't stand in the way of the banks' growth.

If you must regulate, make banks pay taxes at the same rate my company pays tax—42%, after a manufacturing tax credit. My understanding is banks in Canada pay somewhere around 22% tax. I should get hold of their tax accountant, actually.

Our small company has over 600 employees. It pays over $4 million a year in taxes. I don't mind that. I just want to be treated fairly. To deny Canadians and myself the right to have an internationally recognized bank would be very unfair, in my opinion.

It will take years to complete this merger, and in my opinion, we should stop talking and we should start doing.

Banks are owned by ordinary Canadians like you and me. Why wouldn't Canadians be proud to say we have one of the biggest banks in the world? Don't listen to all the negative talk. Why can't we as Canadians dream of being great? If a grade 9 dropout can dream and end up paying over $4 million a year in income taxes, why not allow the banks or the bankers to dream, and let them pay $4 billion or maybe $40 billion a year in income taxes? Maybe make them pay $40 billion a year in income taxes. But let them grow.

In summary, I support this merger. This is just the beginning of a good thing for Canada. If we want this country to grow, we cannot be afraid of change. I would like to see a world-class, globally recognized Canadian bank. This bank could do more for the image of Canada than anything else, and will certainly do more to prove Canada's strength to the world than any politician's speech, which is all we seem to be getting these days.

Thank you.

The Chairman: Thank you very much.

From the Energy Consultants International Inc., Mr. David Farlinger, president.

Welcome.

Mr. David Farlinger (President, Energy Consultants International Inc.): Thank you, Mr. Chairman and honourable members. I have with me Mr. Sandison, and we are principals of Energy Consultants International Inc.

Mr. Bühler sounded like he wasn't too happy with consultants, but perhaps he could give us an opportunity to see what we could do for him. Maybe we're the consultants he was referring to.

Anyway, Energy Consultants International Inc. is a small business. We carry out work that I would call, in the field of energy, engineering economics feasibility studies. We do a lot of rate works and rate analyses. A big majority of our work would be for regulatory authorities, both in Canada and internationally.

I should just mention that my colleague and I had a larger engineering firm with a staff of about 300 and revenues of $20 million, which we sold several years ago and then went back into business in a more specialized and smaller way.

Thank you for the opportunity to make this presentation today. Although we understand this committee has a broader scope, we wish to speak specifically with respect to the subject of bank mergers and how they may affect us as small businessmen and individuals, both now and in the foreseeable future.

• 1410

Having recently chaired the public participation program with respect to the 1997 Red River flood, one of Canada's largest natural disasters, we understand the importance of Canadians coming forward to present their views in a balanced fashion.

In order for us to present our thoughts today it was necessary to carry out quite a significant amount of research into the Canadian banking industry. We understand the following to be of significance and importance.

There are profound changes occurring in the Canadian banking industry, as there are in many industries, as a result of globalization, advances in technology, and demographics. The banking industry in general is highly competitive, as is the whole financial services area. A strong domestic banking system has enabled banks to develop a strong base in Canada and to establish from this base a strong international presence to the benefit of Canadians. In this respect, the banking industry is similar to our engineering industry and to many other Canadian industries. We feel this is a very important point. You have to have a strong base in Canada to be able to compete internationally.

Customers are drastically changing the way they bank as a result of technological advancement. This has presented severe challenges as well as opportunities to the industry. As the result of a number of factors, Canadians now place a majority of their savings in mutual funds and the bond market rather than with banks. Thus the banks' market share is declining and the branch network is threatened as a result of lower demand and loss of economies of scale. In addition, large single-focus specialists like credit card and mortgage companies are using size and technology to compete very effectively, at the expense of banks.

We believe we need a strong domestic banking system to provide services to Canadians all across the country and to enable Canadian banks to expand in the international marketplace, thus creating jobs at home and wealth for Canadian shareholders. In this context, we wish to relate to you circumstances regarding a recent bid for work in Mexico, where we have been heavily involved in the privatization and development of the natural gas industry over the past two years. In this case, we needed to put a bid bond and a performance guarantee in place in very short order. We were able to do this relatively quickly through the relationship of a Canadian bank, in this case the Bank of Montreal, with Bancomer, a Mexican financial institution. If it had not been for this relationship, we could not have secured these instruments in time to place the bid.

This illustrates the need for Canadians to have a strong banking system at home so that it may develop a strong international presence for the benefit of Canadian industry. And as an aside, I'll just mention that certainly the Mexican institutions are very up to date with all the latest technology and can provide strong competition in the future.

We believe that in the banking industry, as in many industries, when it comes to technology and providing competitive services, size and relative expertise matter. For these reasons, we have concluded that on balance the mergers are necessary and in the interests of Canadians.

Mergers will enable Canadian banks to continue to develop a strong base in Canada from which to expand internationally, thus preserving and creating jobs at home; help to preserve the branch banking system through economies of scale; allow Canadian banking institutions to be globally competitive; enable critical investment in technology as well as in new products and services; and allow Canadian banks to better compete with the large single-focus institutions.

If the mergers do not proceed, we believe there is a real risk that there will be severe implications for the industry in Canada, including loss of jobs and loss of tax revenues. Even more seriously, the impact will not be recognized for some time, and by then it will be too late to do anything about it.

We strongly believe that you cannot change or overturn market forces, which are inexorably driving banks towards mergers in order that they may protect their current position and thrive in the future.

Mr. Chairman, that's our presentation. We'd be pleased to answer questions after.

The Chairman: Thank you very much.

Now we will hear from the Farm Credit Corporation, Mr. John Ryan, president and CEO. Welcome.

Mr. John Ryan (President and Chief Executive Officer, Farm Credit Corporation): Thank you, Mr. Chairman and committee members. I'm pleased to be here today to discuss the future of the financial services industry as it relates to Farm Credit Corporation. However, prior to going into the full presentation on the MacKay task force recommendations, I'd like to do just a very brief outline of what Farm Credit Corporation is all about.

We were established in 1959. We are Canada's largest agricultural term lender. We have some 70,000 customers across the country. Our 900 employees are situated in 100 offices in rural Canada. Our head office is located in the heartland of farming, considered to be Regina, Saskatchewan.

Demand for our services is continuing to grow. Last year we authorized $1.5 billion in new financing, which is up from some $600 million in 1995. That's tremendous growth over a three-year period. We are on a solid financial footing, having generated a profit for eight consecutive years. Overall, our portfolio has grown to something like $5.3 billion.

• 1415

The Farm Credit Corporation is 100% focused on agriculture and rural Canada. We therefore feel we have a unique perspective to offer today, given the uncertainty and turmoil taking place in the financial services industry. We have offered the agricultural community an alternative in the past, something I expect will become even more important in the future, given the consolidation of the financial sector and the depressed economic cycle we presently find ourselves in. The appendices in the handout will provide more detail about Farm Credit Corporation and the products and services we offer.

On behalf of Farm Credit Corporation and our customers, I would like to address certain key recommendations put forth in the MacKay task force report that affect agricultural communities across Canada.

The MacKay task force states that strengthening competition is the centrepiece to achieving the vision set forth in the report. We believe that strength in competition and increased access to capital are critical in order to bring the Canadian agricultural industry's collective vision to fruition.

In this context, I'd like to refer to the three As, one being access, two being availability, and three being alternatives. All Canadians must have access to financial institutions through various channels, be they electronic, by telephone, or indeed by person. They must also be assured of availability of credit, regardless of where they are running their business. And they must feel they have a choice of whom to deal with and the ways they are being served.

The agriculture industry is experiencing radical change due to the impact of globalization and competition. Only a few years ago, for the majority of producers agriculture was still defined in the traditional sense: the act of growing commodities. Today the landscape spans the full spectrum for the value of change, from producers of raw material, processing, packaging, through to the final destination: the consumer.

The agricultural sector is a vital element in our nation's economic fabric. It is faced with the challenge to increase Canada's share of world agricultural and agrifood exports from 3% to 4% for the year 2005. That equates to $40 billion in exports annually, which would be up significantly from the $23 billion we are currently experiencing.

Recommendation number 17, regarding technological advances in banking such as Internet, would increase access and promote competition. A recent Canadian survey shows that 50% of farmers plan to be on the Internet for the year 2000.

Vehicle leasing, as recommendation 21 asserts, also would increase the access to services to increase competition in the marketplace, thereby benefiting consumers. Due to the rising cost of ownership, we also see the popularity of leasing farm equipment has increased over the last couple of years.

FCC strives to consistently meet the intent of recommendation number 53 regarding open disclosure.

In sync with recommendation number 79—that each financial institution appoint an internal ombudsman—FCC's loan review boards across the country provide first recourse for our consumers who wish to appeal any decision Farm Credit Corporation has made in the declining of a loan.

In agreement with recommendation 102, which addresses the problems of frequent turnover of business account managers, I am pleased to report that FCC has remained a strong and stable presence in rural areas across Canada.

Recommendation 104, relating to higher-risk borrowers, is an important issue for producers and agri-businesses dealing in value-added processing and leading-edge processes.

Recommendation 107 is consistent with what our clients are telling us. Given the challenges of globalization, increased competition, and deregulation, we have to transform our industry at an unprecedented speed. This is only possible with the acceleration of knowledge-based initiatives, especially in the field of new technologies like production techniques, biotechnologies, and engineering, all of which need research, patience, and money. This creates increased demand for seed and venture capital.

To quote Hal MacKay, change comes through the action of leaders, entrepreneurs, and innovators. We can't ignore them or pretend they do not exist.

Speaking from an agricultural lender's perspective, the status quo is not an option as the agricultural sector and indeed the entire global economy continues to change. As we evolve to a global community there's a need for more than one model. Yes, there will be a need for larger full-service financial service providers, but we also believe there is a need for strong niche players. We believe Farm Credit Corporation fits this latter role. We are focused exclusively on agriculture and its diversity of commodities and indeed businesses. As a vital component in the economy, the agriculture industry deserves considerable attention to ensure its challenges are not overlooked nor its opportunities not capitalized on.

• 1420

In conclusion, then, I'd like to commend the MacKay task force for their work in constructing a report that is both visionary and straightforward. We, too, look forward to working in a spirit of partnership with other financial institutions as the agriculture industry continues to change and to find opportunities to grow. We believe the Farm Credit Corporation is in an ideal position to adapt to the changes affecting both the agricultural and financial services sectors, and we are open to discussing ways we can align our business with the task force recommendations to be adopted by government.

We are wholly committed to the industry, which is situated in rural Canada, and we are striving not only to keep pace with the transformation occurring but also to lead the way in agricultural financing.

Mr. Chairman, that concludes my remarks, and I'd be happy to entertain questions at your pleasure.

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

We'll now hear from Ramboc Enterprises, Mr. Tom Struthers, president and owner. Welcome.

Mr. Tom Struthers (President and Owner, Ramboc Enterprises): Mr. Chairman, and members of the committee, I want to start off by saying I finally found something I beat John Bühler at, because I graduated with grade 10.

Our corporation is involved also in the agricultural industry, so the process and changes described by Mr. Ryan are things we see every day. We're very cognizant of the broader global aspect of the business as it is now.

The role the bank plays in my business is as a lender, an innovative service provider, an adviser, a consultant, and a future strategic partner. What Ramboc Enterprises needs from the financial industry is a financial corporation owned and operated by Canadians, a competitive lender, a service provider, and a corporation that has global operating solutions for us and knowledge-based consultative services.

The bank my business needs must be managed in Canada, with a full understanding of my banking needs worldwide. This means a successful Canadian bank that can compete globally. The bank I need will use world-class technology to deliver comprehensive services, such as worldwide chequing, electronic letters of credit, global credit assessment services, foreign exchange services, and new competitive technological products, as they become available. The bank will have to have knowledge of all products that will keep me competitive on a global basis. The bank will have to have knowledge of all aspects of my business, including forecasting, exchange trends, and risk management.

In the beginning my bank loans me money. That was simple enough. I bartered for the best rate, period. As my company grew, the role of my bank expanded to provide foreign exchange services, futures, and foreign chequing services. As we needed leasing and mortgage services, these were provided by the Royal Bank. Along with these services comes good banking advice and corporate mentoring. Our bank is like a partner, identifying opportunities and helping raise the status with our customers, suppliers, and potential new clients.

The role the Royal Bank has played in raising our profile in our industry and in our community is huge. I have choices in my banking partners. We are a very successful corporation, and every week I get calls from the Royal Bank's competitors. However, not once has the Royal Bank or any of the other banks ever displayed to me their bigness.

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I'm very concerned if the government believes they need to control the Canadian banks' right to grow and take advantage of technology to deliver services. The opportunity is right now for our banks to make the necessary changes to be a player on the world stage.

