FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 3, 1998

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I now call the meeting to order and welcome everyone here this morning. As everyone knows, we are presently studying the MacKay task force report on the future of the Canadian financial services sector.

We welcome the panellists, and we have the pleasure to have with us this morning representatives from the following organizations: Association of Life Insurers, Quebec Charter; Confédération des caisses populaires et d'économie Desjardins du Québec; École des Hautes Études Commerciales; Entraide, Mutual Life Insurance Company; Institut québécois de planification financière; Quebec Association for the Protection of Savers and Investors Inc.; and the Montreal Community Loan Association.

As you know, you have approximately five to seven minutes to make your presentation, and thereafter we will engage in a question and answer session. We will begin with the Association of Life Insurers, Quebec Charter, Monsieur Jean La Couture. Welcome.

Mr. Jean La Couture (Spokesman, Association of Life Insurers (Quebec Charter)): Mr. Chairman, thank you very much. I will express myself in French, but Mr. Georgiev and I will be happy to answer any questions in English.

[Translation]

Mr. Chairman, thank you for giving us an opportunity to state our views to your committee. My name is Jean La Couture and I am the president of the Regroupement des assureurs de personnes à charte québécoise.

As its name indicates, our association is made up of provincially chartered life insurance companies in Quebec. We should point out that these insurance companies issue approximately 50% of all premiums in Quebec. The association also includes Canadian reinsurers. As you know, the number of Canadian reinsurers is limited.

In the brief time we have, we are going to draw your attention to a subject not covered in the MacKay report, even though we think the report is very well presented and organized. We are referring to local companies, which have specific concerns and a strategy geared more to local clients.

Our association set up a committee. The members of our board of directors are all presidents of Quebec insurance companies, and the one who headed the committee on the future of financial services is Mr. Mario Georgiev. Mr. Georgiev is the president of Optimum RI, and he will be doing most of our presentation this morning.

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Mr. Georgiev.

Mr. Mario Georgiev (President, Optimum réassurance Inc., Association of Life Insurers (Quebec Charter)): Good morning everyone. This morning I will be focussing chiefly on points which directly affect our members, that is, provincially chartered companies.

The first thing we noticed was that the report of the Task Force on the Future of the Canadian Financial Services Sector did not consider problems unique to provincially chartered companies.

In the Insurance Companies Act, the federal government makes these companies second-class citizens. More specifically, section 254 of the Act states that in Canada provincially chartered companies cannot purchase federally chartered companies or insurance portfolios initially issued by federally chartered companies. However, federally chartered companies have every right to purchase provincially chartered companies. Similarly, foreign companies, both European and American, which operate in Canada may purchase federally chartered companies, as well as federally chartered or provincially chartered portfolios.

The Act clearly discriminates in this way against provincially chartered companies. It restricts their capacity to expand by imposing the standards which, we feel, are quite unjustified, given that such companies play an important role in the economy and in the insurance industry.

Mr. La Couture was mentioning that in Quebec, provincially chartered companies make up half the market in terms of volume. They account for most companies located in New Brunswick, and, here again, the only Canadian reinsurer is also a provincially chartered company.

We think that in developing standards for the future of the financial services sector, it is important to recognize local authorities, whether for federal or provincial companies, in any review of the legislation.

The second series of measures that we would like to draw to your attention are measures that we have spoken about on various occasions, for example in the brief we submitted to the MacKay task force. I'm referring to support for the development of small and medium-sized companies.

The MacKay task force had a positive attitude toward conglomerates and consortiums, but we think small companies have an important role to play. They are the best suited and the best able to take into account regional constraints and features in their activities. In addition, generally speaking, they are the best at serving market niches. These companies need support in order to develop; they need to be on an equal footing with large companies as regards development.

Here we would ask you to think particularly about the role of self-regulatory bodies. Unfortunately, sometimes these bodies are used by the larger players to control the smaller ones. Consequently, whenever any self-regulatory body is set up, there must be provision for some type of monitoring of their operations.

Second, we would like to talk about financial disclosure. The MacKay report talks about consumer protection. In our first brief, we supported this concern, as well as the protection of the privacy and personal files of all insured individuals.

However, we must ensure that certain standards of simplicity are followed in disclosure, and that the message to consumers is accessible. Unfortunately, in our view, the Task Force on the Future of the Canadian Financial Services Sector goes too far in its recommendations, particularly, for example, when it deals with the disclosure of any type of remuneration that could be used in the distribution of financial products.

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Corporate disclosure was not mentioned by the task force in its recommendations. We made some representations on this subject in the hope that in Canada, a company with an operating license would be able to make the same type of representations as any other company and that the government not endorse a financial comparison between companies. For example, this could force the disclosure of financial ratios, as the federal Office of the Superintendent of Financial Institutions recommended in 1997.

Finally, we would like to talk about the way reinsurance is handled in the winding-up of activities. We also made representations on this subject to the task force, but our comments are not reflected in the recommendations. All small insurance companies must have access to reinsurance. It allows them to compete, not on an equal footing, but at least on a similar footing with the large corporations. Unfortunately, in a recent bankruptcy case in Canada, the way the reinsurance was handled was changed significantly, and this made reinsurance less accessible to smaller companies.

In closing, I would like to make a more general comment. Clearly, administrative costs are relatively higher for small companies. All future recommendations must avoid duplication, particularly between provincial and federal regulations as well as to unwieldy structures that would result in administrative costs for the smaller companies in the marketplace.

This completes our presentation. Thank you.

Mr. Jean La Couture: Mr. Chairman, we would remind you that the MacKay Report should be promoting an environment that will allow Quebec companies to develop, not just survive.

[English]

The Chairman: Thank you very much.

Now we'll hear from

[Translation]

the Confédération des caisses populaires et d'économie Desjardins du Québec. Welcome, Mr. Langelier.

Mr. Jean-Guy Langelier (President and Chief Executive Officer, Caisse centrale Desjardins, Confédération des caisses populaires et d'économie Desjardins du Québec): Thank you, Mr. Chairman.

The Desjardins movement would like to thank the House of Commons Standing Committee on Finance for this opportunity to discuss the findings and recommendations of the Task Force on the Future of the Canadian Financial Services Sector.

I don't think you require detailed description of the Desjardins movement. We would just mention that with its 5 million members and assets exceeding $72 billion, the movement is the sixth largest Canadian financial institution. It is the largest private employer in Quebec and also ranks first among deposit-taking institutions, for both savings and credit. It is also first in the life and health insurance market, and second in damage insurance.

There are caisses Desjardins throughout Quebec, and the movement is also an important socioeconomic tool for community development. Indeed our 15,000 volunteer directors provide priceless expertise to our branches and the communities they serve.

The Desjardins mouvement has 1,416 caisses populaires, 141 of which are located in New Brunswick, Ontario and Manitoba.

We think the MacKay Report provides an accurate view the Canadian financial sector and properly identifies the challenges and opportunities that lie ahead.

Generally speaking, the Desjardins movement agrees with the positions adopted by the members of the task force. Most of them are quite similar to the main points we put forward in our brief to the task force. However, I would like to add some additional remarks and express a few reservations about some parts of the report.

One of the basic objectives underlying the concept of free competition on the Canadian market, for the consumers' sake, is a definition of the rules that all players offering financial products and services to Canadians clearly understand. Whether the players are Canadian or foreign, provincially or federally chartered, regulated or non-regulated, they should all enjoy equal, fair treatment.

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We think this first step toward harmonization is extremely important for the health and well-being of the Canadian financial industry. It is also crucial so that Canadian consumers will ultimately enjoy greater choice and so that their rights will be properly protected.

As a result, we fully agree with the authors of the MacKay Report, who recommend that financial services be deregulated provided, of course, that the new, integrated industry is properly regulated.

For example, in the area of privacy protection, we think that any institution under federal jurisdiction should comply with the prevailing legislation in the areas in which it operates. In Quebec, that would be the Civil Code and Bill 68.

We therefore are convinced that if the federal government were to step us the deregulation of federally chartered financial institutions, they would be required, as would any other financial distributor or intermediary, to comply with provincial regulations regarding the distribution of financial products and services. It would also be advisable to harmonize provincial rules in order to reduce inherent administrative costs.

As regards of competition on the Canadian market, we think the 10% limit on the major banks should also apply to Canadian chartered banks with less than $5 billion in capitalization.

In Canada, these institutions are often quite large regional banks that have a very significant impact on one or two provinces. Allowing one shareholder to hold too large a block could harm the region, should the shareholder's interests not coincide with the region's economic development.

The Desjardins movement is pleased with the task force's open attitude to our request to allow the cooperative sector to establish one or more banks and to eliminate the legislative and regulatory obstacles to the growth of this sector.

In the context of a profound change, we think that establishing this kind of bank would be an excellent alternative for small and medium-sized Canadian companies and for various savings and credit cooperatives, which are continuing to work for the social and economic development of the local community.

Finally, we think that the Canadian financial industry should be restructured gradually, in order to provide a level playing field and properly establish the rules so that competition will be both genuine, and fair.

Those, in a nutshell, are our comments on the MacKay Report, Mr. Chairman. We would now be pleased to answer your questions.

[English]

The Chairman: Thank you very much for your comments.

Now we'll hear from

[Translation]

the representative from the École des Hautes Études Commerciales, Mr. Jean Roy.

Mr. Jean Roy (Individual Presentation): Thank you, Mr. Chairman. While I am a professor at the École des Hautes Études Commerciales, I cannot claim to represent the institution, because 160 professors teach there, and they all have their own personal opinions. That is why I am testifying on my own behalf.

I would like to thank you very much indeed for giving me an opportunity to state my views on the MacKay report, which I find very interesting. I should mention that I had an opportunity to work for the MacKay task force—I did one of the 18 additional studies. However, I do think I am entitled to state my general views on the report.

In terms of its strengths and weaknesses overall, I would first like to mention that the report is very balanced.

First of all, there is balance between change and stability. Clearly, the MacKay report suggests many changes, both for companies, who supply financial services, and for consumers. However, it is less apparent that many of the fundamental characteristics of the financial system have been retained, and that is a very good thing.

Secondly, there is a balance between suppliers and consumers, because the ultimate intent is to strengthen both sides.

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Third, there is a balance as regards the growth opportunities for large, medium and small financial companies. A major effort was also made not to favour any type of ownership—share capital, mutual insurance companies or cooperatives.

Finally, there is a balance between an open attitude toward foreign suppliers and the desire to maintain Canadian ownership of the financial system.

In addition, the scope of all the issues studied is quite significant.

Nevertheless, in my view, there are some weaknesses. For example, the report sometimes fails to make clear recommendations on compensation plans, or remains silent about some issues that should have been relevant, such as the functional approach to regulations, the national implications of international risks taken by Canadian institutions and regulation of the securities sector.

So, I do think it is a very good report, but, if I could, I would like to develop those points on which I particularly differ with the report's authors.

First of all, on the subject of ownership, I agree with the task force's recommendation to make the 10% rule somewhat more flexible. However, the recommendation goes too far.

The report suggests three categories. The first would be companies with under $1 billion in capitalization. In such cases, there could be 100% ownership. I agree with that, because that would encourage the creation of new institutions.

I particularly disagree with the transitional category, companies with capitalization between $1 billion and $5 billion, where there could be 65% ownership. I would suggest a minor change, which would nevertheless have some significant consequences. I would divide this transitional category in two, and have one category for companies with capitalization between $1 billion and $2.5 billion. In this category, a single shareholder could hold 65% of the shares. The next category would be companies with between $2.5 billion and $5 billion in capitalization. In this category, a single shareholder could hold only 35%. This would allow for effective control without legal control. Obviously, one of the consequences is that this system would allow profits to be distributed widely.