Unfortunately, the Canadian banks, the government, or the Canadian people created the need to change, but that need is real. The Canadian government's role should be to encourage courageous CEOs of our banks who take great corporate and personal risk to envision a corporate entity that has a chance to be a winner on a global scale.

Their decision to merge is not a guarantee that they will be successful. There is great risk for them. They need the full support of the Canadian government. If the government acts to facilitate these changes, we will all be winners.

The alternative is having banks weak or having them owned or controlled by huge foreign banks that will not have Ramboc's best interests at heart. If the government believes that a strong financial services sector is important to Canada and Canadians, please have them understand that they must move quickly to help these Canadian institutions survive and prosper.

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

We will now hear from Mr. Joe Bova, manager of Man-Shield Construction Inc. Welcome.

Mr. Joe Bova (Manager, Man-Shield Construction Inc.): Mr. Chairman, members of Parliament, good afternoon. Welcome to Winnipeg.

I came to this country from Italy some 36 years ago. Since then, this country has provided me with a university education, a family, and a business, all of which I'm very proud of. I've also been a client of the Royal Bank since then. I must admit that I appear before you with a bias towards the bank and also towards Canada.

Abraham Lincoln once said “A country is like a child. As the child grows, one must change his trousers; otherwise he will either stunt his growth or he will break out of them.” I believe the MacKay task force report meant to say more or less the same thing when they concluded that the changes are inexorable and we cannot ignore them or pretend they do not exist. For financial institutions, their customers, and public policy, reliance on the status quo is no option.

Given that change in a dynamic and evolving society such as Canada is inevitable, I asked myself how will this bank merger affect me as a private citizen, a family man, and, just as important today, as a businessman. One of the reasons I decided, and perhaps the most compelling reason, that this merger should not take place, is founded on the notion that the merger will reduce the banks' competitiveness for customers in the marketplace. I would like you to know that I don't believe this for a single instant, and these are the reasons.

If the same logic would follow, one must then conclude that in a Canada with one super-bank emerging from combining the Royal Bank and the Bank of Montreal customers would be treated poorly. Indeed, potential new customers would not even be considered. The logic as to why any business, including financial institutions, no matter how large or monopolistic their situation might be, would ever assume this position escapes me. Their business, like mine, depends on increasing their client base, not reducing it.

I believe that my bank manager would authorize a loan or a mortgage to me not because I could possibly take my business anywhere, but because it considers lending money to me both from a business and personal point of view a good business venture. If I am a poor risk, no bank will ever lend money to me no matter how many banks there are or how big they are. This is not to say that I do not want more banks in Canada. Indeed, as the MacKay task force report concludes, taking down the barriers and letting as many banks as possible into this country is the preferable course of action. However, one must not confuse a bank merger, which is a business decision, with my bank's ability or even its desire to treat me fairly.

• 1430

Others have reasoned that if the merger takes place, hundreds of bank branches across Canada will be closed and thousands of people will lose their jobs. That worried me. My sister is a bank teller, thus I went to talk to her. I have to admit it wasn't just because I wanted to write this presentation. I had a bit of self-interest here too. I'm sure Mr. Bevilacqua knows what happens in an Italian family when one of the members loses their job; I would probably end up supporting her for a while.

My sister told me that branch closings and staff reductions through attrition have been going on and have been the norm for years. Today, with the introduction of Internet banking, ABM machines, and telephone banking, less than 15% of all financial transactions are done personally at any branch—less than 15%. That is the reason. So I asked what will happen to her. She said she was being trained to move up to the personal banking department within the bank.

If there is one thing that has never changed in the world, it is that change will happen at one point or another, and one must adapt. Take, for example, the government you are most responsible for, the Government of Canada. It had to change its administration substantially over the last ten years. In fact, the Government of Canada has restructured, merged, and even eliminated not only certain programs, but entire departments. Imagine for a moment that the great guardian of public programs and public administration, the NDP Government of Saskatchewan, had to cut hundreds of hospital beds and hundreds of civil service jobs. They did it not out of dogma, but out of necessity.

Yet I honestly must question our right as a country to even sit here and debate whether we would grant the Bank of Montreal and the Royal Bank the same right to do what you, the Government of Canada, has had to do over the last ten years. More importantly, I have to ask myself what do we lose if this merger does not go through?

I'm the father of two sons; one a university graduate of the faculty of management at the University of Manitoba and the other one soon to be one. What will their future be if in this country our banks are not allowed the means to compete globally? Indeed, what will their future hold if we as a country can't think in global terms? What will happen to them when we have reduced our financial institutions to smaller entities, unable to fend off foreign takeovers—I think there is a very good chance in the future that this might happen—and reduce our ability to compete in world markets?

I'm not talking here about the efficiencies that may or may not be there through a bank merger, and I think you know that there will be efficiencies. I'm not even considering the possibility that these efficiencies could be passed along to me, the consumer, in cheaper bank charges. I don't think that is the real question. It's just money. The real question is, shall we bury our heads in the sand or take the challenge and join the most economically advanced countries in the 21st century, becoming no longer a nation of hewers of wood and drawers of water? That was good enough for me while I grew up in this country, but I honestly don't think that's good enough for my children.

• 1435

Someone said long before I came to Canada that the 20th century will belong to Canada. You represent the political leadership in this country. Well, did the 20th century belong to us? If not, why not?

I dare to tell you it didn't because we were content to be hewers of wood and drawers of water. We were happy with a culture based on political compromise and possibly mediocre achievements.

The 21st century will not allow us to get away with this any more. Any country that fails to take up the challenge of globalization, any country that steps back into its comfortable past, will have to live with the 50¢ dollar or, worse yet, will be relegated to the dustbin of history.

So much like Abe Lincoln, much like his child, you either help him get bigger trousers or you will be responsible for stunting his growth or, worse, breaking out of his pants.

Thank you.

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

That concludes the presentation from the panellists. We'll have one fifteen-minute round. Mr. Epp, we'll begin with you.

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

I'd like to begin by simply thanking you all for your presentations. I think I might even speak on behalf of the whole committee in saying that we appreciate and enjoy the different perspectives that all of the witnesses are bringing to this committee.

I wrote a few notes on my computer. In the banks section, I have things I heard from the members. Point one says that banks should merge; point two says banks should not merge.

We've heard the arguments for both sides, but of course this committee is consumed with much more than just the question of a process for bank merger. In fact, as the chairman would point out, the MacKay report does not even expressly address the issue of the mergers in front of us, but it does talk a little bit about the process of proposed mergers or other realignments.

I'd like to begin with Mr. Bühler. You said we should not stand in the way of businesses. I basically got the impression from you that the banks were within the confines of their rules, and I suppose the rules imposed on them, and that they were fair with you. But you talked about the banks paying fair taxes.

Now, if the banks are charged more taxes, they will simply charge you more interest, because the banks are there to make money for the shareholders. If one of their costs is more taxes, then they will simply pass that cost on to you, as a borrower or depositor, whatever. So it really doesn't make any difference.

Why would you be concerned about them paying taxes?

Mr. John Bühler: Mr. Epp, I love your logic. I think we should also reduce my taxes. Then I wouldn't charge the farmers as much for their equipment. This can keep going on down the line.

There should be no difference. We're not here to talk about taxes, but there should be no way... I'm in favour of this merger, but if this merger allows the banks to get away with even lower taxes by being... They can get away with lower taxes now because they're international companies, but that shouldn't be. I'm an international company, but I just don't want to play that game. I don't want to be fighting with Revenue Canada.

Your logic totally escapes me. I'm sorry, I can't buy that logic. I've heard it before, but it doesn't make sense.

Mr. Ken Epp: There's no logic in my question.

Mr. John Bühler: Oh.

• 1440

Mr. Ken Epp: My question is simply for you to expand on what you meant when you said the banks should pay their fair taxes.

Mr. John Bühler: That's what I meant. Everybody should pay their fair tax. There should be no different tax structure just because a company is global or international. Everybody should pay the same tax. That's all I'm saying.

Mr. Ken Epp: Okay.

Do you feel that if the banks did in fact become merged—and I suppose I could ask this question of all the witnesses here. We're talking about competition. I don't remember who, but one of the witnesses has said we should basically open the gates and let in as many banks as possible; let's have competition in the banking industry, as in other businesses. If that were true, then perhaps we would have more competition in the niche markets or in specialized areas, or perhaps locally, but if the large banks become even larger and more impersonal, will your business be better served or not as well served?

Mr. John Bühler: I'll answer first, then.

Our business is becoming global, and we need a global bank. But what really tees me off is when I go to England, they don't even know about Canada. Around the world, the Swiss banks are known, but nobody knows about Canadian banks.

Fifty miles or two hundred miles south of the border, or if you go down to Memphis and Louisville, they hardly know we exist. As a matter of fact, somebody asked me if our Mounties were still all riding horses, and that was as recent as two years ago.

They literally don't know what goes on. Canada is not being recognized. Short of having politicians go up and make still more speeches and brag about how good we are, I don't know what tool we can use to show how strong Canada is.

To me, money talks. If you have money, you have power, and if you have a strong bank, you have power. Let's not just escape that because we want to regulate and keep everybody poor. We need a strong bank in Canada.

Mr. Ken Epp: Okay. Do any of the others have a comment on that question? If not, I'll carry on.

Another idea that has been mentioned here is that the banks should become more able to help us in our international dealings. We've heard that from a number of witnesses, even before the current table of witnesses came.

How serious are you in your complaints about the present situation? Are you really unable to do the things internationally that you want to do because our bankers currently are not able to deal in the international market? Is that really a factor, or is that just something that's already not too bad and it may be improved a little if we were to enhance that part?

Mr. Tom Struthers: The point I want to make regarding that is not that the bank service has been particularly good or particularly bad, but if the banks aren't allowed to get the economy of scale to buy the technology and be able to put the infrastructure in place to be able to serve us, then certainly they will be.

I anticipate that any curtailment of the banks' ability to be able to make their banking decisions and move ahead in this very fast-moving world and the whole process of delaying this merger for a year while we sit here and discuss it is hugely hurtful for those corporations. Right now, the whole banking world is sitting there planning against the Royal Bank and the Bank of Montreal, because they know this merger is imminent. They're hamstrung. They can't move forward.

So if we curtail the banks' ability to be able to run their business, then they hurt those banks and those corporations, and it hurts me.

Mr. Ken Epp: But my question is, right now are you really limited in your ability to enter the export market because of inaccessibility to proper international banking services?

Mr. Tom Struthers: Right now, we're not, but if these banks are not profitable, if they're not strong, and particularly for me, if they're not Canadian-owned so that I can have dialogue with them and partner with them...

The next process you'll be dealing with as a government, if you prevent this movement by the banks, is a merger with the Deutsch Bank and the Bank of Montreal because the Bank of Montreal is no longer able to be a viable entity. So what will happen to me? I will then be dealing with a German bank instead of a Canadian bank.

• 1445

Mr. Ken Epp: Another issue that comes to mind is the issue of how the banks actually deliver their services. We know that increasingly they are going into the electronic means of communicating with their customers. In fact, I'm one who hasn't been to my bank for a long time because everything is done by remote.

There's this question of branch closures whether or not a merger takes place. There's a greater impersonalization of banks as they tend to move towards offering their services through telephones and computer networks. For people who are in business, and several of you mentioned this, it seems to me you need to have a banker who understands you. You have to have a banker who knows the international market. So it looks to me like you're looking for some fairly personal attention. Meanwhile, if the banks proceed with closing branches and reducing the number of people in their branches, then that accessibility to real people who understand you would probably be reduced. Is this how you see it, and is that a concern?

Mr. Tom Struthers: When I tried to get a hold of the government to make my application here, in more than about four or five instances my phone was answered by a machine. So I submit to you that the government is already... Every lawyer's office has a machine answering its phone. You can't stop that. That's the way the world is going. For us to sit here and think we can run our businesses one way and ask the bank to run them in another—you might as well get used to the fact that there's going to be less infrastructure; there's going to be more electronics. If we stop the banks from doing that, they're going to start losing money.

Mr. David Farlinger: I'd also like to respond to that. I don't think it necessarily follows that the service has become more impersonal. Although staff is being reduced, there are many people out there who prefer to use the new technologies and the new remote ways of accessing the bank accounts and the banks. Although staff may be reduced, there's very likely a fewer number of people looking for a one-on-one relationship on a steady basis with the banking personnel. It's important to have that kind of a relationship to business, and I don't anticipate that this will change.

Mr. Ken Epp: Okay. So that's not a problem then?