In the case of companies with capitalization over $5 billion, I think we should maintain the 10% rule. The Competition Bureau is currently studying the merger proposals, and we so will see what the level of concentration is in Canada. We can assume that for certain types of products, in certain regions, competition is very strong, but when it comes to other products and other regions, competition is less pronounced. Consequently, a handful of people could be getting all the profits. The benefit of the 10% rule is that it redistributes profits widely throughout the population.

Moreover, if the 10% rule is maintained, this will clearly give more power to the executives of these companies, who actually have to deal with divided shareholders. I'm somewhat disappointed that the task force did not look at the cumulative vote procedure, which would allow small groups of minority shareholders to be represented on the board of directors.

I agree with the approach advocated for examining the mergers. I do have one regret, however, and that is that the task force did not make better use of the data from the banks to produce a social impact report.

Finally, one of the supplementary studies produced by McKinsey and Company contains an analysis of possible strategies for Canada. Three main ones are identified: the strategy used in the United States and the United Kingdom, which means adopting a hands-off attitude to competition; the Swiss and Dutch strategy, which promotes the emergence of national and international champions; and third, the Australian strategy, which strikes a balance between a hands-off approach and quietly promoting national champions.

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Personally, I deplore the fact that the task force did not look further at the advantages and disadvantages of these strategies in its final report. I myself would be inclined to favour the second option. Given the size of Canada on the world stage, the emergence of national champions could have many advantages. First, it would create high-level jobs in Canada, because we would be exporting our financial services. Second, it would create an international banking network that could support our Canadian export companies that set up operations abroad.

Finally, the Senate committee study that looked at the issue of foreign regulation also found that the presence of strong financial companies helped a country internationally, when it is involved in drafting international regulations.

I would also like to say something about the social role that financial institutions are increasingly being asked to perform, as well as the consumer protection issue.

The MacKay report emphasizes the importance of the social function of financial institutions. It says all Canadians should be access to financial institutions and recommends that all federally regulated deposit-taking institutions and life insurance companies periodically report on what they are doing to meet their community responsibilities.

To put it plainly, the task force suggests a milder Canadian version of the American Community Reinvestment Act. These are very commendable recommendations, and we can hardly be against them. However, we must realize that large Canadian institutions could be places in a difficult position. On the one hand, they're being asked to play a social role, and, on the other, the new financial climate could pit them against various types of financial corporations that would not have to meet such requirements. So I think we need to study this issue more closely to ensure that the competitive conditions are really the same for all players.

Of course, I'm thinking of the arrival of various American "monoliths" which quite likely will not have to meet such requirements because they could offer their services in Canada from their American offices.

Second, the report suggests broadening the role of the Canadian banking ombudsman so that he or she could take action within the entire financial-services sector. I fully support this recommendation. In addition, I think the ombudsman's role should be extended to the whole field of consumer protection, not just the mediation of individual problems.

I think collective and individual consumer protection clearly go hand in hand. A series of individual problems of the same type leads to collective solutions. And collective solutions will reduce the number of individual cases. I suggest that the ombudsman deal with issues such as the transparency of contracts, protection against tied selling and standards of access to financial services.

The development of public institutions: The MacKay report suggests that the responsibilities of the Office of the Superintendent of Financial Institutions be expanded to include a consumer protection. I disagree with this recommendation, because it would put the Office of the Superintendent of Financial Institutions in a situation of conflict of interest. OSFI's primary responsibility is to ensure the stability and solvency of the Canadian financial system. Profitability is a very important factor in ensuring that institutions remain solvent. However, many consumer protection measures might cut into the profits of financial institutions and harm their solvency.

If OSFI were given the additional mandate of overseeing consumer protection, it would regularly find itself caught between its responsibilities related to the solvency of institutions and those related to consumer protection. Moreover, the international survey conducted by Professors Kryzanowski and Roberts of regulatory and supervisory bodies, found in appendix II of OSFI's brief to the task force, clearly sets out the problems of having a dual mandate. Consequently, I believe that it would make more sense to give the responsibility for consumer protection to an ombudsman with broader functions, as is mentioned above.

With respect to consumer insurance, the task force recommends that the Canada Deposit Insurance Corporation and the Life and Health Insurance Compensation Corporation be gradually merged into either a public body, an expanded CDIC or into a private corporation.

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On the one hand, I find it unfortunate that the task force could not make a clearer recommendation. On the other, I do not understand why the task force did not endorse the proposals set out in the February 1998 brief of the Canadian Life and Health Insurance Association. The CLHIA proposed that the current CDIC be privatized to put it on an equal footing with COMPCORP and the two other private compensation systems, the Property and Casualty Insurance Compensation Corporation and the Canadian Investor Protection Fund. Then the CLHIA suggested that a public body be created to oversee the compensation systems and that this organization could intervene if any of the systems were in financial difficulty. I prefer this proposal because it would standardize consumer protection in the entire financial-services sector. Therefore I would suggest that the government reconsider the CLHIA proposal.

Finally, at paragraph 4.10 of its June 1997 discussion paper, the task force raised the issue of securities regulation. Specifically, it asked the following question:

If the proposal for a national securities commission is not implemented, or if the commission turns out to be ineffectual, are there other measures that the federal government could take with respect to this issue?

This is a very important matter. It is impossible to analyse a modern financial system without considering the securities sector. Unfortunately, most likely for constitutional and political reasons, the task force did not deal with this issue in its final report. Personally, I believe that it would be advantageous for the country to have a central regulatory agency for securities. I believe that there should be a two-tier system. The provincial commissions would remain, and a national commission, not necessarily federal, would be created. As is the case for trust and insurance companies, the regulatory agency would be chosen by the sector to be regulated.

I would like to digress for a moment. Everybody who is being regulated, particularly if they have to deal with several regulatory agencies, is asking for harmonization. Professor Robert Merton, who received the Nobel Prize for Economics last year, published a very interesting article two or three years ago, which stated that harmonization taken to the extreme was perhaps not the best thing for financial systems. In regulation, as in business, competition is a good thing. So, there should be a balance between regulatory competition and regulatory harmonization. To promote this approach, which apparently has already had an impact—Quebec's initiatives have certainly had an impact at the national level—this approach should also be taken in the securities field.

Finally, it is disappointing to note that the task force decided not to analyze the issue of the functional approach to regulation. It is obvious that solvency criteria will mean that it is always necessary to have some degree of institutional regulation, but that does not mean that all regulation must be institutional. Regulation by activity, or functional regulation, has major advantages. It can provide a more stable and fairer regulatory framework. In my opinion, the task force should have reviewed both regulatory approaches and considered the possibility of combining them to take advantage of the benefits of both systems.

In conclusion, the task force's report generally provides an adequate response to the needs of financial institutions to adjust to a new environment. Its greatest strength is its balanced approach. Its main weakness is that it ignored certain themes that are relevant to the current reform. Overall, however, it makes a very important contribution to the regulatory framework of the Canadian financial sector.

Thank you.

The Chairman: Thank you, Mr. Roy.

[English]

We will now hear from Entraide, Mutual Life Insurance Company, Mr. Gaëtan Gagné.

[Translation]

Mr. Gaëtan Gagné (President and Chief Executive Officer, Entraide assurance-vie, compagnie mutuelle): Good morning Mr. Chairman. Thank you, ladies and gentlemen, for giving us the opportunity to comment on the MacKay report. Today I will present our brief, comment on the MacKay report and state my main concern.

For a number of years, I have been speaking out against a discriminatory section of the Insurance Companies Act. I'm delighted to see that my colleagues from Quebec have joined us, as well as the president of the Desjardins Movement, in his recent appearance before the standing committee, and several other Canadian agencies.

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The Insurance Companies Act prohibits the sale of a portfolio of insurance policies to provincially chartered companies such as L'Entraide assurance-vie. This provision restricts the growth of our company considerably, since it prevents us from obtaining insurance contracts from federally-chartered companies. Page 3 of the brief has a diagram that explains our problems in this regard.

Several federally chartered foreign companies have left Canada or gotten out of the market. They have sold their insurance portfolios. These transactions have always been between federally chartered companies, and exclude provincially chartered companies such as L'Entraide assurance-vie.

I would like to point out that there is no reciprocity, since local regulatory authorities, at least in Quebec and perhaps in the other Canadian provinces, allow provincially chartered companies to sell insurance portfolios to federally chartered companies, although the reverse is not possible.

I would also like to draw to your attention to the fact that banks and trust companies are not subject to similar legislation, and so it is possible for a federally chartered bank or trust company to sell them portfolios to similar provincially chartered institutions.

In 1997, the government introduced Bill C-82, in order to amend the winding-up and restructuring legislation. Il personally made representations concerning the bill, for it was an excellent opportunity to amend the legislation. The technical and practical result of the amendment was that a provincially chartered company such as L'Entraide assurance-vie can purchase an insurance portfolio from a bankrupt federally chartered company, but cannot purchase one from a financially sound company.

In our opinion, in this free-trade era, these non-tariff barriers absolutely must be lifted. Let me give you an example. An American company headquartered in New Jersey that owns a federally chartered Canadian company—a foreign company for it—could deal freely with another company headquartered in New York that also owned a Canadian subsidiary and had an insurance portfolio in a region such as Quebec, whereas we, who have been operating in Quebec for 50 years, could not even submit a tender or participate in the deal. This is an anomaly that must be corrected as quickly as possible.

I am requesting an immediate amendment to allow federally chartered insurance companies to sell, with the associated responsibilities, all or part of their policies in Canada to a provincially chartered company, which would allow provincially chartered companies in Canada to purchase portfolios of Canadian policies from federally chartered companies. This would promote the growth of all types of financial institutions in Canada.

Mr. Chairman, I am delighted to see that the MacKay report's clear vision of Canada's financial institutions reflects innovation and the possibilities for electronic trade, and that it gives the message that there will be many changes in the months and years ahead. The MacKay report provides an eloquent portrait of the changes that will have to be made.

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The report places great emphasis on competition. Foreign companies will be invited to compete in Canada. They will gain easy access to the Canadian market, which will be good for consumers, and more flexible rules will allow them to enter the market and to improve competition among financial institutions.

I welcome this as a farsighted move, but I would like Parliament to consider offering the same opportunities to provincially chartered companies in Canada.

My major concern with the MacKay report is excessive regulation. Leaders who are afraid of these winds of change will engage in demagogy, using the report to frighten consumers and Members of Parliament and lead us into regulatory overhead.

I think that we are experiencing what I call strangulation by regulation. "Small companies such as ours are subject to a number of self-regulatory and regulatory agencies.

I would ask the government to be very careful to avoid excessive regulation. Furthermore, I believe that decentralization will facilitate harmonization of the new regulations that will have to be implemented to deal with the new thrust of financial institutions in Canada.

Thank you, Mr. Chairman. I shall be pleased to reply to your questions.

The Chairman: Thank you, Mr. Gagné.

We will now hear from the representative of Institut québécois de planification financière, Mr. Réjean Ross.

Mr. Réjean Ross (President, Institut québécois de planification financière): Good morning, Mr. Chairman. Allow me to present my colleague, Ms. Anne-Marie Plouffe, who was the president of our institute in 1996-1997.

I would like to bring to your attention certain passages of our brief, which is meant to be complete, but I do not want to exceed the time that we have been allowed.

The Institut québécois de planification financière would first like to thank the members of the Standing Committee on Finance for inviting us to participate in its review of the report of the Task Force on the Future of the Canadian Financial Services Sector. We hope that our comments and our perspective based on the Quebec experience in financial planning will be useful as you develop your own recommendations.

You have undertaken an immense and very important task. It is also complicated. The institute is aware of the Canadian reality in this field. We realize that consumer protection is a matter of provincial jurisdiction, and that there are different regulations.

Therefore we believe that it is to everyone's advantage, both that of financial planners and consumers, to define common standards of competence for professional financial planners. If there is one thing that the Quebec experience has shown us, it is that quality, consistency and integrity in financial planning are the result of uniform supervision and clear, well-established structures. This allows financial planners to work in an unambiguous environment and enables consumers to receive sound advice, in all confidence.