Mr. Joe Bova: Your question suggests that the banks would literally let go of all their personnel. I don't see myself in the future not having the ability to pick up a phone and phone my account manager, for example, and discuss a business transaction in the United States. That may happen anywhere in Canada or in the United States or anywhere else. That's not what this merger is all about.

I don't think it takes away from the bank the human element. We're not turning this new bank into a new super-machine, so to speak. I don't think anybody has ever said that or even intended that. There are changes going on both in government and in our society at several levels. If you don't take the challenge, we will lose more than just an opportunity to be world players here.

Mr. Ken Epp: I always wonder why people come to a government committee like this in order to express their views. A lot of people who have come to our meetings are concerned about some of the provisions of the MacKay report. They're against them. Here we have a whole table of people who seem to be simply giving the other side of the picture and saying “Hey, MacKay did a good job. We have no problems with any of the specific recommendations. Help the banks grow and away you go.”

Am I reading your reason for coming here correctly?

Mr. Joe Bova: It may be due to the fact that we live in a city that for the first time in a long time is beginning to feel the opportunities that come with change. The NAFTA has developed new markets for us north-south. We have been dealing with this whole new concept of one port becoming a transportation centre for it, the transportation hub for a good portion of the world.

Because of our geography, Winnipeg is becoming more and more synthesized by the changes that are going on both in terms of how we deliver information and how we deliver services.

• 1450

We're beginning to realize here, perhaps better than other places, that if you do want to become a player in the 21st century you can no longer live by the same game plan and rules that we did for the last 50 or even 100 years. Perhaps that is the reason...I am not trying to diminish any other city in Canada. We are very sensitive to the fact that if we're ever going to have a hope and a chance out here, we have to take advantage of this new technology. Merging these banks is part of that game.

I don't think we are afraid here perhaps as much as in other places to play the world game as opposed to the national game or the town game. Canadians are good enough to play the world game.

Mr. Ken Epp: Yes, I agree.

Mr. John Ryan: Mr. Chairman, the purpose of my attending, in responding to your question, Mr. Epp, is more to talk about not so much the mergers but indeed the various recommendations put forward in the MacKay task force from my particular perspective of what impact this has on the agricultural community. If I go back and look at some of the questions you have raised in relation to whether you're in favour of mergers or not, it was adequately spelled out in the MacKay task force. It is one option. It is one business strategy, but it's not going to be for everyone.

From a technology point of view, it's all going to be electronic banking. There are some people in the community who would very clearly support that. In many respects it will boil down to the choice of the individual consumer. Some prefer to be able to have access after 5 p.m., after 9 p.m., on the weekends. Some want that personal service, depending on what the issue is or what they want to discuss at the particular time. It's not an either/or. It's a combination of things when we look at this.

The Chairman: Thank you, Mr. Ryan. Mr. Farlinger.

Mr. David Farlinger: I'd also like to respond to that. The reasons for our attending today were twofold.

Firstly, as I mentioned in our brief, we just had the experience of going through a very public process, and we knew how much we appreciated people appearing before us and giving a balanced presentation.

Secondly, what we have experienced in public processes in the past is that often the people who are against certain events taking place will appear, whereas those who are in favour of them won't bother to do anything. They will just sit at home. So we wanted to come and make our thoughts known.

The Chairman: Thank you. And thank you, Mr. Epp.

Mr. Ken Epp: Mr. Chairman, my time is up, clearly, but I would like to end this part by saying that I certainly appreciate the entrepreneurial spirit. I love people who say that just jumping through hoops at university isn't the only way to be successful. I commend you all. The guys at this end who dropped out of grades 9 and 10 remind me of my dad who dropped out at grade 8 and, after I left home, became successful. I think perhaps there's a correlation.

I hope to come back on another round. Thank you, Mr. Chairman.

The Chairman: Thank you very much.

Before I go to Ms. Bennett for the final question of the session, I'm going to allow Mr. Pinto to make his presentation.

As everyone else, you have approximately five minutes to make your presentation, and thereafter I'm sure we'll have a lot of questions.

Mr. José M. Pinto (Vice-President of Finance, Allmar Distributors Ltd.): I want to apologize for being late. I just arrived from Toronto. The traffic just didn't allow me to get here on time.

I would like to make a very brief statement, based on three points as to why, probably as most of the others, I do support the idea of a merger so that we can create an institution that has both size and power.

First, change has already been mentioned, and it's very much a part of it, but how to control change is a question that I would like to leave with you.

Second, there is the question of what we are going to be doing in regard to the new rules that are going to be required to manage the global financial needs that are obviously not in place now to regulate the banking and all of the other financial functions. Who is going to be writing these rules? How important is it that we have institutions of size and weight that can sit at the table and be part of writing those rules?

Third, where are we going to find the resources to develop the tools to invent the future?

We need to have institutions that have enough power and enough strength in terms of assets and the capacity to invest at a level that indeed is going to be able to create the new ways of doing business.

• 1455

Just to develop those, the first is the ability to control change. The last year is evidence of the speed, uncertainty, and instability of change. The Asian flu, the drop in the markets, the economic downturns, the influx of new global financing institutions with massive asset bases and aggressive, rich methods of procurement are continually changing the financial services landscape. We need to have our own Canadian financial institutions to respond, control, and manage these changes with the best interests of Canadians at heart.

Those institutions must have the size and power to compete. That power will give them the right to have a seat at the table where the rules for the global financial industry will be written. We are aware new rules need to be developed. Our Minister of Finance is a strong proponent of it, but his voice will be faint unless backed by strong institutions that can be a competitive presence anywhere in the world.

The next item is the resources to develop the tools to invent the future. We have heard the criticism about the profits the banks have made, in the last few years in particular. What is not common knowledge is the huge investments that have been required to introduce the evolution of the delivery systems that are being used today, such as Interac and ABM. A few short years ago what we are using now did not exist. What will it take in investments that will create the future? I strongly recommend the bank mergers, which will create institutions that will be able to control change, that will be able to be at the table to write the needed new regulations, and that will, indeed, invent the future.

Thank you very much.

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

We'll now go back to the question and answer session with Ms. Bennett.

Ms. Carolyn Bennett: Thank you.

The panel has been quite interesting today in that it's quite an about-face from a lot of the panels we've heard.

As you know, this committee is looking at the recommendations in the MacKay report. What I'd like all of you to comment on would be just what you think of the merger review process the MacKay task force has put in place, in that he's recommending even amongst large banks that they shouldn't automatically be barred. But he has put in place what some people would say is too onerous and others would say is an important set of stages that would have to look after the public interest, the Competition Bureau, all of those things. Some of the earlier panellists were talking about the Royal Bank/Bank of Montreal merger and the fact that we've ended up with another one on top of that, and if those two then joined, at some point Canadians are going to say there is too much concentration. So there has to be a place where all of those things get weighed.

So I would like to know your reflections on Mr. MacKay's recommendations as to who would be in charge of public interest or if public interest should be looked at, whether you're all happy with this, so the government should just back off and never ever have a say. If there were to be a public interest component, who should be in charge of that process, and should that be the role of government? There are some people who will say to us that the one merger might have been okay, but now that there are two, there's too much concentration. So we have to go back to the drawing board and look at a process and a way of looking to the future of the financial sector.

• 1500

Mr. Joe Bova: I went through the MacKay report. I'm not an economist, so I want you to take what I'm going to say from where it's coming from, but it did say we should allow bank mergers. It also said we should start taking down the barriers and let other banks and financial institutions play a much bigger role in this country than they have to date, including allowing foreign banks to come into Canada. I think it also discussed the level of ownership any one person can and cannot have. So you can't divorce these two elements.

We are arguing that if this country is going to join the 21st century, give these people the ability to do so. That doesn't mean you're going to restrict competition. In fact, you can help by opening the doors.

I never heard the Royal Bank, the Bank of Montreal, or any of the major banks say don't allow foreign banks into this country, don't allow credit unions to have a bigger role, or don't allow life insurance companies to have a bigger role in this country, at least not to my knowledge.

When you are looking at the public good and the public interest, as you should, you have to look at it from two perspectives. The first one is to make sure this country is good and ready to compete as it should in the global market. Give us the means and the ability to do so. The MacKay report's recommendations are necessary to bring some fresh air and some fresh wind into this thing called the financial establishment of this country, and allow new players to come in. I don't think the big banks are concerned or trying to stop that.

I think if you are interested in the public good, those two recommendations are both excellent. I don't think one works to the exclusion of the other, not the way I understood it.

Ms. Carolyn Bennett: I guess the other thing, if everybody would comment, is MacKay also says banks should be allowed to do car leasing and sell insurance in the branches, and all of those things. It seems there's a chorus here of wanting strong banks for this country. Do you think those things are part of that? Are they not necessary, or do you think mergers are enough and the other things aren't necessary? Which would you put as more important? Do you think it would be good for Canadians if both things were allowed—the mergers and expanded services?

Mr. John Bühler: I think Canadians would be well served if banks were allowed to do leases, or do whatever they want to do. Just don't allow them to start manufacturing farm equipment, please.

I think it would be perfectly all right if four of the banks got together and merged. I can only see one big Canadian bank. We're talking about a global economy, and Canada's banking system isn't known in the global economy. We're not recognized anywhere. So why not take the step and join all five banks, if need be, into one big bank and be something we can be proud of, instead of four banks fighting with each other? We wouldn't have to watch all these crazy advertisements. We'd have much less advertising.

Ms. Carolyn Bennett: I would suggest maybe for your next trip you go to the Caribbean. There's a good presence of Canadian banks down there anyway. You might feel better, Mr. Bühler.

Mr. John Ryan: I would like to respond to your questions as they relate to the interpretation of the MacKay task force and the various recommendations.

My interpretation is that he's clearly trying to put forward a balance. We need to look at public interest at the same time as the business interest, and there needs to be a balance of both. It was best described when he talked about it being neither a green light nor a red light, re mergers, but a yellow light. So let's look at all the facts to make sure they're on the table. I think that's an important exercise we need to go through.

I don't think they were just talking about mergers; it was more important. They were saying let's look at the full picture. It's one thing to talk about mergers, but the other thing—and I think this is where the balance comes in—is to open up the gates. Let's have enhanced or increased competition so it makes for a stronger financial services sector overall.

We have to look at both enhanced competition and the merger aspect. I think the point he makes about leasing is a good example. Leasing has become much more popular here in Canada, and 45% of new vehicles that have come into the market in the last year have come via leases.

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We see in the agriculture community more and more people looking to lease as an alternative to buying. So at the end of the day, if that's beneficial to the consumers, it should be allowed. I'd certainly be in support of something like that happening.

Ms. Carolyn Bennett: Mr. Ryan, one of the concerns has been that bigger banks may leave certain areas that aren't as profitable. One of the concerns the committee has had is whether the strong niche players have the capacity to pick up the slack in those areas that might be vacated by the banks, and the consumers would be left without. Are you confident that farm credit and organizations like yours will be able to pick up whatever is vacated by the banks?

Mr. John Ryan: It would be very much dependent on what the banks vacate. But as a general response to your question, I would say there is a role for strong niche players, and that's really what I was putting forward in my opening remarks. I think the MacKay task force talked about building up a tier two in the financial institutions sector. If it makes good business sense, you'll see the competition is there, as long as the barriers are not too high or somehow slanted in favour of one versus the other.

Ms. Carolyn Bennett: There was a tone of let's get on with this, and I guess there's a problem from our committee that we don't want to do this too often, so we want to get it right. The banks asked for this task force and, before it could report, announced the mergers. I think some people feel pushed into having to come up with an answer in a hurry, when it was to have been a very thoughtful process.

Do you think the MacKay task force recommendations should be taken as a package? Do you think the easy ones should be done and the hard ones put aside? If you were going to give recommendations from this committee on what to do with MacKay, do you think there are things that must be looked at as a full package, things that have to be done in a timeframe? What would be your approach?

Mr. John Ryan: Just to reinforce the points I was making earlier, if you start to unbundle and just take one segment of it, do you have the balance of the MacKay task force to try to bring forward? For example, if you deal with the area of mergers but not with breaking down the barriers to enhance competition, I don't think you'll have the balance.

The Chairman: Does anyone want to comment?

Mr. José Pinto: At the speed things are happening, if we are going to wait until all of the recommendations can be implemented, we will probably wait for quite some time. I don't think we can afford that as business people, and certainly the financial institutions can't afford it.

They may have announced the merger ten months ago precisely to make us aware of the urgency that is there. They are the best informed people when it comes to competition in the marketplace, so they had a reason for doing it that way. I believe if we wait until we have looked at all the implications of the MacKay report before allowing some of these things to happen, we might be too late.

The Chairman: Do you see a role for the Competition Bureau? You seem to imply from your comment that the only people who know about competition are the bankers. Don't you think consumers know about competition?

Mr. José Pinto: They know about the competition and should take advantage of it. That's part of the function of government, if there is a function for government in regulations and so on.

The Chairman: There is a function.

Mr. José Pinto: Yes. I believe the competition as it exists today—and I do not know if it will change—might be good for the consumer or it might not be so good for the consumer. It might be good for the consumer and not necessarily good for Canada.

If foreign banks are going to come in here with some of their programs and most of the profits are going to be taken away from here, how good is that for Canada?

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I see a place for competition, and the consumer ought to be aware of the value of competition. But to respond to the question of whether we should wait until all of the recommendations of the MacKay report can be implemented before we do anything, we would probably be wasting time and might be too late.

The Chairman: I think Ms. Bennett was referring to certain recommendations that speak to increasing competition prior to a major merger like the ones proposed. In other words, do you plant the seeds before you engage in full-blown mergers or not?

Mr. José Pinto: I would not take the farmers' approach to this because the farmers also have to just sit back and wait for those seeds to grow. Sometimes it is an operation of faith, and so many things can happen. The weather can go...whatever. Sometimes there may be nothing there.

The Chairman: Mr. Bova.

Mr. Joe Bova: You may want to start to answer that question this way. There are a lot of good things in the MacKay report, and when it talks about increasing the markets for other banks or other financial institutions to come in to provide more competitiveness, that is tied into the mergers to some degree.

Whether the two of them could happen at the same time, or even should happen at the same time is something that maybe can be answered this way. I can see you, as parliamentarians, having two roles. One is as the defenders of the public interest, and I think you're doing that today. The second role is as leaders, the people who are supposed to give us the direction, vision, and ability as a country to be the best we can be.

Somewhere between these two you have to find an answer, because if you are consumed by this wish to be the defenders of the public good—the defenders of the stakeholders, so to speak—by completely ignoring your other function as our leaders—the people with the vision, the people who have the mechanisms, the tools, and the means to get us motivated and moving—then you will fail. Somewhere in between there has to be a balance and there has to be a judgment call by this government.

It won't be 100% right. You will be criticized, but you will have to make that decision. I believe we have good parliamentarians in Canada and a good democratic system. In the end you will do the right thing. Somewhere between defending the public interest and providing leadership is your answer, Ms. Bennett.

Ms. Carolyn Bennett: I guess the question is, where do we find that balance?

Mr. Joe Bova: That is a little harder for us to tell you right now.

Ms. Carolyn Bennett: If we took Mr. Bühler's advice and thought there only needed to be one bank, the public wouldn't feel they'd been well served by this process.

Mr. Joe Bova: That's why we have parliamentarians, because you are in the end the defenders of the public interest. All of us have certain biases coming to this table. When it's all said and done, you have to go there and represent all of us. I honestly would like to tell you that whatever we do, this country has often in the past failed to provide that kind of cutting-edge leadership that we need to take us to another level. Don't do it this time.

Mr. John Bühler: Let them have one bank if they want, but that's not going to happen. I'm a commercial banker myself, and it just makes it wide open for entrepreneurs like myself to go in there and do the lending and set up more credit unions. There's no way they can ever have a monopoly. I honestly believe the government should get out of this, let the banks fail if they want to, and just let it happen. It won't happen. If they can't make money on leasing, they'll get out of it. If they can't make money on insurance, they'll get out of insurance. Why are we arguing about this?

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Mr. Tom Struthers: I wanted to paint a scenario for you whereby the banks had chosen not to merge. The banks have all made a lot of money in the last few years, and the banks have some protection with the regulations that are in place now. Would we have been having these hearings if the banks chose not to merge?

I think they could have chosen to stay where they are. The status quo would have been okay, and we all would have suffered for that later on. The vision they have, to be moving forward into territory where they are very uncertain, indicates to me that they must know and see things that make this kind of activity very necessary.

Do you think the Bank of Montreal likes the Royal Bank? I doubt it, because they've competed for a hundred years. The fact that they're merging is not so that they can be bullies and gang up. I believe those two CEOs see the need to move forward in a new kind of situation. As the public of Canada, we would have been a lot worse served if they had chosen to take the large profits they make in a protected market and go on blindly until it ends. So think about that.

Ms. Carolyn Bennett: Thank you.

The Chairman: On behalf of the committee, I'd like to thank our very interesting panel, perhaps the most supportive of the bank mergers in any city we've visited thus far.

Mr. Bühler, you touched upon a couple of things that I'm going to take note of—the balance between defenders of public interest and in fact taking on a leadership role or being ahead of the curve, as we say, on this particular debate. I can tell you that it has been a very demanding debate simply because of the fact that there needs to be more public education on this particular issue. I think all parties involved, in all sectors, need to do a better job of telling their side of the story, because quite frankly, when we talk to Canadians from coast to coast to coast, we see that there's a lack of information out there about all sorts of issues, from consumers' rights to the impacts of globalization and technology and demography on the present system. So one of the things we'd like to do, as this committee, is in fact enhance this type of dialogue.

I also want to tell people that it's fine and dandy for people to say that we need to go in there and just risk. We like to do it with both feet on the ground, and we like to do it by thinking things through as well.

The MacKay report was commissioned well before the mergers were announced because we felt there were changes required in the financial services sector. That's the reason we are engaging in this debate, and it has nothing to do with the two proposed mergers that were announced after the report was commissioned. I'd like you to go home and think about that. This debate is about the future of the financial services sector, not necessarily about the two proposed mergers.

Thank you very much.

We'll take a two-minute break, and we'll be right back.

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• 1525

The Chairman: I'd like to call the meeting to order.

I would like to take this opportunity to welcome representatives from the following organizations: Canadian Finance & Leasing Association; and GE Capital Canada.

We will begin with GE Capital Canada, Mr. Robert Weese, vice-president, government and external relations. Welcome.

Mr. Robert Weese (Vice-President, Government and External Relations, GE Capital Canada): Thank you very much. It's a pleasure to be here.

Let me introduce two colleagues who are with me from GE Capital Canada: Michael Davies, who is our vice-president and general counsel; and Roman Oryschuk, who is the leader of our largest GE Capital business in Canada, GE Capital Canada Equipment Financing.

I'm going to make a brief presentation, and then my colleagues will help answer any questions you might have for us.

Without taking too much time, I want to briefly remind the committee of what GE Capital is and how it operates. GE Capital is one of the eleven main businesses of the General Electric Company, along with lighting, appliances, medical systems, aircraft engines, and others.

GE is one of the largest and most successful companies in the world, with global revenues last year of $91 billion U.S. and net income of $8.2 billion U.S. GE has been established in Canada for over 100 years, and it had revenues in Canada last year of $4.2 billion Canadian.

GE Capital, which is headquartered in Stamford, Connecticut, now represents about 40% of GE's revenues and earnings. GE Capital last year had global revenues of $40 billion U.S. and earnings of $3.3 billion U.S.

GE Capital is a diversified financial services company, with a triple-A credit rating. It provides a wide range of specialized financing and leasing services, organized in 28 separate business divisions grouped into five major segments. Those segments are equipment management; mid-market financing; specialty insurance; consumer services; and specialized financing.

Coming to Canada now, GE Capital Canada is a wholly owned affiliate of GE Capital. Of the 28 divisions of GE Capital, 16 are now active in this country, including GE Capital Equipment Financing, which is Roman Oryschuk's business; GE Capital Information Technology Solutions, which is a business involved in computer leasing and servicing; GE Capital Mortgage Insurance, which is the private sector competitor of CMHC in the mortgage insurance business for high-ratio mortgages; fleet services; auto leasing; commercial real estate financing; and others.

We've distributed copies of our corporate brochure, which lists and describes on pages 6 to 14 all the GE Capital businesses in Canada, and when you have a moment, I'd invite you to browse through that and educate yourself completely on what we do in this country.

GE Capital has 2,600 employees in Canada now, with offices across the country. We had revenues in Canada last year of $1.9 billion Canadian, and we now have net earning assets in Canada of...the presentation says $6 billion, but I saw a more recent number today; it's now $7 billion.

Our capital is sourced not from retail deposits, but from sophisticated lenders, Euro bonds, commercial paper, in denominations over $100,000, backed by GE Capital and its triple-A credit rating.

Some GE Capital businesses compete with banks; most do not. For several of our Canadian businesses, a major competitor is Newcourt Credit, about which you know a fair bit, I expect.

GE Capital has taken an active interest over the last several years in deliberations concerning financial institutions legislation and regulation in Canada. We were pleased to make representations to the Department of Finance and to OSFI, and to appear before this committee as well as the Senate banking committee on proposed changes to the Bank Act, which were included in Bill C-82. These deliberations, of course, resulted in the amendments that became effective in 1997.

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We were and are very supportive of those 1997 amendments, which for us removed significant impediments to our effective and efficient operation in Canada by eliminating the need for ministerial consent each time we established a new business and moved assets from one subsidiary to another, or acquired new assets in a line of business for which we already had approval to operate in Canada. The government in those 1997 amendments recognized that we are not a bank and there is no public policy rationale for regulation once approval has been granted to enter the Canadian market.

We are not regulated as a bank in the U.S. We do not accept deposits. We are not covered by deposit insurance. We do not expose the government to risk. And we do not take part in the payment system.

For us, as a foreign near bank, as described in the 1997 amendments, those amendments effectively meant a removal of an unnecessary regulatory burden, the only effect of which had been to increase our costs and make it more difficult for us to provide Canadian businesses with the financing they need to grow and operate.

We have also been pleased more recently to submit our views in connection with the current deliberations on the future of financial services in Canada. We met twice with the MacKay task force and its staff during its consultation phase. We have met with representatives of the Competition Bureau in conjunction with its review of the proposed bank mergers. We took part in a technical session arranged recently by this committee in Ottawa, we met on October 7 with the Senate banking committee, and we are delighted to be with you here today in Winnipeg.

We are here today, Mr. Chairman, to applaud the work of the task force and to support its general approach and its key recommendations. We believe that Mr. MacKay and his colleagues have done a careful and thorough piece of work and have produced a report that is sensible, balanced, and pointed in the right direction.

We support the MacKay view that consumers and businesses will be best served and services will be provided in the most efficient way by a financial services sector that is maximally competitive and minimally regulated.

We believe the general approach is right. Use regulation only for prudential purposes to ensure the safety and soundness of the financial system, and only to the extent necessary to protect unsophisticated depositors and policy holders and limit government exposure to risk. Otherwise, allow competitive market forces to operate freely, subject only to the laws of general application governing market behaviour by business.

Let banks, if they wish, extend the services they can offer to their customers. But very importantly, be sure to remove all impediments to other providers of financial services, domestic and foreign, that can offer alternatives to Canadian consumers and businesses.

In particular, we applaud the recognition by MacKay of the enormous changes taking place in the financial services sector in Canada and around the world because of technology and globalization, and the need for Canadian policy, legislation, and regulation to adapt to new realities.

We support its recognition of the need to ensure a competitive market environment to achieve efficiencies and maximize consumer choice.

We applaud its recognition of the need to remove impediments to the start-up or entry in successful operation in Canada of a broad range of service providers that offer services that are competitive to or complementary to the banks.

We agree with the proposed removal of the blanket ban on bank mergers; the proposals to make it easier for foreign banks to operate in Canada and to provide services to Canadians; the proposed relaxation of the 10% ownership rule; and the proposed removal of withholding taxes to encourage non-resident lenders.

We also support the recommended elimination or reduction of capital taxes, though on this point we worry a little bit about potential discrimination between existing and new financial institutions.

We agree with opening up the payment system, though GE Capital has no current interest itself in participating in the payment system.

And we support the streamlining of approval processes by OSFI and government, and the distinction made between foreign lenders and deposit-takers, with appropriate sets of rules for each.

In our view, all of these measures and others recommended by MacKay are in the right direction—the direction of lighter regulation and more free and open competition. We recognize that the devil is in the details, and the implementation of the recommendations will raise significant issues—issues of balance and issues of effectiveness and efficiency of market mechanisms. We would worry about cherry-picking. We would be concerned that some of the proposals could lead to a heavier burden of regulation on some players, but in principle and as a basic approach, we think the MacKay recommendations provide a solid basis for moving forward.