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I would like to tell you about the Institut québécois de planification financière. The Institute was incorporated under the Quebec Market Intermediaries Act of 1989.

In 1998, the functions of the IQPF were reaffirmed and strengthened as part of the Quebec government's reform of the financial services industry, which resulted in passage of the Distribution of Financial Products and Services Act.

There are presently a little over 3,000 financial planners with a diploma from the IQPF working in Quebec. This number is growing rapidly as universities and other post-secondary institutions, under the auspices of the IQPF, respond to a constantly growing demand from consumers for genuine professional planners. From April 1996 to April 1997, the membership of the IQPF leaped by 60%. At the present rate, it could double by 2002.

The Institute's role, as specified by Bill 188, is simple: to ensure the development of vigorous and uniform training criteria. Furthermore, the government chose the IQPF as the only authority allowed to award a diploma in financial planning. Therefore, all accredited financial planners in Quebec must have a diploma and be recognized by the IQPF.

Since it was created in 1989, the IQPF has always based its activities and leadership on three pillars: its specificity, its preponderant role in determining the basic criteria for training financial planners, and public education. This has enabled the Quebec financial planning sector to develop with stability, integrity and a high degree of quality that seems to be much appreciated by the public.

Training is the keystone of the IQPF: Historically, this has always been the institute main activity. In the beginning, the Institut focused primarily on developing competency criteria and a basic training program in financial planning. The IQPF requires its members to complete university-level training and has developed a 450-hour core program, a review course, a single exam and a program of ongoing training.

Its position and growth as an agency with a mandate from the provincial government have enabled it to develop strategic alliances with post-secondary educational institutions for the development of their certificate programs, and has made it possible to avoid duplication. A specific example of this is the certificate in personal financial planning offered by Laval University in Quebec. The IQPF program is also used as a needed for similar programs at the Université du Québec à Montréal and a number of other Quebec institutions. Moreover, the Institute of Canadian Bankers has also integrated the basic IQPF financial planning program into its training program.

Consumer protection: The neutral position of the IQPF as an provincially mandated agency enables it to protect consumer interests fully. This role is clearly central to the organization, as is demonstrated by its mission statement: to contribute to the economic well-being of Quebec consumers by supervising the training and certification of a network of professional financial planners who take an integrated approach to financial planning.

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The legislative framework: As we stated at the outset, the powers of the IQPF have been conferred by statute and by regulation. The Institute's mandate was recently reconfirmed by another statute. Above and beyond its moral authority, we believe that the legislative framework gives the IQPF a structural basis and source of strength in the province's economy that it could not obtain otherwise. This legislative foundation has also made the IQPF unique. Its unique position, separate from business organizations and professional associations, makes it a privileged stakeholder in the Quebec financial landscape. It is the only agency that unites all practitioners in a multidisciplinary approach to training and planning, with a view to protecting the public interest.

I shall now speak, in conclusion, of the lesson learned from the Quebec model.

Structure and uniformity: These are the two concepts that we think should be taken from the Quebec financial planning model.

By establishing a well-defined legislative framework, Quebec made it possible for the financial-planning industry to quickly gain the respect of the public and the financial-products services sector. As an organization with a mandate from the Quebec government in this field, the Institut québécois de planification financière has laid the foundations for a profession that is considered to have the most demanding standards of professional competency in North America. These two concepts are also in keeping with the issues that we presented at the beginning of our brief.

Working together: In as far as possible, financial-planning standards of competency and practices are of key importance for the qualitative development of this financial sector in Canada. The development of financial planning in Quebec provides a striking example in this regard. The economic study carried out by the IQPF in 1997 showed that Quebec financial planners have the highest level of training of all the countries that were compared. Furthermore, Quebec has the highest ratio of taxpayers per financial planner in all the G-7 countries, approximately one financial planner for every 2,000 people. We also have more professionals available to the public, and our professionals are consulted more often than their colleagues in the other Canadian provinces.

It is clear that we have a very great interest in the solution that the rest of the country will choose. The members of the IQPF believe that they are part of a developing discipline distinguished by its client-based, its rigorous standards and by a growing, developing level of competence.

The development of common standards requires a convergence of points of view on each of these elements. "Common" does not necessarily mean unique or uniform. It is possible to agree on objectives for each of these three elements without achieving consensus on the means to attain them, or there could be agreement on the fields of knowledge required without specifying the time devoted to these subjects.

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In any case, each point of agreement represents a step towards the acquisition of common standards and the qualitative growth of financial planning in Canada. This would provide Canadians with a better service across the country. Furthermore, nothing would prevent certain groups from expanding their members' training. This is provided for in section 65 of Bill 188 concerning the distribution of financial products and services with regard to the professional organizations.

At the present stage of the discipline's development, any attempt towards standardization would have to be imposed by the provinces and the territories, and it is unlikely that this would happen. It seems clear that the achievement of this goal will probably occur by action undertaken within the discipline.

Symposium: The task force has proposed the development of common standards for the professional skills of those who advise clients on financial management. The IQPF feels that it has a role to play here, and wants to participate actively in achieving this objective.

Our experience as a think tank in this field has led us to conclude that reflection is more effective than haste. Therefore, we would like to take the initiative to begin an independent examination of the establishment of common standards of practice in financial planning.

There are a number of avenues open to those who would undertake such a reflection. We believe that the best way to about proceed would be to hold a national symposium on co-operation, bringing together experts and independent thinkers from disciplines of financial planning from across Canada. This initiative to develop future Canadian standards might include defining a profile of the ideal practitioner and of his services to clients; choosing a framework to develop a training program; an educational philosophy, including testing of—technical skills, know-how and presentation, and the basic level of knowledge to qualify for this title.

We believe that the Finance Department would show a great deal of leadership if it agreed to sponsor such a symposium and entrust it to the institute. On the one hand, by choosing the IQPF to lead the initiative, the department would retain its neutrality in terms of the federal government's involvement in a provincial area of jurisdiction. As a neutral, multidisciplinary provincial organization, the IQPF has the necessary experience and credibility to successfully hold such a symposium and reposition the debate on the need for common standards to regulate financial planners in Canada, the nature of such standards, and their implementation.

Once again, thank you for asking us to take part in this review. We hope we have provided you with some constructive ideas. Thank you.

The Vice-Chairman (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Thank you very much, Mr. Ross.

I agree with the committee members. For nearly one hour now, we have been hearing testimony from our guests regarding the future of financial institutions, but no one has said the word "merger". Thank you very much. However, I believe that will change with our next guests.

I would like to welcome Mr. Michaud, and ask him to make his presentation.

Mr. Yves Michaud (President, Quebec Association for the Protection of Savers and Investors Inc.): First of all, Mr. Chairman, as a former member of the Quebec National Assembly, I would like to offer a friendly and semi-fraternal welcome to the members of the House of Commons.

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I'm the President of the Quebec Association for the Protection of Savers and Investors. Our association is the only one anywhere in Canada whose sole purpose is to protect savers and investors and defend their interests. Ours is the only association free of any personal, private or corporate interest, and all our goals are directed in a single direction. First of all, we would like financial institutions to be more transparent; secondly, we are in favour of greater competition among those who supply and distribute financial products; and finally, we try to protect consumers. The purpose of our association is to protect investors, speak on their behalf, and to serve as a watchdog. By the way, I think we bark fairly frequently.

I would like to introduce my colleagues who are with me today: Mr. Paul Lussier, the vice president of our association, who served as deputy minister in the Quebec Department of Industry and Commerce and as Quebec's delegate general in Italy; as well as Mr. Réjean Belzile, PhD, who is a professor at the Faculty of Management Sciences at the Université du Québec à Montréal.

I have already forwarded an eight-page brief that summarizes our position. I'm sure you have read it carefully and you have retained the main recommendations. So, I'll just give a summary of the summary, which will hardly take any time, just to remind you of the main points that we would like to make.

First of all, we find that the MacKay Report is positive overall.

Secondly, we think it is a real shame that this report on financial institutions was obscured by the announcement of the bank mergers early in the year. The announcement showed the cavalier attitudes of these bank executives, which often borders on contempt. they did not consult the shareholders, the people who own the companies, first. To my mind, it would have been wiser to have consulted the shareholders first and then asked the owners for their opinion. But that's not what happened. The bank executives made the announcement without any consultation, without asking us, the owners, what we thought. As I just said, their attitude borders on arrogance and contempt for their shareholders. The announcement was made just as you, members of the House of Commons, are about to begin a review of the Bank Act and the Canada Business Corporations Act, in a few weeks or months from now.

There lies the real problem: unfortunately, the review of these two pieces of legislation is being overshadowed by the banks' undue pressure on public opinion and the federal government. We call this the false state of emergency that the bank executives created when they announced the mergers.

The two pieces of legislation that you will be reviewing, the Bank Act and the Canada Business Corporations Act, require a complete overhaul. They need more than cosmetic changes to ensure competition among companies, protection of investors, shareholders' rights, as well as the transparency and accountability of the executives of these major corporations, the new monarchs and feudal lords of our democratic societies. These two acts need to be reviewed. They have been disfigured. They are covered in warts. Often they are the result of constant lobbying by banks and corporations, which make contributions to political parties' election funds, which is an unseemly, immoral, and illegitimate practice that unfortunately is legal in Canada, although it is prohibited here in Quebec.

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Money and politics form an explosive mixture. In my opinion, the new legislation that you should pass at the House of Commons should forbid all corporate entities, be they corporations or unions, to make financial contributions to political parties. Banks are not citizens and corporations are not citizens; they are corporate entities that have no citizenship and no right to vote. Ordinary citizens should be making contributions to political parties. Contributing to a political party is a civic act. Corporations and unions should not be making contributions.

Mr. Chairman, our association made a number of recommendations. We met with Minister Martin more than a year and a half ago, we appeared before the MacKay task force and we appeared before the Standing Senate Committee on Banking, Trade and Commerce.

Our association made about 15 recommendations concerning these acts. A few months ago, I sent a copy of recommendations to all members of the House of Commons. I don't need to remind you of these recommendations, but some of them are extremely important, as we just emphasized.

Professor Jean Roy from the École des Hautes Études Commerciales talked about cumulative voting, which you should include in the act and not just submit. To introduce cumulative voting in large corporations and allow for the election of one single, small representative of the shareholders out of 24 or 35 directors, the internal by-laws of the bank or corporation must be changed to 66%. The act should stipulate that cumulative voting is allowed. I don't know whether the recommendations are there.

These two acts are fundamental pieces of legislation. Members of Parliament must give back power to the owners, that is to say, the shareholders, rather than allowing their employees carte blanche. The chairman and chief executive officer is just an employee of the shareholders, and often he acts like a dictator when dealing with the millions of Canadian citizens who entrust their savings to him.

During your review, you should look at block voting, the infamous slates for the boards. Cronies come first. In Toronto, in one square kilometre, 250 directors sit on 1,800 boards and control 70% of Canada's economic activity. Everyone and his best friend are on the board. People do each other favours. There's that sleazy system of proxies for the employees of the institutions, which perpetuates a kind of Stalinist personality cult within the big companies by splitting up the shareholders, charging usurious rates of interest on credit cards, collecting all kinds of bank fees, taking advantage of the less fortunate, and by ignoring shareholders' right to information, which was abolished in 1993. There was a provision in the act that said that the minutes of the AGM had to be sent to all shareholders. That provision was eliminated. Funny, don't you think? The minutes are the first piece of information that shareholders get about what's going on in the company. That rule disappeared, just like the rule about the reserves that the banks had to give to the Federal Development Bank. I believe that was abolished in 1991, under the Mulroney government.