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Mr. Chairman, to a large extent, in the financial services sector, we're seeing the same challenges, pressures, and opportunities that we have seen in other parts of the economy as they have adapted to globalization and technology. Recognizing the special responsibility of governments for the health of the financial services sector and the role of prudential regulation to protect unsophisticated depositors and policy-holders, we believe that the vision of the task force is broadly right, which is to abandon the model of a regulated and protected national market and to seek greater efficiency, greater competitiveness, and wider choice for Canadians and Canadian business through a more open, more flexible, and more globally competitive financial services sector.

Thank you, Mr. Chairman.

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

We'll now hear from Mr. Tom Simmons of the Canadian Finance and Leasing Association.

Mr. Tom Simmons (Chairman, Canadian Finance and Leasing Association): Thank you, Mr. Chairman.

On behalf of the Canadian finance and leasing industry, I would certainly like to thank the committee for this opportunity to present our views on the MacKay report.

My name is Tom Simmons. I'm chairman of CFLA, and I work with Newcourt Financial. I'm accompanied today by Nick Logan, vice-chairman of CFLA and president of the National Leasing Group, whose head office is here in Winnipeg, and by David Powell, president of CFLA.

The CFLA represents the industry of asset-based financing, and equipment and vehicle leasing. We have prepared a written submission for the committee that summarizes our thoughts. Given the diverse views and interests of our members, the position presented in the submission is not the unanimous view of the CFLA membership. Rather, it reflects a convergence of views among the majority of its members.

By way of reminder as to what our members do, we have also included a copy of the backgrounder on our industry that we submitted to this committee on September 14, 1998, when we last appeared before you.

Since that appearance, the MacKay report has been released. For our industry, the MacKay report is an important milestone. It's the first formal government report that has recognized the significance of our industry to the national economy.

The task force reports that in 1996, total assets in our industry were about $50 billion. By way of comparison, the total assets of the property and casualty insurance industry, a long-established player in Canada's marketplace, were reported to be $53.3 billion. One of the key messages to this committee is that our industry is making a very important and positive contribution to Canada.

I mentioned that I'm with the Newcourt Credit Group. Newcourt and National Leasing Group are two of Canada's financial sector success stories.

Newcourt is well known to you as the second-largest asset-based financing company in the world. Founded less than 20 years ago in Toronto, it now operates in over 25 countries worldwide, second only to our friends from GE Capital.

National Leasing Group is based here in Winnipeg. It has almost 30,000 business customers in western Canada. More than 90% of them are small and medium-sized businesses. For the last four years, it has been chosen by the The Financial Post as one of the 50 best-run private companies in Canada. A third member of our executive, Serge Masse, could not be here today. Serge is president of Crédit-Bail FINDEQ Inc. in Montreal. Last year, his company was named small business of the year in Quebec.

We suggest that the core issue for your deliberations is how to assure Canadians that they're getting the maximum access to capital. Fundamentally, this debate is about access to funds for individuals, businesses, and the financial sector as a whole. Our industry is an important part of the solution, and part of your challenge is to assure an environment where new Newcourts, National Leasing Groups, and Crédit-Bail FINDEQs can happen and flourish across Canada.

Our industry is an important part of the solution. By way of example, last fall, the Conference Board published a study entitled What's New in Debt Financing for Small and Medium-Sized Enterprises? This study highlighted two major findings. First, the size of the business debt financing market, particularly targeted to small business, remains widely misunderstood. Why? Because traditional methods of analysing small business financing captures only about half the financing actually provided to SMEs in Canada today. The second major finding is that the bulk of the growth in business financing has come from companies concentrated in the asset-based financing and leasing industry.

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These Conference Board findings underline a significant point: the inability of traditional means of gathering statistics and analysing financial service activity to provide a comprehensive picture of what is actually going on.

I would now like to ask CFLA's vice-chairman, Nick Logan, president of National Leasing Group and a real niche player, to briefly talk about what he sees happening in western Canada, and for that matter across all Canada. Nick.

Mr. Nick Logan (President, National Leasing Group, Winnipeg, Manitoba, Canadian Finance and Leasing Association): Thanks, Tom.

I heard Carolyn ask the question about niche players. National Leasing is truly a niche player that grew as the result of a need to find a more lucrative market. We were in the vehicle leasing business, and still are, but ten years ago we needed to diversify and find a more growth industry, and equipment leasing was the one we chose. Basically, we borrow money wholesale from banks and insurance companies to purchase lease contracts. For example, we might borrow funds at 7% and use in effect about 11% on a lease contract. The four-point spread is the revenue we use to pay our expenses and make a profit. It's an important message for you, because if banks are to come into the vehicle leasing business, we want them to come in with the same cost of funds.

We acquire business in four ways. One is by providing sales support, a bundled service, to over 1,000 small equipment vendors across Canada. These are small companies that sell everything from computers to tractors. We pay the vendor and the customer makes payments to us.

We also provide funding to 110 small, independent brokers, and many American brokers as well. These Canadian brokers source their own business and then sell the contracts to us and Newcourt and others. The broker industry in Canada is very new—it's about five or six years old—and our company has been in the forefront of running conferences for these brokers, training them and beginning to develop the next Nationals and the next Newcourts, as Tom mentioned.

Third, we have our direct relationships with large equipment suppliers, such as MTS here in Manitoba, where they use a co-branded national MTS contract as a way of offering clients financing as an alternative to paying for phone systems or communication equipment.

Finally, we offer our client base lines of credit where they can pursue or purchase additional assets.

Although we started here in the west, National now has offices in the Maritimes and we operate across Canada coast to coast. I can say the growth of small financial service providers in Canada needs to be fostered and encouraged by whatever the government comes up with. We're beginning in this direction, but we still lag way behind the American competitors. So we encourage you to have less regulation rather than more regulation.

Back to Tom.

Mr. Tom Simmons: Thank you, Nick.

Now that we've set a context, we'd like to summarize our comments on the MacKay report. First of all, as a general comment, and at the risk of repeating myself, this report is an important positive milestone in the debate on the future of the financial services sector in Canada. We applaud several task force observations in particular.

First, government regulations should be kept to the minimum necessary to achieve public policy objectives. We agree that when action is required in the public interest, disclosure in a truly competitive marketplace should be considered first as the favoured means to regulate the forces of the marketplace.

On disclosure in particular, we agree with the task force goal of empowering consumers to equip them with the tools to make the best decisions for themselves.

The safety and soundness of the financial system is an important public interest. Institutions that choose to obtain their funds from the public, such as banks, bank deposits or insurance premiums, will have to expect certain regulation to protect the unsophisticated public, to minimize risk to the financial system, and to reduce government exposure as the inevitable guarantor of the system.

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Our industry is, rightly so, not subject to such regulation. We do not obtain funds from the public, we do not present a risk to the financial system, nor do we expect government to cover our losses if we ever experience any. We recognize the need for certain market conduct regulation, such as consumer protection. Like all other businesses, when we deal with consumers, it is expected these transactions will be subject to consumer protection rules that apply to everyone.

We also applaud the task force observation that niche financial players are important to ensuring competition and choice in a financial services sector of the future. CFLA members are mainly niche players, that is, they concentrate their expertise and resources on specific types of financial products and services. But in doing so, our members are adding significantly to the pool of capital available to Canadian businesses and consumers.

The task force also recognizes the value of global capital to the Canadian economy. The belief that non-Canadian capital enhances competition and competitiveness is part of the key to increasing the number of different providers of financial services in Canada. While our economy is able to generate a significant amount of investment capital, our capital needs cannot be satisfied domestically. Foreign-owned capital providers are essential to ensure customer choice in Canada, and many CFLA members fall into this category.

A word of caution is in order, however. We wholeheartedly endorse the task force objective to create a public policy framework within which Canada and Canadians can benefit from a healthy, dynamic, innovative, and competitive financial services sector. But for us the key issue is how we get there from here. As policy-makers look to implementing task force recommendations, as we turn from the theory to the practice, there has to be concern over the risks of putting in place a framework that will actually shift the financial services sector away from choice and towards further concentration. This issue deserves more attention than it received in the MacKay report.

The title of the CFLA submission to the task force was Choice. The CFLA vision for the financial system turns on the concept of choice, that is, customer choice, both for consumers and business customers.

For the first time in modern history, the advantage is shifting from those who provide financial services to those who use financial services. The critical catalyst to realizing this shift in advantage is an ensurance of customer choice. In assessing the true extent of customer choice, however, both factors that reduce choice must also be considered, along with those that enhance it. Issues such as competition, concentration, efficiency, innovation, and regulation are then merely means to an end, and that end is customer choice.

A decade or more of deregulation in the financial services sector has seen schedule A banks emerge with more powers and market strengths and advantages relative to the other players. What were some outcomes of earlier deregulation? By way of simple examples, in our submission to the task force, first, we compared the difference between rates of interest on residential mortgages charged by banks and trust companies between 1984 and 1995. Second, we compared the cost of auto loans offered through bank branches with bank-funded dealer auto loans. Our review showed banks charged higher prices, and contrary to often accepted assumptions, bank participation in different consumer markets did not result in cost advantages being passed on to consumers.

So in going forward with the MacKay recommendations, policy-makers have to be alert to the impact of their decisions on the marketplace. Concentration and related problems arising from concentration remain fundamental concerns. The apprehensions underlying these issues are not simply academic, but quite far-reaching in our society, touching consumers as well as all levels of business.

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There is widespread unease with the notion of having a small group of financial institutions dominate the financial services sector. The type of market problems that potentially arise from concentration in the financial services sector include exclusive dealing; refusing to deal; coercive tied selling; market restriction; costed fund advantages; conflict of interest, namely between the bank financing a business customer and the bank as a competitor of that business customer; and misuse of personal and business information. These concerns are not new. Numerous places in the MacKay report refer to some of these issues, but generally it comes up short on solutions.

Going forward, the challenge for public policy-makers is, how can a system that has traditionally fostered corporate concentration in financial services be transformed into one that assures efficient competition and effectively guards against market domination and market abuses?

The past pattern is clear, but will the future be any different? Will vehicle leasing, for example, merely be the next sector to experience the same result? Today, banks are already the largest funders of the leasing industry in general, and the auto leasing sector in particular.

To constructively address those issues, it is essential to ensure the effective means exist to prevent concentration and accompanying market problems from occurring. On the one hand, it is necessary to demonstrate that the ambition to generate new financial players can be realized, that they are present in the marketplace in sufficient numbers to compete with and balance the advantages of the major established financial institutions—in short, that there are plenty of providers of financial services to choose from. On the other hand, there is a clear perception that the current structure and rules designed to police and prevent concentration and related problems are inadequate.

Much work remains to be done to find and implement solutions to the challenges of concentration and the potential for related market problems. The point of departure in creating the basic public policy framework of the future is the assurance that realistic rules, accessible and effective recourse, and enforceable protections are in place to ensure timely redress, before we continue tinkering with the system.

Is it prudent for policy-makers to tinker with reallocating powers such as vehicle leasing until we are absolutely certain that we will not relive our experiences of the recent past? To further concentrate financial services in the hands of a small group of providers is not in the public interest. A reduction in the number of providers is contrary to CFLA's vision of the future of financial services in Canada.

Thank you very much.

The Chairman: Thank you.

Now we're going to have one 15-minute round, beginning with Mr. Epp.

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

I appreciate the presentations we've received here this afternoon.

If I'm not mistaken, I picked up on the last presenter that you're really understating your case. You're basically saying you love all this stuff, and then there's this small undercurrent that there's a problem of concentration and it's not being adequately addressed, so please look at it. Why are you so gentle? Aren't you deeply concerned?

Mr. Tom Simmons: Our members are very much concerned, particularly on the conflict of interest and the corporate concentration. Many of our members are in the direct leasing business of motor vehicles and equipment leasing. Particularly on the subject of vehicle leasing, obviously at least half of their funding, if not more, is being provided by the schedule A banks, so there is a real conflict of interest that our members are concerned about.

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Mr. Ken Epp: So in other words, your members are forced to do business with the very people who are going to be competing with them.

Mr. Tom Simmons: Absolutely.

Mr. Ken Epp: Okay. In what way do you think that competition—

Mr. David Powell (President, Canadian Finance and Leasing Association): Excuse me, I'd just like to supplement that. I think our association has a unique set of challenges. If you look at our membership list, you see we have listed among our members banks, independent leasing companies, and manufacturers' finance companies, the so-called captives. And they all have different takes on a number of the issues raised by the MacKay task force. By way of example, if you look at their sources of funding, some of our members, such as GE Capital, go to the international capital markets to find funds to finance their activities, which they then pass through and use to finance their leasing operations in Canada.