Both these acts contain offending, shameful sections that violate the Canadian Charter of Rights and Freedoms. For example, they say that a bank or corporation can reject a proposal from a shareholder if it is submitted for the purpose of enforcing a personal claim or promoting a political, economic, civic, social, religious or similar cause. The banks had this provision included in subsections 143(5)(b), (d) and (f) of the Bank Act and section 137 of the Canada Business Corporations Act.

In my opinion, you should immediately abolish this provision which obviously the bank lobby imposed upon the federal government and MPs. Senator Kirby, Chairman of the Senate committee was quite taken aback by this provision, and when he heard my testimony, he told me that he was astonished. He didn't know that the act contained such a provision.

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So there is the issue of financial contributions to the political parties' campaign funds, as well as the issue of community reinvestment. That should be one of your concerns. The United States has had a community reinvestment law for 20 years, which forces the banks to reinvest some of their profits in their communities.

Finally, there is the whole question of shareholders being represented on the boards. This recommendation came from the largest institutional investor in Canada, the Caisse de dépôt, which said that the board of directors of a bank or corporation should reflect the composition of all the shareholders.

There's the whole infernal spiral of stock options and obscene compensation packages for executives. All these issues must be looked at solely in light of the public interest, even before we discuss the bank mergers. Furthermore, no one has demonstrated that there was or there is some kind of emergency. On the contrary, we have to be careful. Given the storms in Asia and the turbulence of global stock markets, members of Parliament should be extremely careful, not to mention the overlap and duplication with legislation the provinces have passed in their area of jurisdiction.

In Quebec, we have the Consumer Protection Act, the Act Respecting the Protection of Personal Information in the Private Sector, the Securities Act, and the new Bill 188, the Act Respecting the Distribution of Financial Products. They are good examples for many sectors discussed in the MacKay report.

I would like to conclude with an extremely eloquent quote regarding the mergers. We were able to dig this up thanks to the ability and the sharp research skills of the Chair of the Education Committee, Professor Belzile. Here's what Mr. Baillie, Chairman of the Toronto-Dominion Bank said in his last speech—I'm not talking about centuries ago—the speech he gave January 22nd, 1997, at the shareholders' meeting. Mr. Baillie who is now in favour of the mergers, said at the time:

I am not saying that size is irrelevant. Clearly, there is a critical mass required to put in place the systems, products and services contemporary banking demands and to be able to do so in an efficient fashion. The point is, every Canadian bank has reached that critical mass.

And he went on to say:

Today, the issue is not gross quantity, it is high quality. Bigger is not always better.

I'm still quoting the president of the Toronto-Dominion Bank:

Being a better bank is superior to being a bigger bank any day. Rather than adding another zero to overall assets, I would rather concentrate on adding additional percentage points to our return on equity.

And as anyone in virtually any business will happily tell you—there's little evidence that size bolsters innovation or creativity.

That's what the president of the Toronto-Dominion bank said at the beginning of the year. Three months later, he totally flip-flopped: now he supports the bank mergers.

So, Mr. Chairman, as legislators, you must begin by tackling the first problem, which is not the mergers. That can come much later; it can wait. The banks and other institutions are making rather large profits, shareholders are well-served and happy, the return on equity can wait. The first problem is the review of the two acts that I was just mentioning. If members do their job well, and are always guided only by the public interest, if the Members of the House of Commons pass legislation that is more in keeping with the interests of all Canadians, rather than just benefitting bank executives and making them rich men, we will be able to say of you, who will be reviewing and overhauling these acts, what Churchill said of the Royal Air Force pilots during the Battle of Britain,

[English]

in the history of our financial institutions, never will so many owe to so few.

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[Translation]

Thank you.

[English]

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

We'll now hear from the Montreal Community Loan Association, Mr. Roger Snelling.

Mr. Roger Snelling (Member of the Board, Montreal Community Loan Association): Thank you.

I'm here representing the Montreal Community Loan Association. I'm on its board as a volunteer, a member of its board of directors. As well, I'm on the board of the Canadian Alternative Investment Cooperative, which is a similar small institution.

Perhaps what I should address first is why you should pay any attention to an organization like the Montreal Community Loan Association. Because of its size, we comment that we probably do as much business in a year as a major financial institution does in a minute, or maybe a few seconds.

So we're very small. But it does say in the MacKay report there are four recommendations that deal with micro-credit. These are included in the section responding to expectations about social performance, which comprise about 10% of the recommendations of the report. So I think it's an important aspect that this committee needs to deal with. And because of its size, I'm afraid it might get left on the sidelines.

The Montreal Community Loan Association has been around for about eight years. It borrows money from individuals and institutions to lend money to individuals and prospects who address the needs of local communities. It was established in 1990. Total assets of the fund are about $500,000. The fund has 3 paid staff and 40 active volunteers.

Part of the reason I'm here as a member of the Montreal Community Loan Association is there is not a nationwide association that deals with small lending institutions. But the Montreal Community Loan Association has sponsored a conference for the past three years, trying to get together people who are involved in this, and this year the people at that conference agreed to establish a national association. So over the next year, one will be put into place. I would think if this meeting were taking place a year from now, it would be that association that was taking place, rather than a small member.

The report we made is a very brief report. The previous speaker talked about having a summary and then making a summary of the summary. In fact, my report is probably going to expand because the report is so short. The report is only two and a half pages. But I think what we want to address here is the need for the committee to look at small lending needs.

These are lending needs where people want to borrow from $2,000 to $20,000—very, very small. But 20% of the population can't get access to credit from mainline financial institutions. These are people who are living in poverty, but they have good ideas. So how do they get access to credit? Institutions like the Montreal Community Loan Association are the way they get access to that.

We didn't prepare an extensive report. There was one prepared by Eugene Ellmen of Ellmen/Shaw Public Affairs, which was presented for Industry Canada in June, and it included 15 recommendations, much more specific recommendations than I'm going to make. I think some of those recommendations were incorporated into the MacKay report.

The concern we have is that the recommendations will not be implemented, because they are worded as good intentions. For example, they say banks and other financial institutions should be encouraged to develop partnerships. Well, what if they don't want to? The question is, what does “encouragement” mean? They say governments should review all social assistance programs to ensure— Well, what will governments do? So we're trying to put a little flesh around these recommendations.

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We have to recognize that micro-credit organizations cannot be economically viable. If your criterion is that an organization has to be economically viable, we're not in the game. The U.S. situation, which has been around much longer and has organizations much larger than ours, has the same experience; they cannot be economically viable on their own. They fill a void that is not filled by the mainline financial institutions because they cannot be profitable. They provide both small amounts of money and technical assistance. So the support we give in technical assistance is much greater than the amount of money we can make from the difference between the lending interest rate and the money we pay our investors.

What does that say? There are three things to highlight. What we're talking about here are community-based, third sector, voluntary sector organizations. They're small. They have an important knowledge of the neighbourhood. They are plugged into what I call the small p local politics—what's going on in the community. They're concerned about those who are economically marginalized. They have a discipline, or the ones I'm aware of have a discipline of small entrepreneurial businesses, but having said that, they are not economically viable on their own. So the second aspect is they need public support.

Most of them get public support from provincial and government grants for their operations. Some of them have charitable status where they can receive donations from people and give charitable tax credits. They have a lot of volunteers. The Montreal Community Loan Association has three employees and forty volunteers. But the biggest need, and the need I want to address today, is their need for capital—not large amounts of capital.

A survey that was done says there are probably 30 institutions like the Montreal Community Loan Association in Canada that have a total of $10 million worth of capital. The question is, how do we get access to that capital? Financial institutions are not likely to give it without some encouragement, because there's a good risk that some businesses will not survive.

There's a dilemma here between economic viability and the need to supply small amounts of capital to individuals and small community groups. Some of the things that can be done in legislation are making it clearer that foundations could invest in community loan funds, which they cannot do now, and they could be RRSP-eligible, to attract capital we have tried to get—and the Montreal Community Loan Association has certainly tried—and have not received from mainline financial institutions.

That's where we are, and that's my report. It's a brief submission. I'm trying to reinforce the need for action in the area of micro-credit. Hopefully you'll pick up some of the suggestions and carry them forward.

Thank you.

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

We will now proceed to the question and answer session. We'll begin with Mr. Epp for a ten-minute round.

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Mr. Ken Epp (Elk Island, Ref.): When I was a young guy growing up at home, my parents taught me not to be envious, but in the last five years I have come to be almost totally envious of those who have a facility in both French and English. Unfortunately, I have a facility in three languages and one of them isn't French. That makes it really tough for me.

I appreciate your coming here and giving your points of view with respect to the financial institutions and the MacKay report. It's interesting that we have heard here so far quite a different point of view from what we've heard in other parts of the country. I have a question I want you to try to reconcile among yourselves, because I hear contradictory statements here with respect to regulations.

From some of you I'm hearing very clearly that the regulations the provincial government makes are really good and everybody in this province should adhere to them. Frankly, from the little I know about it, I think Quebec is probably ahead of the rest of the country in terms of the way it's organizing its financial regulations for the institutions. Then I hear the cry for harmonization, not only between the provinces but also between the federal government and the provinces.

I imagine there are cases of contradictory regulations. I don't know about that; maybe some of you do. But in any case, there are at least two sets of regulations financial institutions must adhere to. One is the provincial regime where they live, and the second one would be the federal one, which of course is an umbrella over all of it.

How do you reconcile those? Do you think we have any hope at all of ever getting this whole country to work together on an area as important as regulation of our financial institutions, where every financial institution operating in any part of this country would operate under one single set of rules? Do you really think that's realistic? I don't know who wants to start. Several of you brought this up.

[Translation]

The Chairman: Mr. La Couture.

Mr. Jean La Couture: Mr. Chairman, we have a few comments to make on that topic.

First of all, should we be saying that harmonization doesn't mean equality? Harmonization is possible. That's what Quebec's Inspector General of Financial Institutions and the Office of the Superintendent of Financial Institutions are doing. An enormous amount of work on harmonization is being done. However, it's being done in Quebec, in consultation with Quebec companies. I'm speaking more of the insurance sector. We don't have any provincially regulated banks, so there is exchange between Quebec companies to ensure that the regulations are adjusted to the specific nature and size of companies. So, there is some harmonization, and I think it is adequate, because it takes local realities into account.

We and Mr. Gagné have been protesting that the federal legislation makes us second-class companies, as Mr. Georgiev was saying, unable to acquire the portfolio of a federally chartered institution, which makes no sense.

I don't know whether I've answered your question, but harmonization is not the same thing as equality. In my view, the problems with the federal act are an outrage.

Mr. Gaëtan Gagné: I would like to add a few comments in light of Mr. La Couture's response to Mr. Epp's question.

When Canada's financial institutions decided to set up the Canadian Life and Health Insurance Compensation Corporation, also known as CompCorp, the organization that protects consumers, investors, policy holders and so on, each province had to join this organization, which protects people if an insurance company goes bankrupt. In order for us to join CompCorp, OSFI and the Quebec Inspector General of Financial Institutions had to harmonize their solvency rules to meet the requirements of CompCorp, and of Canadian insurance companies.

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Why do we have this corporation to protect consumers throughout Canada, a corporation that all the insurance companies agreed to and that all legislation allows, and your government, the federal government, does not recognize provincial charters for insurance policy transactions in Canada?

It's more than just a question of harmonization. This is discrimination. We have been demonstrating just how ridiculous this provision is for a number of years now, and we have had no answer. Yes, there is hope, Sir, but only if the federal government meets us halfway and abolishes this discriminatory section of the Insurance Companies Act that keeps provincially chartered companies from doing business in Canada.

[English]

The Chairman: Are there any further comments?

[Translation]

Mr. Langelier.

Mr. Jean-Guy Langelier: I'd like to point out to Mr. La Couture that our institution is not called a bank, because according to the federal legislation, to call yourself a bank, you must be federally chartered. Even so, the Caisses Desjardins carry out all activities generally thought of as banking.