So they don't have recourse to Canadian banks, by way of example. Most of our Canadian-based members have access to banks, as they require bank financing for their operations. Still others are developing other sources of funding, such as life insurance companies. I know one of our other members was here before you and stressed the significance of the life insurance industry to our industry, because it provides funds that are not otherwise available. He raised some concerns about the proposals of MacKay about banks acquiring life insurance companies, from the point of view of wanting to ensure that the sources of funding they have today would not be diminished if banks were to acquire life insurance companies.

So I think MacKay focused very much on consumer issues and small business issues. But the issue of life insurance companies, frankly, is an issue to our small, medium, and large members—corporate members—so it's a corporate issue as much as anything else.

So I think the way we looked at concentration was one of the key concerns that could be found across most of our membership base, because whether you're large or small, you are playing in this Canadian marketplace. The banks have a number of built-in advantages that stem from a history of regulation, and some of those advantages are built into the system and are quite appropriate in public policy terms.

The concern they have, though, is having seen what we've seen in the last 15 years, as we look down the road, with the best will in the world as we move forward toward greater choice and more openness in the system, are we in the end risking finding ourselves sitting in this room ten years from now wondering how to deal with a situation in which we have many fewer actual players in the industry, rather than—

Mr. Ken Epp: Do you think the banks' entry into this whole scene of leasing on a much greater scale is a serious threat to your members?

Mr. David Powell: Certain of our members certainly regard it with considerable concern, particularly the ones principally in the vehicle leasing side, because that's the matter at issue. They will see the banks... The independent leasing companies we have as members fund much of their activity from Canadian banks, so they'd be concerned about seeing their funders become their competitors, and what that means for the future of their businesses. Some of the bigger players, the manufacturer sales finance companies, look at the cost-of-funds advantages that banks have and wonder how they will be able to compete with those banks.

After all, the MacKay task force report research shows that today the banks have about 84%, I believe, of the auto loan market in Canada. We know from the research we've done, and it is included in our brief to the task force, that the banks are the largest source of funding for the vehicle leasing industry—the vehicle industry generally, including the leasing industry. There is some concern that the pattern that's established in auto loans will merely be repeated on the side of vehicle leases.

Mr. Ken Epp: Are the manufacturers members of your association?

Mr. Tom Simmons: Yes, they are.

Mr. Ken Epp: So the Ford Motor Company, which has a leasing division, is a member?

Mr. Tom Simmons: Yes. Ford Motor Credit is a member of our association. And GMAC is also a member.

• 1600

Mr. Ken Epp: Now it seems to me that in the last number of years, both in terms of the domestic market for vehicles and also in business, leasing has really skyrocketed. I'm greatly suspicious that the reason leases for cars and trucks, both medium-sized vehicles and also the large ones that motor along our highways, are being pressed more is because everybody makes more money from them. I think the finance groups make more money, as do the car manufacturers. So that must be then a collective disadvantage to the consumer. Is that true or false?

Mr. Tom Simmons: I'm not sure there's more money in it. I think manufacturers have certainly used leasing as a way to try to control their market share in certain models that are moving slower. They may want to “incentivize” one particular model over another either through subventing the interest rate or the residual.

All the manufacturers, including Toyota, Ford Motor Credit, and Honda, from time to time, will provide very attractive lease rates, and now currently very attractive purchase rates, to move certain models. You've seen 0.8% financing in the newspapers, or maybe a low monthly lease payment.

The manufacturers obviously have their profits to deal with, so rather than do a cash rebate, they're providing a higher residual, which is another form of subsidy. So I can't comment really as to the profitability, I think, but both in Canada and in the United States, certainly the manufacturers have used leasing to try to manage their share of the market in particular product lines.

Do you want to add to that?

Mr. Nick Logan: Yes. I made the comment earlier that the market has been very competitive and is very competitive today. Today, it's very much to the consumers' advantage to lease. I think you'll see some of the manufacturers taking losses on the residual positions they're taking. It will swing back, but today, a consumer can go to any dealership and get a lease with any manufacturer and know they're getting a very fair price.

Mr. Tom Simmons: Let me add just one more point.

It's almost like a long-term rental contract, whereby you might go rent a car from Hertz for six months or three weeks. You're really renting a vehicle from GMAC for a 24-month term, and then you return it back to them. They certainly recognize that. They want people to return their used vehicles to them so they can either resell them, re-lease them, or send them to the auction. They then want that customer to take another new vehicle.

I would suggest it's probably the opposite to what... It's probably costing them money to promote leasing as a big share of the market because it represents about 46% to 47% of new vehicle registration.

Mr. Ken Epp: So if the banks get into this, then maybe down the road we'll see “Bank of Montreal Used Car Lot” on the corner.

Mr. Tom Simmons: That could conceivably happen if the banks were permitted to do direct leasing from their branches.

Mr. Ken Epp: Then we'll have the used car salespeople here complaining to this committee about the banks encroaching on their property.

Mr. David Powell: I just wanted to say that the phenomenal growth you mentioned in not just vehicle leasing, but leasing generally, is reflective of a change in attitude among our customers who are looking for the kind of product that leasing represents. The document we presented to this committee in September tried to itemize the kinds of things that people in the marketplace see as their advantage.

Leasing is not for everyone. Please don't get me wrong, it's not for everyone, but there are a lot of people who see leasing as the right way to go for their particular circumstance. I think we've seen this phenomenal growth in the last decade as part of a reaction to people seeking alternative ways to acquire the use of vehicles and equipment.

Mr. Ken Epp: So would you like to see the report revised so that the permission for the banks to get directly into leasing would be removed? Would you favour a revision of the report?

Mr. David Powell: Our concern is that there are a number of issues that have to be addressed and resolved before we can get to that stage. We raised them in the context of a number of concentration and concentration-related problems. We're not confident at this point with proceeding until those issues are properly addressed, because some of our members are very concerned they will not be able to compete fairly against major institutions that have a lot of built-in advantages.

• 1605

When you've created a system that includes certain advantages, privileges, and also responsibilities for major financial institutions, such as banks, and you choose to open up this new area to the banks, how do you counterbalance some of those built-in advantages that may necessarily be there, such as access to funds in the deposit network, which are cheaper funds than anyone else can acquire in the marketplace?

Mr. Ken Epp: So what would you like to see, a regulation that says they can't do it? I'm not really clear on that.

Mr. Tom Simmons: Let me just add this. I think until such time as there are sufficient financial service providers for our members, which include independent leasing companies, direct vehicle leasing companies, and also car dealers, many of which belong to our association, the issue should be put on hold. If they have a bank as their competitor, there are only two or three others they can go to for their inventory financing, their operating lines etc. So we think the public policy should be that until there are sufficient alternative financial providers out there, a decision should be put on hold.

Mr. Ken Epp: Just postponed.

Mr. Tom Simmons: Yes.

Mr. Ken Epp: Okay. Thank you.

I'd like to direct a few questions to Mr. Weese. I noticed in your presentation you talk about the use of regulation, and you really are a free enterpriser, the way it sounds. You're also saying, as the others are, there should be regulation only when it's absolutely necessary to provide protection for the consumer and for the government, which is the protection of the taxpayer, etc. So you would like to have a lot more free market, and yet you want to restrict the banks from getting into the market. Is that true, or am I misreading you?

Mr. Robert Weese: Mr. Epp, we have no particular interest in restricting the banks from getting into any lines of business. We think there is clearly a role for prudential regulation where it's needed to protect depositors. For the rest, to ensure that consumers and small business have access to financing, we think the best approach is a competitive market, one that has removed the impediment to the start-up or entry of alternative providers of financial services. We have certainly seen, in the kinds of businesses GE Capital is involved in and many of the businesses that are represented in the association, how a competitive marketplace with minimal impediments can provide alternative choices for business and consumers. We think basically that's the right kind of approach for the government to take in response to MacKay, that is, to limit the areas for regulation to where it's necessary to ensure the safety and soundness of the financial system and to protect unsophisticated depositors.

Mr. Ken Epp: You've come to this committee today and you have here a whole bunch of points you're applauding, and then again, very timidly, you're saying watch unfair competition and make sure there is no discrimination and so on. I'm amazed you're so timid about it, because I would think you would have a stronger position to articulate here today. I think you're concerned, but I don't know if you're concerned.

Mr. Robert Weese: No, I don't think we're particularly timid about this.

We think in its general approach the MacKay philosophy is right. Having said that, we understand some of the concerns other people are bringing to this committee. We understand some of the concerns that are being expressed by the association, of which, by the way, we're also a member. GE Capital is in a slightly different position from other people, so we don't feel some of those concerns as much as some other people probably do.

But it's not that we are insensitive to potential problems of market concentration and abuse of market power. Those are clearly issues the government is going to have to grapple with. We think it's important for us as a company to say to this committee and to the government that we think in its basic approach MacKay is right. It's the right sort of path for the government to be taking. We think it reflects the reality of the current global marketplace and the reality of this sector, the financial services sector, responding to changes in the world, as other sectors in Canada have responded to changes in the world. I don't think we're being timid.

• 1610

Mr. Ken Epp: You are a rather substantial conduit for bringing international capital into Canada, aren't you?

Mr. Robert Weese: Yes.

Mr. Ken Epp: We're probably talking billions of dollars here altogether.

Mr. Robert Weese: In Canada we're still relatively small compared to the banks.

Mr. Ken Epp: But globally you're—

Mr. Robert Weese: Globally we're a very large player, yes.

Mr. Ken Epp: So in terms of developing our country, in terms of providing equipment that otherwise would not be available, you're a pretty important player and we shouldn't ignore you.

Mr. Robert Weese: Yes, I think that is true. GE Capital really started to come into Canada in a significant way about eight years ago, was it, Roman? And over that period more and more of the niche businesses of GE Capital have come to Canada as they have seen opportunities to bring products and services to Canada and to thrive in this market. Not all of our businesses are here yet, but 16 of the 28 are now. And we think we provide an important alternative source of financing for the businesses we work with.

Mr. David Powell: Perhaps I might add, because they're too modest to say it themselves, that there are a number of other things that the GE Capitals and many of the other non-Canadian source funding members of CFLA bring to the Canadian marketplace. They bring innovation and expertise and a competitiveness they've imported into Canada, which frankly has jump-started a lot of other Canadian financial service providers, particularly among the traditional financial service providers whose initial reaction was, “My goodness, who are these people? How can we keep them out of our marketplace?” They've now had to come to recognize that it's the GE Capitals and others among our membership that have brought the global pressures right into our marketplace and caused them to change. And as we said in our opening remarks, one of the great benefits of this has been that, for the first time in modern history, you're seeing a shift in advantage from the provider of financial services to the user of financial services.

Mr. Ken Epp: The most difficult concept I have to get my head around is that we have people like you coming here and saying, “We're international, we bring external capital into the country.” Why would we want to favour and encourage that and, at the same time, take our Canadian banks and cut them out of the same competition? They should be able to compete with the external people, I would think, since a large portion, maybe even a larger portion, of the capital provided by the Canadian banks actually comes from Canadians.

Mr. David Powell: I think we would agree with you absolutely. But the only caveat we raise is that our point of departure is customer choice. As we said, in our brief to the task force was headlined in big letters—and you can see this in appendix B in our submission to you—the word “choice”. You not only have to look at what enhances choice, you have to look at what reduces choice; hence, the concerns we raised that policy-makers have to be very cognizant of the issues of concentration in the marketplace and the effect of concentration on choice. We absolutely believe in competition, because we feel it will ultimately provide the consumer with the best options available. But how we arrive at that choice, how we get there from here, is the challenge that you have before you over the next while.

Mr. Ken Epp: One of the practical questions that comes to my mind—and then I'm going to have to quit—is this. A guy in my riding goes in to get a new gravel truck because he's in the gravel hauling business and he's faced with the purchase or the lease of a vehicle. Are you suggesting that since he's buying a GM truck, there should be more of a choice than just GMAC right on the spot, that the General Motors dealer should actually be forced to give the customer the option right on the spot? What are you suggesting from a real, practical point of view on how this would work? General Motors dealer would have his

• 1615

Mr. Tom Simmons: In that respect, the General Motors dealer would have his own capital financing company to deal with. He would have possibly General Electric to deal with plus AT&T Capital. There are a number of service providers now that would service that particular dealer.

We're not suggesting there be legislation passed forcing the dealer to go to one source. We want as many providers as possible to that dealer.

Mr. Ken Epp: You would probably like to see legislation that would prevent the dealer from saying, “You may only buy this truck if you finance through us.”

Mr. Tom Simmons: That would be a restriction of trade at this point.

Mr. David Powell: Even then it's up to the customer to say “What you're offering me is not attractive to what I'm looking for. Therefore I will go down the street to your competition.”

Nick mentioned earlier that there is very fierce competition out there. I would suspect that the customer you mentioned from your riding would have a number of alternatives to get financing and should do his best or her best to negotiate the best deal.

Mr. Ken Epp: You talked about legislation to protect the unsophisticated consumer. This guy isn't that sophisticated, and if the dealer says “Here are your options”, then he may not have the knowledge to go out and do more shopping.

Mr. Tom Simmons: A small businessman may not have the knowledge to go shopping.

Mr. Ken Epp: Yes. That's his problem, isn't it?

Mr. Tom Simmons: Once again, he can decide to go to a GM dealer or a Ford dealer for a truck. If it's a bigger truck, he can go to a Mack truck dealer, etc.

Most business users would certainly shop the marketplace for a commercial vehicle. There would be direct leasing companies and finance companies calling on that customer. Many of the members of our industry would call on that customer directly and then that prospective customer could decide whether to deal with that leasing company or that financial provider on a direct basis, or go through the vendor. Most of the members of our industry have vendor relationships, whether it be for a truck, computer equipment or heavy duty equipment.

Would you like to add to that?

Mr. Roman Oryschuk (President and Chief Executive Officer, Equipment Financing, GE Capital Canada): Mr. Epp, I must apologize, because I don't know where your riding is.

Mr. Ken Epp: I'm in Alberta.

Mr. Roman Oryschuk: I would hope your constituent has heard of us, because he is basically one of our target customers. Our approach to this business is that we normally try to identify those companies that acquire a fair amount of equipment over time. This type of equipment is right up our alley. Essentially, your constituent could be getting financing through the dealership where he is acquiring his gravel truck, but normally he should be solicited by an organization like ours.

My answer would also include the fact that we're not representing only the leasing industry. We are the asset finance industry. What it really means is that we will offer that customer of yours either a conditional sale contract, a term loan, or a lease, depending on that customer's set of circumstances, on what fits that customer's needs best. The true professionals in our industry are going to be able to help your constituent make that decision. What distinguishes us from other types of financial institutions is that we understand the equipment that underlies this transaction. That gives us a greater amount of flexibility in structuring the transaction.

That is part of the value-added that we bring to this marketplace. I don't speak exclusively of General Electric, I speak of our industry. Our industry typically understands the equipment, which means we can make a credit decision that is somewhat different from that of somebody who looks strictly at the balance sheet.

If you're looking at a customer who has a balance sheet that isn't perhaps that strong, but a customer who has cashflow predictability, who has a good source of revenue, who over time has demonstrated a good character. Our understanding of the equipment helps us make a credit decision that reflects the value of that equipment. It tries to match the cashflows that the customer will be generating from a contract to the payment schedule that is required to make this equipment available to the customer.

So I wouldn't want you to be under the impression that we're exclusively talking of leasing. The true professionals in our industry will help this type of customer make the correct decision in terms of the form of transaction, not just the loan, not just the lease, but which is better. They will then look at the structure itself depending on the usage of the vehicle and depending on what the cashflows are going to be under that transaction.

• 1620

Mr. Ken Epp: What I'm thinking of is that some of the banks aren't much interested in this guy who is a very small operator. He's so tiny. He owns the vehicle, he works it, he drives it and he does his own oil changes. He doesn't have any employees. Do you bother with him at all?

Mr. Roman Oryschuk: Mr. Epp, we have a considerable amount of business with those exact types of customers, many of them in the transportation field. And sometimes we do it in conjunction with programs that we have with manufacturers, whereby the manufacturer will help us identify the transaction. Basically, what makes the difference is that we understand the equipment, which doesn't mean we approve all the transactions. I wouldn't want to leave you with that impression. That represents in my portfolio literally hundreds of millions of dollars of business.

Mr. Ken Epp: Okay, I'm going to pass. Thanks very much.

The Chairman: Thank you, Mr. Epp.

Ms. Bennett.

Ms. Carolyn Bennett: Really the only caution we've heard from this panel is around treading on auto leasing. On the argument about concentration, can you just remind me what percentage of car leasing is now done by these three big manufacturers?

Mr. Tom Simmons: Between direct lessors, which would include PHH and General Electric in the direct leasing business, and the captives, whose sole role in life is servicing the dealers, they probably have between 70% to 80% of the leasing market in Canada.

Ms. Carolyn Bennett: That's fairly concentrated already.

Mr. Tom Simmons: By the same token, as David just commented, the banks have 80% of the loan market on new vehicles. So basically the captives do not finance any cars. Not only do the schedule A banks have 80% of the loan market in the new cars, they probably have in the area of 100% of the financing of used cars.

Without sufficient providers in the marketplace, we're concerned that, yes, if the legislation were changed, we would see not only an 80% penetration in the loan market by the banks, but it would gravitate to become an 80% share of the leasing market also. We feel with the concentration issue and the dominance that the banks have, and particularly if the legislation permitted the banks to lease cars directly from the branches, the banks would certainly take a dominant market share in Canada.

Ms. Carolyn Bennett: So you're saying the consumer is still tossing up whether to take a loan or to lease at the time they go, and the bank would have a dominant role in both parts of this.

Mr. Tom Simmons: Yes. Currently they have a dominant role in the loans side, both from the direct loans out of the branches and from the indirect side.

Ms. Carolyn Bennett: Maybe it would be wrong for us to just separate off the leasing part, saying, “Look, there's too much competition; we should let more players in here.”

Mr. Tom Simmons: The dominant presence the banks have in the loan market now would then automatically carry over to the lease market. That's the fear of some of our members. Particularly, the dominance would be even more accentuated if they were permitted to do it directly from the branches, because then they would become like fleet purchasers. This is what many of our members are concerned about. They would actually be dealing in merchandise, in negotiating the purchase and the resale of used vehicles.

Ms. Carolyn Bennett: Are the dealers part of your organization or not?

Mr. Tom Simmons: Some of the larger dealer-affiliated leasing divisions are members of our association.

Ms. Carolyn Bennett: When they came before the committee, the dealers had the concern that the manufacturers were able to give them a much better deal in order to move lines that weren't moving as well. If have your lot full of something that's not moving, the parent company is able to help you with better rates on those, and they feel that kind of flexibility might not come.

• 1625

Mr. Tom Simmons: That could possibly continue, one way or the other. If GMAC or Ford Motor Credit wants to move a certain line of vehicles, whether it be, in the case of Ford, Tauruses that, as you say, are backing up on the back field, then they could subsidize those vehicles, or provide low-rate financing, and so on, to move those vehicles.

Why the dealers are concerned it might not happen is, if the leasing market goes away, some of the manufacturers and the dealers are suggesting that possibly they may not be able to serve the dealers as well, because there certainly are profits available on leasing. Obviously, nobody would be in it if there weren't profits available.

They do not have a loan market. If they lose the leasing market, then what they have left is primarily providing inventory financing to the car dealerships. What some of our members are suggesting is that then the economics of that value proposition, of doing floor planning only, may not be economical for the candidate, and then they withdraw part of it from the market. Other institutions have been noted for coming into the market and then withdrawing from the market. So that's what the dealers are concerned about.

The other area the dealers are concerned about, which I think was commented on in one of the working papers DesRosiers submitted to the MacKay task force, was the number of dealers in leasing themselves. There are probably 1,600 dealers in leasing. They commented that the average dealer, other than the big ones, only puts out about 25 leases a year. But that's still fairly significant. It represents about $700,000 in sales for those 25 vehicles, and probably $25,000 in gross profit. So it's very significant to the dealer organization, and they hope to increase.

So most dealers, I'd say close to half of the dealers, are themselves in leasing, with their own portfolio, whereby—Roman's point—they provide the total asset management services for the customer. In the case of a small truck, they would help the customer select the truck, manage it, service it, and then assist the customer in the remarketing of that asset in their given market.

Ms. Carolyn Bennett: Are your members concerned at all about banks being able to throw in the insurance for free? I think these two things—

Mr. Tom Simmons: Do you mean market car insurance from the branches?

Ms. Carolyn Bennett: Well, yes. One of the recommendations of MacKay is, at your same branch, you can also sell P and C insurance. There have been concerns raised in the committee that there could be sort of loss leaders on the insurance side that would attract a certain amount of business.

Mr. Tom Simmons: That certainly has been conveyed to us by some of our members relative to the vehicle leasing, that they would use the vehicle leasing as loss leaders.

Ms. Carolyn Bennett: Yes.

Mr. Tom Simmons: But, David, I'm not sure it has been conveyed to us... We have no position on the insurance side of it.

Ms. Carolyn Bennett: But if they were, do you have an opinion about banks being allowed to sell insurance? You don't care, as long as they're not allowed to lease cars.

Mr. David Powell: To be fair to the association, it is not an issue that has been raised that we feel we have any particular expertise on, therefore we felt that there's not much we bring to the table in terms of dealing with that.

Ms. Carolyn Bennett: So that's not a concern of yours.

Mr. David Powell: No, it's not an issue we've addressed.

Ms. Carolyn Bennett: From GE Capital, it's only when people get to gravel trucks that you're interested. You're not in car leasing, so—

Mr. Robert Weese: We are in car leasing, but our position is a little different from that of some of the other members of the association, because we don't get our funds from the banks. We source our funds on international money markets, using GE's triple-A credit rating, and we get funds at very competitive rates.

The particular concern that the auto dealers who are in leasing have is that they typically get their funds from the Canadian banks, and they're obviously going to be in a vulnerable competitive position if their source of funds also becomes their competitor. We understand that concern, but it's not a concern that GE Capital has, because that's not our source of funds.

We're quite big in auto leasing; we're quite big in fleet leasing, fleet management. But our source of funds is on the commercial market globally, so we're in a slightly different position from some of the other members of the association in that regard.

• 1630

Mr. Michael Davies (Vice-President and General Counsel, GE Capital Canada): Yes. I think also the auto dealers and, as you mentioned, GMAC, etc., have a set of concerns we don't share because we're not in auto manufacturing or tied financing. Because of the way we go to market and the way we do business, we're not really affected by whether the recommendations in the MacKay task force are implemented or not implemented.

Ms. Carolyn Bennett: So in your rather positive response to MacKay, you had no real concerns about banks being able to lease.

Mr. Robert Weese: We understand the concerns being raised.

Mr. Michael Davies: We understand the concerns of others.

Mr. Robert Weese: But we don't share them ourselves, because they are in a different position from us.

Mr. Michael Davies: And those concerns don't impact on us or have a negative impact on us at all.

Mr. Roman Oryschuk: That being said, there wouldn't be anything easier for us to say here than let's restrict competition. But that's not our business motto. Our business motto is not trying to prevent other people being in the fields of endeavour we participate in. We truly believe in the forces of competition. Ultimately, we think the positive, right policy is to favour competition in the marketplace and let the best players win. Let the consumers decide who those best players are. Let the financial markets also decide who those best players are, because the financial markets pass judgment on how well we do our business.

That being said, I want to touch on your question on the gravel trucks. In my business, we do a substantial amount of business in transportation, logging and construction in this country. But I do want to remind you that my business is only one of the 16 businesses active in Canada. We are the ultimate niche player. We do not try to be all things to all people. We play the game by niche, and we are very serious about this. When we say we have 28 businesses, what it really means is that we have identified 28 market niches around the world that we have specifically targeted and around which we have developed a unique market strategy with a unique group of people servicing those niches.

In other words, the people who work in my group pursue only one of those 16 market niches we're developing in Canada. The people working in other businesses pursue only one niche at a time. They are not selling all of the GE Capital products at the same time. They specialize.

In my business, we go beyond the type of equipment we've already discussed. We also do corporate jets, and some of these corporate jets go to large corporations. We finance printing equipment. We finance substantial amounts of manufacturing equipment—machine tools and injection moulding machines—in those areas of Canada where this type of manufacturing equipment is being used significantly.

So there is a great variety of equipment. But typically what you will see is, even within my group, we have account managers dedicated to specific industries. So if we were in the Toronto office today, you would see that we have two individuals who are devoted full-time to machine tools. That's the only thing they do.

Ms. Carolyn Bennett: I guess MacKay is very specific about leasing automobiles to retail customers. That's not something you do.

Mr. Roman Oryschuk: One of our businesses, called Auto Financial Services, provides consumer leasing on exactly that market niche.

Ms. Carolyn Bennett: Like one customer or a fleet?

Mr. Roman Oryschuk: One customer.

Ms. Carolyn Bennett: One customer at a time.

Mr. Roman Oryschuk: And this service is typically provided through an arrangement with manufacturers. So we have the program where the service is provided through a dealership. The dealership sells the service and we fund the transaction. To some extent it's in direct competition with the captives.