Quebec's Inspector General of Financial Institutions allowed the Desjardins movement to evolve, and in our brief we express our desire for harmonization or at the very least recognition. We are pleased with the open attitude to the establishment of federally chartered coop banks. I must say that once again, this is somewhat reminiscent of the problems raised by the insurance companies. The federal government does not grant the same recognition to debt securities issued by Desjardins, issued primarily through the Caisse centrale, as it does to loans issued by the banks. We want the same recognition so we can get the same services. In other words, we want equal treatment. It seems that the only suggestion we are receiving is to get a federal charter. If we want to remain at the provincial level, we will continue to be held back by a multitude of laws and regulations.

[English]

The Chairman: Are there any further comments?

Mr. Ken Epp: I have another question related to something we haven't heard here before, but we've heard it everywhere else around the country, and that is a large concern on the part of insurance companies about opening up the ability of banks to sell products across the counter in their branches that are traditionally offered by insurance companies. None of you here mentioned that, which rather surprises me, especially the first person to my left, who I thought represented the insurance industry, or at least part of it here.

I'd like to have you respond to that. The MacKay commission suggests that perhaps there should be some opening up of those abilities. I'd like Mr. La Couture to answer that.

I also want to ask Mr. Ross what implications that has on the training and abilities of people who are offering these financial services and advice to consumers. I would like answers on those two, please.

[Translation]

Mr. Mario Georgiev: As Mr. La Couture and I both mentioned, this morning we focused on the characteristics of the Quebec market, particularly the companies that belong to our organization, which operate under a Quebec charter.

If you read our report, you'll see that we deplore the fact that the MacKay task force did not retain the recommendations that our organization submitted regarding the distribution of insurance products.

On the other hand, we see that the Government of Quebec has already changed its position by allowing banks and caisses populaires to distribute insurance products. Unfortunately, this trend seems to be continuing. We deplore the impact that these measures will have on the insurance industry.

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As we said in the cover letter to our brief, we were sure that the other major national insurance lobbies would raise the issue with your committee. That is why we prepared our comments on the discrimination against provincially chartered companies and the lack of apparent concern in the MacKay Report for the development of small and medium-sized financial institutions in Canada.

It's too bad we didn't recommend greater protection of insurance companies and other companies that distribute products. I'm not throwing in the towel, but it goes against the trends seen so far in the Canadian market.

Mr. Réjean Ross: As for financial planning, it really isn't very important whether the person works in a bank or elsewhere. In Quebec, financial planners must be graduates of the Institut québécois de planification financière, and insurance is one element of a financial planner's work. It's one of the 11 components that define the work of financial planners in Quebec.

[English]

Mr. Ken Epp: My question, if I can talk briefly, is does this mean that you and your organization, then, in Quebec are going to be required to train all of the bank personnel who are involved in the selling of these services? And if not, will there then not be two levels of proficiency among those who are offering those services?

[Translation]

Mr. Réjean Ross: Financial planners cannot do that. They must respect the law. They can't give the banks or caisses populaires information about their work. They must respect prevailing laws. Insurance is one part of their work.

Mr. Gaëtan Gagné: Mr. Epp, that's a good question. In Quebec, the barriers between banks and insurance companies have been disappearing for several years now. Myself, I think that the legislation must be harmonized so as to allow banks to sell insurance. If you let the banks enter the insurance market and they don't have to comply with the same legislation, once again we will be dealing with discriminatory legislation. Parliament should pass legislation that puts all financial institutions on an equal footing, and the institutions will adjust.

The Chairman: Mr. Roy.

Mr. Jean Roy: One thing I really like in the MacKay Report is the idea that the consumer comes first. By letting the banks sell insurance, we're giving consumers the opportunity to choose. The international environment is clearly favourable to bankinsurance. Bankinsurance is already a fact in Europe. There were plans in the United States to modernize the financial system, plans which were finally put on hold, but the Chairman of the Federal Reserve, Mr. Greenspan, was in favour of them. This phenomenon already exists in Quebec.

The MacKay task force's proposal, which sets a deadline, and would allow the major banks to sell insurance only by the year 2002, is relatively conservative and would allow the other players to adjust.

I would like to draw a parallel with a situation in the financial sector in the early 1980s. At that time, brokers who sold securities had a system to protect them, a system of fixed commissions, and then, all of a sudden, the securities commissions removed that protection. There was a brief moment of despair within the industry.

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In fact, the result was greater choice. At the time, all brokers were what we now call full-service brokers and then the discount brokers emerged.

I see the same thing taking place in insurance. Those involved at the present time are almost all full-service providers who provide advice to their clients, analyse their business and of course must set their fees to take into account the full range of services they provide.

Bankers, with their technological orientation and their minimal distribution costs, will naturally be discount insurance distributors. Their role as consultants, at least during implementation, will likely be quite limited. If the MacKay Report's recommendation is adopted, as I hope it will, we will see something similar to what occurred in the securities sector. There will be a differentiation between full-service brokers and discount brokers, and consumers will have greater choice. So personally I'm in favour of this recommendation, particularly since provision is made for an implementation period.

The Chairman: Do you have a comment, Mr. La Couture?

Mr. Jean La Couture: Mr. Chairman, I'd like to point out that in Quebec, the Association of Life Insurers under provincial charter is not against insurance products being distributed by the Caisses populaires Desjardins. It is something we had accepted without any objection.

We did however wish to draw something to the attention of members of the Quebec National Assembly and we would like to do likewise at the federal level. We were particularly struck by the sentence that says that the banks should be authorized to sell insurance—good enough—and to use information on their clients to facilitate such sales. That is the important point we wished to bring to the attention of members of the Quebec National Assembly and we wish to do the same with you. I repeat: we are not against the involvement of additional competitors if the rules are basically the same for original insurers and for deposit-taking institutions.

[English]

The Chairman: Thank you.

Mr. Epp, do you have a final question?

Mr. Ken Epp: I have a final follow-up on that.

I've been thinking about this, and what we've heard in other parts of the country is there is a great amount of anxiety about the banks basically killing the other industry, so that in the end the competition and the choices available to the consumers will be greatly decreased, because now only the big players will be left and you'll have much less choice and less competition even though initially it looks like there are more choices.

Secondly, the concern was with respect to the loss of many jobs in the insurance industry, not all of them being taken up by their counterparts in the banks.

I don't know if you have a very quick response to that. My time is almost up, but perhaps you can respond to that.

The Chairman: Mr. Michaud.

[Translation]

Mr. Yves Michaud: In the wake of Mr. Epp's comments, this matter of banks selling insurance leaves us rather doubtful for the time being. We are neither in favour nor are we completely opposed, provided you understand that you must be extremely careful before granting banks permission to sell insurance. Where will it end? The main business of banks is banking, that is lending money. Now they have brokerage firms. There now own trusts, trust companies. This necessarily leads to incestuous links between banks, brokerage houses and trust companies, and such links are not always in the public interest. We have experienced certain problems in Quebec.

Let's take a look at insurance in the caisses populaires, the equivalent of credit unions in English Canada. These caisses populaires are cooperative associations. They are based on the principle of cooperation and whatever profits they may earn are returned or distributed to the five million members, although they do keep reserves. So credit unions and caisses populaires should be able to provide that service.

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In the case of the banks, where will they stop? If you ask them to sell insurance, they'll start selling car insurance. Car dealers will be selling cars and then they'll end up selling scrap. At one point, we're going to have to call a stop to the fun and games. It's playing into the hands of the banks. Their profits are good and their shareholders are happy but bankers are so insatiable that they remind me of Lafontaine's frog who fancied himself an ox. He puffed himself up as much as he could until he burst. Lafontaine wrote his fable four centuries ago, but it still has relevance.

I have one thing to say to you as members of Parliament: before allowing banks to sell insurance, make sure that it is in the public interest. I'm not sure that it would improve competition for consumers. In Quebec we already have the caisses populaires and insurance companies. If you add banks to the equation, you could screw up the entire insurance selling system in Quebec.

[English]

The Chairman: Thank you.

Mr. Morency, do you have a fable to tell us?

[Translation]

Mr. Yves Morency (Governmental Relations Secretary, Confédération des caisses populaires et d'économie Desjardins du Québec): I'd like to tell you something about our experience in Quebec over the past ten years. The Desjardins movement is entitled to sell insurance products in its credit unions, particularly property and casualty insurance.

Over the past ten years in Quebec we have noted that premiums have been rising at a significantly lower rate than the Consumer Price Index and they're also lower than in other provinces such as Alberta and Ontario. In other words, the greater competition and distribution has benefited of consumers. I think that the first aim of any legislation should be consumer protection.

As far as employment is concerned, I'd like to point out, Mr. Epp, that in Quebec studies show that the number of brokers has not dropped since we started selling insurance directly. On the contrary, there's been a slight increase. So we have to be careful when we look at the facts.

As a matter of fact, instead of limiting consumer protection in Quebec, we have increased it through Bill 188. Among other provisions, financial institutions are expected to keep insurance files and other types of files separately, except when there is explicit consent. This requires consumers' written consent So there is a way to protect consumers and avoid abuse.

I can tell you that the penalties are so strict that there's little chance a financial institution or its representative will be caught a second time after a first offence.

The same thing applies to medical records. Only life insurance companies are allowed to keep medical records. Their representatives cannot do so. All the records are sent to the life insurance company.

So it is possible to pass legislation and make regulations while at the same time ensuring the protection and welfare of consumers.

[English]

The Chairman: Any further comments, Mr. Michaud?

[Translation]

Mr. Yves Michaud: I'd like to add a caution to what has just been said. I'm also the vice-president of the Quebec Financial Services Bureau under Bill C-188. I'm not appearing here in that capacity today. I do not have any mandate to speak for the bureau.

The penalty is $100,000 for breach of confidentiality by the institution. The second time such a violation occurs, the institution is expelled and loses its right to sell insurance.

[English]

The Chairman: Thank you.

Mr. Epp.

Mr. Ken Epp: I want to say one word: merci.

The Chairman: You're welcome.

Mr. Loubier.

[Translation]

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Mr. Chairman, I have a comment and a question.

[English]

The Chairman: Twenty minutes, ten each.

[Translation]

Mr. Yvan Loubier: Then I'll give the rest of my time to my colleague from Lotbinière. Welcome to the finance committee.

I have a remark for Mr. Roy. You almost encouraged the federal government to engage in civil disobedience by getting involved in an area of exclusive provincial jurisdiction, namely securities. You deplore the fact that the MacKay report did not recommend setting up a Canadian securities commission.

• 1050

I totally disagree with you, because a Canadian securities commission would be quite ineffectual and out of place. In my opinion, the Quebec and Ontario commissions, do an excellent job in this field. They have harmonized their procedures and practices, and continue to do so. The federal government would be like a bull in a China shop, in an area that is already well provided for.

As a matter of fact, when Mr. MacKay and Mr. Ducros, the Vice Chairman of the MacKay-Ducros Committee, appeared before the Finance Committee, I put the question to them. For five years Mr. Martin had been holding out this Canadian Securities Commission as the saviour of the securities sector in Canada. He claimed that it was absolutely necessary to have a pan-Canadian institution to be successful in meeting the challenges of the next century.

I asked this question of Mr. MacKay and Mr. Ducros and their answer was: "If it isn't contained in the report, then it's something we considered to be secondary and pointless. The provincial commissions do the job they're supposed to and they do it well." You however deplore the fact that this is not one of the prerequisites to prepare the financial sector for the year 2000. I'd be interested in hearing your comments afterwards but I would first of all like to put a question to Mr. Gagné.

Mr. Gagné, we became acquainted during your crusade. You began a year and a half ago, I think, in Ottawa. We've had the opportunity to work together on that issue. We gave it a thorough treatment both from the technical and political standpoints. We started at A and we took it to the letter Z. We met senior official of the Finance Department, the Revenue Department and we also met the Minister of Finance for an hour. We were the only two present with him in his office. He told us at the time that he would quickly proceed on this issue and would allow provincially chartered companies to buy blocks of insurance from federally chartered companies. Mr. Lacouture, you raised this problem a short time ago.