Ms. Carolyn Bennett: Yes. Do people go somewhere else for their insurance?

Mr. Roman Oryschuk: Yes, they go somewhere else.

Ms. Carolyn Bennett: Do you have...?

Mr. Roman Oryschuk: I must confess, again because of the nature of how we're organized, I am by no means an expert on how that business operates.

Ms. Carolyn Bennett: So you wouldn't worry that the banks could lease automobiles and toss in the insurance.

Mr. Roman Oryschuk: No. At GE Capital we wouldn't be worried. But that being said, we understand there are certain members of the Canadian Finance and Leasing Association who may be more concerned about this.

Again, our position is let competition prevail.

Ms. Carolyn Bennett: Okay.

• 1635

Mr. Nick Logan: That is a possibility. We lease equipment and we provide insurance with the equipment; it's a bundled package. So it's natural that insurance would go with the automobile.

Mr. Ken Epp: But you're not an insurance company. You procure it.

The Chairman: Mr. Logan, on behalf of the committee, I'd like to thank you. It's been a very interesting panel. I'd also like to thank everyone for being a great resource prior to our cross-country tour. That was quite helpful and it's made us understand the issue much better.

Once again, thank you, and I'm sure you will see many of your thoughts reflected in the report to the minister. Thank you very much.

We're going to suspend for a couple minutes and then we'll be back. We're reverting to pre-budget consultation and we'll hear from the Canadian Association of the Non-Employed, Mr. Robert Johannson.

• 1636

• 1640

The Chairman: We're going to call the meeting to order, and we're reverting to pre-budget consultation now with Mr. Johannson. As I've already stated earlier, Mr. Robert Johannson is from the Canadian Association of the Non-Employed.

Mr. Johannson, welcome. As you know, you have five to seven minutes to make your presentation and, thereafter, we'll engage in a question and answer session.

Mr. Robert Johannson (Canadian Association of the Non-Employed): Thank you very much for hearing me. I was a little bit shocked when I came yesterday and you were gone. The observers said, yes, it was rather like a herd of gazelles.

Ms. Carolyn Bennett: Gazelles!

Mr. Ken Epp: I've been accused of being a lot of things, but not a gazelle.

Mr. Robert Johannson: Very light-footed.

The Chairman: We'll not only hear you, we will also listen to you.

Mr. Robert Johannson: Thank you very much for giving me the opportunity to speak to you.

I'd like to do two things. One is partly to fulfil my responsibilities to the association, the Canadian Association of the Non-Employed.

The association, as you would guess from the name, is concerned with employment and with income support. It is concerned that the government should undertake those programs that will ensure adequate income support for Canadians and also adequate employment.

The association forwarded you a letter giving some of their positions on some of the issues currently before us. Part of their suggestions is essentially that we have to re-look at the Income Tax Act, expand the number of tax brackets, raise the basic exemption, perhaps collect some of the back taxes currently owed by large corporations, and hopefully close some of the current tax loopholes. We should do this in order to begin looking at how we can do more in the way of developing adequate national income security programs.

One of the problems that we are profoundly aware of is the devastating impact of the CHST. The Canada health and social transfer has been devastating to this country. It's been devastating in a number of ways.

First, the financial cutback has been devastating for the provinces. The other thing that was devastating was that lumping medicare, education and welfare together has essentially devastated welfare. It has seriously undermined the university system, but it has really devastated the welfare system, because at the same time that the Canada Assistance Plan was removed, it essentially removed people's rights. The guarantees people had under the Canada Assistance Plan disappeared, so that people no longer have a right to welfare. The position of this country now is that people can starve on the street and that's okay. There is definitely a need for national standards for welfare.

The other thing that is involved is what has really become a scandal—an international scandal—and what has brought me to this committee for the last five years: the problem with child poverty. One of the things that happens is that now that the welfare is essentially unregulated, the attempt by the federal government to alleviate child poverty through the child tax credit is ineffective because the child tax credit is clawed back by the welfare system. So the poorest of the poor who should be getting this help don't get it. Something should be done about that.

Those are major concerns of the association.

• 1645

Secondly, I want to address some of my particular concerns about the problem we face at the moment as a country and particularly as an economy. We have been observing for the last few years what more and more people are beginning to call the failure of capitalism. We in this country have moved to a position where the top 20% are getting richer and the bottom 80% are getting poorer. What that means essentially is that we are undermining the basis of consumer capitalism. You cannot have consumer capitalism by making the bottom 80% poorer. It simply doesn't work.

I was reading the Winnipeg Free Press the other day, and I opened my Sunday paper to discover that the front page had an article by an economist saying that there will not be a world depression. It's an important article, because he expresses as an economist the conventional wisdom. He outlines the beginnings of the world depression in Asia, the spread of the world depression to South America, and how currently it is threatening North America and Europe.

He says that it will not reach North America and Europe for a specific reason. He is a man of faith, and he believes essentially in the intelligence and courage of our political leaders. He says that the spread of world depression to North America and Europe is prevented by the readiness of both regions' central banks and governments to offset the loss of exports with lower interest rates and higher public spending. In other words, he says that in order to prevent the spread of the world depression to Canada and North America, it is necessary that we significantly increase government spending. This is, I believe, the conventional economic wisdom.

At this point, I think his faith may be misplaced. I look at Mr. Martin and Mr. Chrétien, I look at Newt Gingrich and Bill Clinton, I look at Tony Blair and Gerhard Schroeder, and I say that these do not look like the people who are at this time about to engage in a major increase in government spending. I think the important point is that it has to be an international effort. If Canada were to massively increase government spending on its own, this would not prevent a world depression, but Canada participating in that I think is essential.

If the government were going to begin to increase its spending in order to prevent the spread of the world depression that we are currently in, then it should go to the people who have been really suffering, the people who are the poorest of the poor. It should go towards more and better education for our children and more support for the people who are currently on the verge of starvation.

Thank you.

The Chairman: Thank you very much, Mr. Johannson, and I'd also like to thank your organization.

We'll now go to a five-minute round, starting with Mr. Epp.

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Mr. Ken Epp: Guess what? My computer battery just died. So my auxiliary brain gives way to the only one I have remaining.

Mr. Robert Johannson: It's good to have a backup.

Mr. Ken Epp: Well, it is.

Thank you, first of all, for coming, and my apologies for not holding the committee here... It should have been part of my job as the official opposition to insist that we were here until 5 o'clock even if no one was here. I speak facetiously, of course.

I'm curious about your stand. I want to ask you some questions that don't necessarily indicate which side of the issue I'm on, but it's to engage you in the debate. Okay?

Mr. Robert Johannson: Okay.

Mr. Ken Epp: You have the belief that increased government spending will solve the problems. Now, there's no doubt in my mind—I think you're probably right that when you have someone who is totally destitute, who doesn't have a job, who has no income, who has no money and they need to have the basic necessities of life, these must come from someone else, either from charity or from a charitable organization or from some individual, family member or from government. Have you lost total faith in the charity of Canadians?

Mr. Robert Johannson: Have I lost faith in the charity of Canadians? I think that essentially charity was capable of doing a small amount of work. I don't think charity can actually solve what are essentially problems in the system itself. Charity is not the answer to systemic problems.

Mr. Ken Epp: Are you talking about the systemic problems of high unemployment?

Mr. Robert Johannson: Yes, that's one of them.

Mr. Ken Epp: And are you then addressing the question of the EI fund and its inability to assist those who have long-term and chronic unemployment? Those people have the avenue right now of welfare systems that come into play for them. I don't really know where you're coming from.

Mr. Robert Johannson: Okay. What has happened is that the welfare system may or may not be available to people, depending upon the discretion—in the act it would say of the minister—essentially of the welfare worker. You say they have that backup; maybe they do, maybe they don't. That's gone.

If you look at the EI system, what happened was that in 1990 90% of the people who were unemployed were on EI. Now it's something like 30%. And everybody now pays in, but you have to work six months full-time in order to collect. So all of the people who don't earn that do not receive any insurance at all, but nonetheless they have to pay in. It becomes a method of taxing the poorest workers in the system and giving them nothing in return.

Mr. Ken Epp: Yes. So really we should address those questions as well in the budget, although generally that's left up to regulations and will not appear in a budget statement by the ministry. The actual cutoff numbers and all these different things are generally reflective of broad-based policy stated in a budget speech.

Would you like to see something very specific in the budget speech with respect to addressing the needs of the chronic unemployed? Is this what you're saying?

Mr. Robert Johannson: Yes. Let me begin with the term “chronic unemployed”.

Mr. Ken Epp: Look, I think it's the group you represent, isn't it? You're speaking about the unemployed, the non-employed.

Mr. Robert Johannson: Yes. Non-employed refers to people who are unemployed, who are part-time employed, or who are contract workers—in other words, the people who don't have what in the old days we would have called a “secure job”. There are many people in the organization who work part-time or who get a contract from here to there. And one of the things that have happened in the economy is that with the variety of downsizing and things of that nature, more and more people are forced into that kind of work.

Mr. Ken Epp: But you're not representing, for example, university professors I know who get year-by-year contracts to teach courses because the universities are no longer ready or willing to give them tenure and long-term secure jobs. By the definition you've just given, they'd come into your group. I don't think a university professor who makes $50,000 a year or more, even though he's on a contract year to year, could qualify.

Mr. Robert Johannson: We don't have any of those in our group.

Mr. Ken Epp: No, I wouldn't think so. Carry on, though.

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Mr. Robert Johannson: The sense that we represent more than simply the chronically unemployed... I think one of the problems we face is that there is more chronic unemployment and it is growing, and that for us is a definite concern.

Mr. Ken Epp: I appreciate your presentation here and I have a lot of empathy for what you're saying. I meet these people all the time. I have very few in my riding, thankfully, but in Ottawa and in Winnipeg here... I've come across four or five just in the last 24 hours right here in town who are saying “Hey, I'm not getting my EI cheque.” There was one just across the street here at noon. I needed something to eat, so I asked him when he'd last eaten and talked to him a bit. I didn't give him any money because I chose at this particular time not to help him. I judged that he had other means.

But I think we do need to address those questions and so I appreciate your being here.

I think my time is up, Mr. Chairman.

The Chairman: Thank you, Mr. Epp. Ms. Bennett.

Ms. Carolyn Bennett: Thank you so much for coming back today. In scanning your brief yesterday, I thought it had some really interesting points.

Obviously we're looking at things that can be done. Sometimes we can't do all of them at once. Raising the personal income tax exemption is something that seems like a good thing to do. When you look at even the people earning minimum wage and people on disability pensions, it just doesn't seem quite right that these people should have to pay taxes. Do you think it would help things like child poverty and family poverty to actually take them off the tax rolls?

Mr. Robert Johannson: Yes, definitely. Part of the problem we have faced is, from the time of Brian Mulroney, essentially an attitude that the burden of taxation, if I can use that rather unfortunate word, should fall on the poor, that the tax exemption should be created for the rich but the most stringent taxing should fall on the poor. Therefore the exemption has not increased significantly, which means that people living below the poverty line and people living on the verge of destitution are paying income tax, which is ridiculous.

Ms. Carolyn Bennett: You said in your brief that the scope in the clawback... I think part of the design was the child tax benefit, but most provinces ended up doing that. School breakfast and lunch programs have been used. Is that a Manitoba phenomenon, that they were clawing back this money and using it for school breakfast and lunch programs? Is that for sure, or is that just their excuse for doing it and you're not sure that it's actually happening?

Mr. Robert Johannson: That's their excuse for doing it and I'm not sure that it's happening. What has happened is that with the disappearance of the rights under the Canada Assistance Plan, there essentially are no rules. Everything is discretionary. I guess the decision on the part of the province was, well, the feds have cut our transfer payments for this, so we may as well claw some of it back from the poor.

The Chairman: Thank you, Ms. Bennett.

I would like to thank you very much for your presentation. I've certainly taken note of the fact that you want to expand the tax brackets and raise the basic personal exemption; you're concerned about the changes to the CHST related to, I guess, the elimination of CAP. And national standards for welfare are an essential component of a social safety net that speaks to the challenges that the people you represent face every day. I've also taken note of the fact that you are concerned about child poverty and the widening gap between the poor and the rich, as you correctly stated, in the sense that the rich are getting richer and the poor are getting poorer.

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You can rest assured that, as a committee, what drives our agenda is to improve the quality of life for the people of Canada, and that includes everybody. It includes those individuals who sometimes, through no fault of their own, are voiceless in the national debate. So I just want you to rest assured that the message you've given us this afternoon is a message that's come out loud and clear.

Thank you very much.

Mr. Robert Johannson: Thank you.

The Chairman: The meeting is adjourned.