Strangely enough, particularly in the case of the Bloc, we even had the cooperation of the Senate so that a private member's bill was quickly given royal sanction in order to eliminate this discrimination against provincially chartered companies.

But I do remember during the hearings of the Finance Committee on Bill C-82, dealing in particular with this type of question, the Superintendent of Financial Institutions made a point of saying that if the Minister of Finance did not quickly agree to— He himself did not go along with your being able to buy blocks of insurance from federally chartered companies because he would be losing control. You talked about outrage a while ago. In my view, it is quite unacceptable. It is contempt. He claimed that because he would be losing this control, we would be unable to ensure the security of depositors' money and consumer protection.

That being said, I'd like to know if you have kept up your efforts since last year's election? Has the Minister of Finance given any justification for his failure to respect this commitment to do away with such discrimination? Secondly, is it not true that this discrimination affects Quebec particularly since it has a larger proportion of provincially chartered companies wishing to expand in the market and make adjustments to the global situation before they end up losing? Is it not a fact that Quebec is more particularly affected than other provinces?

If you met the Minister of Finance, I'd be interested in knowing what his answer was to you. I personally am of the view that it is quite unjustifiable to maintain this kind of discrimination.

Mr. Gaëtan Gagné: Mr. Chairman, following our meeting, we had further communication with the Office of the Superintendent of Financial Institutions and the Minister of Finance. I believe a committee was created with officials from OSFI and IGFI.

Mr. Yvan Loubier: —

[Editor's note: Inaudible] —in 1997.

Mr. Gaëtan Gagné: We were attempting to find a solution to this amendment of the legislation. We know that at the present time a proposal has been put to the Quebec Finance Minister. It seems that other insurance companies in Quebec have received a letter from the Minister of Finance informing them that a proposal was tabled with the Quebec Minister of Finance. We have not received any communications or response following these events.

• 1055

As far as the OSFI argument about control is concerned, when we came before the Finance Committee in 1997, the argument was unable to withstand the test of time, mainly because of the existence of the Canadian Life and Health Insurance Compensation Corporation, which recognizes all provincially chartered corporations and the harmonization of solvency rules for the protection of Canadian consumers from all provinces.

If the provincial insurance companies respect these harmonization standards, there is no problem, particularly since the standards are almost the same throughout Canada.

It is true that the IGFI in Quebec is more active in monitoring insurance companies. We are more structured. It is true that the smaller provinces do not have the same degree of structure. It is also true that in other provinces, the OSFI has a mandate to replace local regulatory authorities. The fact that we have a good structure should not be a reason to refuse us recognition. It is a problem affecting all Canadian provinces.

I have colleagues who direct insurance companies in other provinces who have faced the same kind of acquisition problem. Funnily enough, the companies that requested authorization before the purchase never end up making the purchase. As for those who eventually signed a contract, like L'Entraide, we are attempting to come up with a solution.

The legislation was amended to allow provincial corporations to buy portfolios from bankrupt insurance companies. I think that they simply forgot to make allowances for this in the case of companies on sound financial footing.

I repeat my request: to have a bill immediately tabled to amend this act.

Mr. Yvan Loubier: You are saying that because other Canadian provinces are not up to speed in their reform and development of the insurance sector, this has the effect of penalizing Quebec and that the Minister of Finance of Canada must take into account—

Mr. Gaëtan Gagné: I do not wish to draw any conclusion. I am merely saying that Quebec is very well organized when it comes to monitoring financial institutions, that harmonization of the rules has taken place through the Canadian Life and Health Insurance Compensation Corporation and that there is no reason to avoid entering into reciprocity or monitoring agreements in regard to Canadian insurance companies with provincial charters.

Mr. Yvan Loubier: Thank you, Mr. Gagné.

Mr. Odina Desrochers (Lotbinière, BQ): First of all, I'd like to thank all of you for coming here this morning to present your views on this very important subject, the future of the Canadian financial services sector. I'd also like to thank Mr. Michaud for his exemplary crusade to democratize banks.

In his presentation, Mr. Michaud refers to the very advanced body of legislation adopted by the government of Quebec in this important sector. Other panellists mentioned Bill 188.

My question is directed to the representatives of the insurance companies and all those who have something to say about bankinsurance. Do you not think that Quebec's Bill 188 should also be adopted at the national level to protect consumers, prevent tied selling and first and foremost to ensure the growth of the insurance sector?

• 1100

Mr. Jean Roy: May I have permission to answer the question I was asked about the securities commission?

Mr. Yvan Loubier: Please feel free to do so.

The Chairman: Yes, we are in a free country.

Mr. Jean Roy: Thank you. I know that this is a politically charged issue but I'd like to set aside the political dimension and consider it solely from the financial or economic perspective.

The securities commissions have an organization that, according to what I was told, was created at the instigation of a former president of the Quebec Securities Commission; I'm referring to the International Organization of Securities Commissions which, thank heavens, now has an Internet site that I was able to consult. This organization now has 160 members. I had a look at the membership list and I saw that Canada was the only country to have what I would describe as regional members, that is members whose jurisdiction does not cover the whole territory represented. That means that Canada does constitute a kind of exception or anomaly at the international level.

Mr. Yvan Loubier: Some kind of originality.

Mr. Jean Roy: Yes, you might say it's original.

Secondly, there is a trend towards decompartmentalization or deregulation of financial services. It may not be to our liking but it is a reality. I think there are two ways of dealing with it, either resistance or acceptance. We all know that if we allow large financial conglomerates, particularly as the term is used in the MacKay Report, to set up holding companies, like in other countries, with banks, security brokers, etc., we will require organizations with the power to carry out monitoring and regulation and ensure that these holding companies are solvent. It is quite clear and understandable that requiring financial empires to monitor regulations that are partly federal and partly provincial, leads to complications. The British are familiar with the problem. Under their tradition, only three or four years ago, there were between 15 and 20 regulatory organizations in the UK This kind of fragmentation of regulatory organizations in the face of integrated financial conglomerates proved to be untenable. That is why they decided to carry out a regulatory reform. They created the Financial Services Authority with full oversight in such matters and full powers of inspection of financial institutions.

That may be where the problem lies. Looking at the responsibilities of a securities commission, we see that there are potentially three areas: first of all, the protection of consumers-investors; secondly, the supervision of issuers; thirdly, the supervision of brokerage firms. Let us grant them the benefit of the doubt. The Securities Commission is able to do its job to protect Quebec investors. A new consultation system will be put into place. All the partners, that is the issuers and the securities commissions, seem to agree that this is a very promising system and once again, I'm willing to give them the benefit of the doubt. The problem occurs in relation of the supervision of the holding companies: in this case, the monitoring functions must be integrated.

Mr. Yvan Loubier: Mr. Roy, excuse me, but you talked about anomalies and practices that were inconsistent with what is taking place elsewhere. Might it possibly be because we are a bit more original, original in the good sense of the term, and that with the Quebec Securities Commission we have been remarkably successful in running this sector? I'm not giving you political arguments here but the arguments of an economist. As a matter of fact, Mr. Martel, the President of the Quebec Securities Commission, will be appearing here today. You may wish to listen to his views because we don't have time to go into it this morning.

Having said that, deregulation and modernization do not mean centralization, particularly when a player that has never been involved in the securities sector comes barging in and wants to change all the rules. You know how sensitive the financial sector is to any upheavals. When another player comes barging in and wants to change the rules, people no longer know what to expect. Is it federal or provincial jurisdiction? You know just as well as I do that a certain element of instability and insecurity has just been added to the sector. I don't intend to belabour the point. My colleague asked a good question on Bill 188 and I'd like to hear an answer to it.

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Mr. Odina Desrochers: Should I ask my question again? It is addressed to the representative of the insurers. Before setting up bankinsurance, shouldn't Bill 188 be adopted at the national level, first of all to protect consumers, secondly to prevent tied selling and thirdly to ensure the growth of the insurance sector.

Mr. Jean La Couture: I'm tempted to answer yes and no. Yes, because in Quebec, we carried out a serious analysis of all these elements before allowing the caisses populaires to distribute insurance. A great deal of reflection was devoted to the issue of personal information. We heard a huge number of briefs and there was a great deal of discussion and I think there is serious research that may be useful at the Canadian level.

I have a reservation about the fact that we had to approve Bill 188 at the very last minute, at the end of a session, around June 21st or 22nd and that on this account, certain things may have been set aside and now we have to rely on the Office of Financial Services to issue the regulations accompanying Bill 188. I must say that everyone, including the Desjardins people as well as insurers not tied to deposit institutions, are watching this work very closely. We have a potentially very useful foundation because a great deal of work was done. However, we will have to wait for the regulations before we can say, in Mr. Landry's words: "This product seems almost perfect."

The Chairman: Mr. Ross.

Mr. Réjean Ross: Regarding financial planning, my answer is yes. We explained the reasons for this in our brief. If some day we succeed—and I do hope we will succeed—in ensuring Canadian standards for financial planning, I am convinced that consumers, so-called consumers, will find it much more attractive. And representatives too, as they are also consumers, because they will be dealing with only one regulatory organization, and not three or four. Thus, my answer is yes regarding financial planning, because it is a good act. This act should be improved through regulations, as Mr. La Couture said, but my answer to your question is yes.

The Chairman: Mr. Michaud.

Mr. Yves Michaud: Mr. Chairman, may we put questions to other interveners around the table or is this an exclusive privilege for members?

[English]

The Chairman: I think you could ask one question.

[Translation]

Mr. Yves Michaud: I wouldn't want to— I am a former Member of Parliament and—

Mr. Roy, I have a brief question for you.

[English]

The Chairman: That's why you are getting the questions.

[Translation]

Mr. Yves Michaud: Thank you for the privilege. This is the first one I've had granted to me since 20 years.

[English]

The Chairman: Things are getting better.

[Translation]

Mr. Yves Michaud: I do not always agree with Mr. Roy's position. I watch him on television, I know about his work, etc., but in his presentation, he mentioned the MacKay Report's recommendation regarding the 10% rule. I agree with him that the 10% rule should be kept. He made a suggestion that I find very interesting, for companies with less than $1 billion in capital, ownership could be 100%. He mentioned amending the second point of the MacKay Report, dealing with large corporations or banks with $1 to $5 billion in capital; in those cases there could be 65% ownership.

He wanted to split this proposal because the only institution in Canada covered by point 2 in the MacKay Report is the National Bank of Canada. It is the only one. We feel that they wanted to limit it as it could have become 65% foreign-owned, by American companies. This is the only bank that Quebeckers have, besides Laurentian Bank which is a minor player. It is the only one in Canada. We are rather uncomfortable with that.

• 1110

We only have one bank whose shareholders are almost all Quebeckers. I think that the National Bank has $3.5 billion in assets. If Mr. Roy's proposal were accepted, if the MacKay Report were amended so that companies with $2.5 to $5 billion in capital be included in the 65% ownership category, the Banque Nationale would belong to this category and its ownership would be reduced to 35%. I think that the proposal is interesting. Have I summed up your proposal correctly?

Mr. Jean Roy: Perfectly. You have understood the whole thing. I think that you are aware of the threat.

Mr. Yves Michaud: Well, you have enhanced my intelligence.

[English]

The Chairman: Are there any further questions?

[Translation]

Mr. Yvan Loubier: In the $1 to $5 billion range, there is no reason— Well, perhaps in the lower range— In any case, we agree with Mr. Roy that this may have a negative impact on Quebec and we asked that the 10% rule should continue to be applied for those institutions.

Mr. Odina Desrochers: Is there anyone else who would like to say something about Bill 188?

Mr. Yves Michaud: Here is my first question for Mr. Roy. You spoke about cumulative votes. Would you wish, as we do, that they be authorized by this act?

Mr. Jean Roy: What I tried to explain just now, is that a 10% rule is attractive because it redistributes the profits, beside the fact that it is an obstacle to foreign acquisitions. It is also a barrier against integrating the financial sector. So it has some fine properties, but is has a drawback: it gives great power to directors whereas the share ownership is divided. I fully agree with Mr. Michaud that cumulative votes should be compulsory for banks.

[English]

The Chairman: Thank you, Mr. Loubier and Mr. Desrochers.

Mr. Discepola.

Mr. Nick Discepola: I thought Mr. Szabo was going to go.

The Chairman: Mr. Szabo, then. We'll go with Mr. Szabo first.

Mr. Paul Szabo (Mississauga South, Lib.): I'll share some time.

I was interested in the comments of the representatives of the caisses populaires about the general insurance sales, and I wanted to get a little bit more information about how much insurance is being handled. Is it done by caisse employees, insurance company employees, or other independent brokers? How exactly is it operating?

[Translation]

Mr. Yves Morency: Currently, distribution is done through branches, but by employees of our property and casualty insurance company. They are licence holders operating in an office for some specific area of the branch, for which the branch receives rent from the insurer. This is how we must proceed according to the current regulations. From now on, with Bill 188, branch employees, holding the proper permits provided for by the act, will be able to offer life insurance and property and casualty insurance products themselves.

[English]

Mr. Paul Szabo: Do the employees involved in the insurance side have access to any information from the caisse?

[Translation]

Mr. Yves Morency: The act is very specific on this point. The branch must keep its regular files separate from its insurance files. Information can only be used with the member's explicit consent. So we must ask members, on a separate form, whether they want us to use the information in offering them other insurance products to buy. We must have their consent. The consent we currently have will no longer be valid. We will have to ask for it again. So there is a provision for protecting the consumer. Medical files will not be kept in any way, either by the branch or by the insurance agent; they will be entirely kept by the insurer.

• 1115

[English]

Mr. Paul Szabo: To what extent, if any, are you involved in automobile leasing?

[Translation]

Mr. Jean-Guy Langelier: The Desjardins Movement has a branch, called Location Desjardins. However, the products they offer are distributed by car dealers. For all practical purposes, it is a tool in the dealer's toolbox with which he can offer the car maker's product to potential lessees, I am referring to GMAC or to Ford Credit Canada or even Location Desjardins as suppliers of car rental services.

We know that car makers often promote their products. When they do so, they charge relatively low interest rates to lessees, but this does not apply to the whole range of car products. So many dealers relay these types of operations to us.

[English]

Mr. Paul Szabo: Finally, Mr. Chairman, the MacKay report contemplates generally more competition in the financial services sector. It means more choices for consumers.

One of the questions in terms of reform—gee, I can't believe I used the word “reform”—is whether or not there is a need to establish that competition before other major changes would be made. Obviously the regulatory environment has to continue to evolve in order to meet all the needs, and let's assume that the regulatory environment is there. But do the credit union, caisse populaire, and co-op movements represent a legitimate source of new competition for the banking sector at the highest or fullest level of service? I raise that because, as you probably know, VanCity in Vancouver has already discussed the possibility of consolidating over 800 credit unions into literally a national branch network. So do the credit union and caisse populaire movements represent a legitimate source of national competition in the banking sector?

[Translation]

Mr. Jean-Guy Langelier: The cooperative movement, on a national level, has always been a very valid option for consumers. The good part of the cooperative sector, both in Quebec and in other provinces, is that it does not practice any regional discrimination. Quite the opposite, if we can access services from financial institutions in every region of Canada, it is due to the presence of the cooperatives.

In Quebec, in 635 municipalities, the Desjardins Movement is the only financial institution present. Sometimes, considering the population in the territory we serve, it becomes obvious that we're not only there for the profits. We are there to serve all consumers as a whole. So, yes, my answer is yes.

Just now, we were talking about the regulations and legislation for the cooperative movement, for the things that VanCity and all the Anglophone credit unions want to do, as well as the Mouvement Desjardins. Some tools are missing from our tool box, mainly those for institutional supply. This, of course, is a key element, all the more so as depositors now deposit in several different places, including mutual funds. Previously, we had a great deal of cash in credit unions. I am not saying that this is a thing of the past, but maintaining the level of deposits now is a challenge. Therefore, we must necessarily have access to institutional funds and be treated like financial institutions.

• 1120

For the same reasons, VanCity wants to go to the national level. It is in order to have access to institutional funds, which are regulated in terms of the amounts of cash to be kept on hand in most cases, by insurance companies, banking institutions or trust companies. When dealing with regulation cash reserves, they must be specifically kept in Canada treasury bonds, provincial treasury bonds or chartered banks. Thus, we are excluded from these things.

The Chairman: Mr. Loubier.

Mr. Yvan Loubier: Mr. Béland has already agreed with Mr. MacKay's suggestion about setting up community banks. Could you please tell me more about the advantages that this instrument that Mr. MacKay proposes would offer to the Desjardins Movement.

Mr. Jean-Guy Langelier: We were talking about cooperative banks on a federal charter level. We are considering eventually converting the current caisse centrale Desjardins so it can function on the federal level. What advantages would that provide, if only in the same field of activity as the other banks? First, it could access institutional savings and the cash reserves of regulated companies, which it cannot currently do. Currently, we have the cash overflows of those companies. As we are not included in the standards, it is more difficult. Of course, we will be able to operate anywhere in the country and benefit from the advantages or the structures provided, mainly by NAFTA. So we are talking about opening branches outside of Quebec and outside of Canada, in countries subject to NAFTA. Presently we are excluded from all this. Thank you.

The Chairman: Thank you. Ms. Redman.

[English]

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman. I would like to ask a question of Mr. Gagné.

We've had mutual life companies before us, and as a matter of fact they have a very large presence in my riding of Kitchener. I was just wondering if your organization, because you're a mutual life company, has looked at the demutualization recommendation, which is recommendation 38 in the MacKay task force report. Have you looked at the possible impact it could have? Have you considered at all the recommendation that shareholders' equity in excess of $5 billion would have to be widely held and that there would be a three-year freeze on any kind of acquisition?

[Translation]

Mr. Gaëtan Gagné: If we demutualize a company like l'Entraide, with its 25 million in assets and 45,000 clients, if this were done entirely in accordance with the MacKay proposal, we would no longer exist because we would be put up for public sale in the very same hour.

Company members could keep control over this new company through provincial laws. We would set up a mutual management system, as had already been done for La Laurentienne. Company members, mutual corporation members, would become 51% owners, leaving 49% for new share capital.

However, as we have a provincial charter, this would not solve the problem with acquiring portfolios in Canada. It would give us funds to make acquisitions, but would not authorize us to make them. Does this answer your question?

[English]

Mrs. Karen Redman: Partially.

May I ask another question of Mr. Roy?

The Chairman: Of course.

Mrs. Karen Redman: I'm looking on page 7 of your presentation, and you talk about regulation by function as opposed to institutional regulation. I'm just wondering if you could flesh out for us why you prefer the former rather than the latter. What are the disadvantages of institutional regulation in your view and what's the proper mix between the two?

Mr. Jean Roy: That's a very interesting question.

[Translation]

On this point, I follow the school of thought of Robert Merdon, who currently teaches at the Harvard Business School. He studied what he calls the functions of the financial system. He has listed six of them if I remember. The financial system must provide services for transactions, for savings, for investment, for credit and for risk management.

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As we look at the financial system, says he, we see that those functions are always there in some form. But as we go to different countries for different time periods, we see that the institutions must change because of technology, or of needs and things like that. It is very difficult to keep institutional laws up to date, because institutions are constantly changing and evolving. Laws should be rather focused on functions, as functions are more stable. First, it will be easier to get equity among the various players at any time. Secondly, it will be easier to stabilize the so-called functional laws or laws focused on sectors of activity, than institutional laws. These are the two reasons.

In other words, in current terms, people constantly complain about not having a level playing field. But when laws that are focused on functions or activities say that any institution offering a given service is subject to the law governing the said service, equitable conditions for competition are automatically created.

Last year I made some suggestions, as a witness for the MacKay Commission in which I enlarged on this point. If you are interested—this is a plug for myself—, go to the site of l'École des Hautes Études Commerciales; you'll find my brief on my personal page.

What we need, is what I would call a metric approach to regulations. Some laws must be institutional because capitalization is the property of institutions. If we want to ensure solvency we must have laws to ensure it. On the other hand, laws focused on functions or on activities have advantages for equity and stability. Therefore, they are also necessary. This is a complicated system, but modern institutions are complicated. Therefore, I would be in favour of what I would call a mix or a combination of institutional and functional laws.

[English]

Mrs. Karen Redman: Thank you.

The Chairman: Ms. Redman, you have no further comments?

Mrs. Karen Redman: No.

[Translation]

The Chairman: Mr. Discepola.

Mr. Nick Discepola: First, I would like to congratulate the intervenors for the very high quality debate this morning. We have been studying the subject for a few months already, and I find that this group of witnesses has a great variety of very interesting views.

My first questions will be addressed to Mr. Roy. They deal with the process of investigating the mergers that you described. On page 4, you state your agreement with the position of the MacKay group, but you still regret the fact that the working group was not more specific about the way large institutions would have to document the social impact of their proposed mergers.

I must say that the social impact document that all institutions must provide has been positively received in rural regions all over the country. I would like you to take the time to elaborate on your reservations. As a committee, what should we recommend to address your concerns, please?

Mr. Jean Roy: Thank you for your question.

Certainly, bank directors evaluate mergers in terms of financial benefits for share holders. It is equally clear that their decisions can have a social impact. And there are two kinds of social impact. There may be benefits through job creations. People often think that jobs will be lost. There may be some job loss, for instance in transaction services, but there may also be job creation at a higher level, with the expansion of international activities.

• 1130

So we must have some kind of account of social impact. Some quantitative framework should be adopted in order to validate the cost and benefit estimates.

I'd like to make a footnote. First, the suggested model already exists in Holland. In Holland, any large company wanting to merge must submit a social impact analysis to the Finance department.

I think that this is a very favourable new trend because previously, the entire burden of the analysis was laid on the shoulders of officials, whereas I think that banks should bear the burden of this operation and officials should have a role as auditors and critics.

The conditions must also include a previously specified and accurate framework for costs and benefit analysis. Does this answer your question?

Mr. Nick Discepola: Yes, but when we're talking about the impact of mergers, as far as I'm concerned, despite the contributions that some banks make the political parties, I think, Mr. Michaud, that this would not earn them any dividends. I think that if there is something wrong with big banks, it is the fact that they haven't provided the different working groups with a social impact study, a study on the impact on job loss. This impact study is of great concern for almost all my colleagues who, like myself, represent the rural regions. They are concerned about the regional impact of these mergers. They are also concerned about setting up a precedent. Could the first application for a merger create a precedent?

Here is my question. The Minister of Finance said that in his upcoming study, he would evaluate the impact of the mergers in terms of job loss, consequences for different regions, etc. While assessing the benefits of the merger, should all these criteria be weighed in the same way or are there other criteria to be considered before the bank merger is allowed?

Mr. Jean Roy: Personally, I find that the list of criteria is extensive enough as it is. I have no problems with that. I know that there was a concern. If the mergers are allowed, there will be greater international activity, and this presents a potential problem. If we provide credit abroad, then losses incurred abroad might impact the solvency of Canadian banks and eventually the Canada Deposit Insurance Corporation might have to contribute to remedy this situation.

So it is a problem, but within the logic of the system proposed by the MacKay Group, this was not considered as a concern of public interest; it was more in the realm of solvency and stability and thus belonged to the Office of the Superintendent of Financial Institutions.

Mr. Nick Discepola: Here is another example, Sir. I know that there is another organization studying the potential impact, but I am raising the issue of the concentration of power. Should the minister take this into consideration or should he simply follow the recommendations of the Competition Bureau?

Mr. Jean Roy: Personally, I believe that this is the Competition Bureau's responsibility.

Mr. Nick Discepola: My next question is addressed to—

Mr. Paul Lussier (Vice-Chairman, Quebec Association for the Protection of Savers and Investors Inc.): With your permission, I would like to point out that no proof has been offered by banks to the effect that the proposed mergers would be in the shareholders interest.

As Mr. Michaud mentioned, we must draw a distinction between the interests of bank directors and those of bank shareholders.

Mr. Nick Discepola: Regarding shareholders interests, proof was provided on the day after it was announced, because shares went up dramatically.

• 1135

Mr. Paul Lussier: This is only for the short term. For long-term bank shareholders, I am not sure whether the proposed mergers— In any case, I have not seen any conclusive study on this.

Mr. Yves Michaud: The shares of the five largest Canadian banks are currently worth 35% less than they were at the time of the last general bank meeting.

Mr. Nick Discepola: But I do not think that—

Mr. Yves Michaud: No, no, no. When the merger was announced, there was a springboard effect. There was a rush—

Mr. Nick Discepola: Especially for—

[[Editor's Note:Inaudible]

Mr. Yves Michaud: —to buy banks stock, but this stock has gone down by 35% since then, whereby the value of bank shares, as we are speaking, is less thank it was, in most cases, during last spring's general meetings.

Mr. Nick Discepola: But I do not see why we should worry about potential losses or gains for investors. How can any government put a figure on that? This is all subject to the law of supply and demand.

Mr. Paul Lussier: Yes, but there are foreign examples that we could take into consideration or which could be used as a guide as to what may happen after the merger of major Canadian bank institutions.

The Chairman: Mr. La Couture.

Mr. Jean La Couture: I would say that the main concern of the government as to bank mergers, should be the risk of concentration of savings. While it is true that mergers may have an impact on jobs and that is a concern, as far as I'm concerned, it ranks in second place. The main risk is concentration. If all of the banks were concentrated into two or three organizations, that would be dangerous. The MacKay report mentions this in telling the government to give insurance companies access to payment systems and therefore give them the option of becoming banking institutions.

The government will have to measure at what speed this new competition will occur. I can tell you that in our case, in Quebec, given the size of insurance companies, it is not a given that in the short term—while naturally people have a strategy that they don't want to make public at this time—that insurance companies will try to compete with the banks.

I would summarize in saying that, in our opinion, concentration is our number one concern and if that is to be compensated by the arrival of new foreign players in the Canadian insurance market, you will have to evaluate how fast this new competition would come.

Mr. Réjean Belzile (President of the Task Force, Quebec Association for the Protection of Savers and Investors Inc.): I would add that concentration will not be simply at the savings level but also at the resource allocation level, because banks are the ones who decide where their resources will be allocated. I think that that is an important problem that the authorities must study.

Another concentration unfortunately, is that of risk. Lately, bank profits have been wonderful. However, if we look at the situation of the major world banks, we see that they are currently having difficulty. They are not necessarily having difficulties which are putting their survival at risk, rather problems which are linked to the systemic risk on a global scale. The Asian crisis hurts several banks. We constantly hear announcements of bad news regarding major American banks. I'm not even going to deal with the Japanese banks, because it would appear that they would need some $500 billion just to plug the leaks in the Japanese banking system as a result of their the problems. I believe that concentration poses a problem at several levels, specifically—and here I'm getting back to a problem which was raised earlier for consumers and communities, which may lose services if the mergers occur.

The Chairman: Mr. Michaud.

Mr. Yves Michaud: You are talking about the protection of shareholders. Canadian banks are federally-chartered banks. So, you would have to legislate. And, the protection of shareholders is a matter of public interest.

• 1140

For example, in the US, with RCM Capital, the Federal American Reserve had to intervene and the government of the United States will be putting public money into a private concern. I think that that is what a former member of the House of Commons of the NDP, I believe, called corporate welfare bums. That's where were at. When we have to take money from public funds to inject it into private capital enterprises, it's because a system is no longer working. It makes no sense. All this happens because we are on a globalization track and all that. It is up to you, the members of Parliament, who will put into place a Bank Act.

Mr. Nick Discepola: What I was asking was how we could legislate to protect shareholders.

Mr. Yves Michaud: We protect shareholders by ensuring competition, by maintaining the current system, which is not as bad as all that, I repeat, and by avoiding excessive concentration. In the twisted logic of mergers and concentration, if the House of Commons accepts the merger of four banks, these four banks will become two banks and, over time, they will become a single Canadian bank, which will end up being bought out by an American bank.

Mr. Nick Discepola: You would agree with me that it would be difficult to legislate—

Mr. Yves Michaud: But you are already legislating since you say that 10%—

Mr. Nick Discepola: We would have to go by way of regulation.

Mr. Yves Michaud: You talk about 10% of capital. If that is maintained, there will be some kind of a slowdown on the invasion, by the world, of banks or financial institutions and we will protect the Canadian banking system.

Mr. Nick Discepola: I didn't want to get into the question of the 10% because my time is limited but since you've brought it up, as Mr. Roy and Mr. Langelier have as well, I would ask you how we could encourage the participation of other companies and institutions to compete with the megabanks without loosening the 10% rule.

Mr. La Couture, you spoke of a cumulative vote as a counter measure. Would you elaborate on that?

Mr. Yves Michaud: It is Mr. Roy who proposed a cumulative vote. A cumulative vote is very simple. It would allow share holders with 5% of capital shares—that's a lot—to propose a candidate from outside the slate of some 24 or 36 candidates. That would allow the shareholders to vote on one of their candidates and forget about the 23 or 24 others. The shareholders would therefore have a small voice and they could, because they hold 5% of the shares, vote one of their representatives onto the board. Five percent is a lot. You need 5% in order to nominate a candidate. Currently, we have to proceed, at an annual general meeting, by way of an amendment to regulations, to the bylaws, of the banks or corporations and this would have to be adopted by 66%. I made the proposal last year. If it was simply indicated in the legislation that the cumulative vote is— The cumulative vote is already in the Bank Act; and that's how that explains it— When you vote for single individual, you take a risk because then the other shares are divided by 23 given that there are 23 candidates.

Mr. Nick Discepola: Don't you think that this candidate could be chosen and put on the slate?

Mr. Yves Michaud: No. You would not be part of the slate because he would be nominated by a number of shareholders. This would be a candidate who would be added to the others and who would probably beat out the 24th on the list of those eligible to vote. So therefore there is a possibility for democracy. One person out of 24 or 30, not chosen by management or the board, would represent the shareholders.

Mr. Nick Discepola: The last criterion that this person would have to live within a 250-kilometre radius of Toronto. Is that correct?

Mr. Jean Roy: That's not a problem.

Mr. Yves Michaud: No it's a square kilometre. Not 250.

Mr. Nick Discepola: As to the 10%?

Mr. Jean Roy: May I speak to the problem of bank mergers? It would seem, currently, that we are looking for a yes or no answer. In fact, within new mechanism of holding companies, there would be many grey zones between a yes and a no.

• 1145

There are two concerns that the bankers are bringing up to justify mergers. First of all, they would have a wider base for international activities; secondly, they would have economies of scale in areas of technology. In fact, there would be a way to reconcile these objectives without necessarily allowing full mergers.

First of all regarding the international aspect, I would suggest that we use the model of the ING Bank, the Dutch bank. At the top, there is a holding company which is divided into at least two subsidiaries: once subsidiary dealing with domestic operations and one subsidiary dealing with international operations. The advantage to that, is that if there are risks internationally, if the international branch fails, it does not necessarily cause the failure of the domestic branch. Therefore, it is easier to manage deposits and insurance. It would be a segregation of the risks.

Secondly, as to domestic operations, we could have the following scenario, what I would call the automobile industry model. In financial services, there are two stages. There is the manufacturer of the financial service and there is the distributor. We could have large economies of scale in terms of the manufacturer. We could allow the banks who would want to merge to centralize a certain number of computer tasks while maintaining two distribution networks. For example GM has a Chevrolet line and a Pontiac line, which allows for competition. And we realize that at any rate these things happen. We see banks sign distribution accords with grocery stores in order to have other distribution networks. Therefore, we could at least maintain competition on the distribution side while allowing for more centralized production.

These are mid-term solutions which would allow for certain alliances, certain economies of scale and more international activities without having a total merger.

Mr. Nick Discepola: Mr. Ross, here are my two final questions. Mr. Langelier said in his conclusion that the reform of the Canadian financial industry should be done progressively.

There are 124 recommendations in the MacKay Report. Firstly, I would like to know whether we should perhaps put those 124 recommendations in a priority order and perhaps implement them progressively. Mr. Langelier, I would like to know what recommendations you would have to make to our committee. What recommendations should we choose among the 124 of the MacKay Report?

Here is my last question. If the mergers were not endorsed by our government or if the government recommended that the banks not be allowed to sell insurance or get involved in leasing, in branches, what recommendations should fall by the wayside? One that occurs to me would be that of legislation regarding tied selling. I think that it would not be necessary if the banks do not obtain permission to offer leasing or insurance services.

Those are my last questions, Mr. Chairman, and I thank you.

Mr. Jean-Guy Langelier: In the MacKay Report, when we talk about tied selling, we talk about coercive tied selling. The spirit, especially when look at Bill 188 in Quebec, is to allow tied selling, but not coercive tied selling. It's to allow cross-selling, but not coercive selling. We are in favour of that.

We were asked whether we were in favour of debundling at the national level and whether it was a priority. We feel that at the federal level, that could happen and therefore at the federal level, perhaps in a wider scope, a piece of legislation similar to Bill 188 in Quebec could be implemented. As to the priority regarding regulation, we would hope, as we said in our brief and as Mr. Roy mentioned, that the regulation apply per type of product or type of share rather than to a type of institution.

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The Chairman: Mr. La Couture.

Mr. Jean La Couture: I'll answer very briefly a question that you did not get an answer to, that of the loosening of the right to ownership It is obvious in our view, that if you allow bank mergers and the selling of insurance through the banks, we would have to loosen up the right to ownership so that competition is to some extent facilitated. That's all I have to say on that; I think it's quite clear.

[English]

The Chairman: Any further comments? Mr. Michaud.

[Translation]

Mr. Yves Michaud: To answer the honourable member, Mr. Chairman, the MacKay Report is based on four main themes. You are asking us to tell you what priorities you should priorize, if I can put it that way.

The first thing to do, is to increase consumer power. Amongst all the recommendations contained in the MacKay Report, you must give priority to those which would increase consumer power.

Secondly, you have to meet the expectations of Canadians as to the change in the behaviour of financial institutions. That appears important as far as I'm concerned. Banking institutions and major corporations are not held in high esteem by public opinion. People are at a breaking point, they are not confident, especially regarding banking institutions. That can be attributed to many factors, but there are factors which count in terms of public opinion, such as the astronomical salaries that the heads of these companies are paying themselves from shareholder dollars.

The third priority, is to enforce competition and competitiveness. Yet, the capitalist principle is based on one thing: competition. With mergers, you weaken competition and therefore you weaken capitalism.

I think that the main priorities should be those. If I was a member of the House of Commons of Canada, those are the priorities that I would set for myself, but I am not a prophet nor a seer. You must act according to your conscience. You are not obligated to follow my recommendations, but that is how I feel.

Therefore, first of all, you adopt any recommendation dealing with consumer protection as quickly as possible.

[English]

The Chairman: Thank you very much. On behalf of the committee, I'd like to thank you for an excellent panel.

I have a question in relation to the positioning of the top five banks in this country. In 50 years the standing really hasn't changed very much. Everyone more or less has the same market share they've had historically. Some people call that stability. Other people call this a stagnant market, where there is no movement, where the players are basically the same.

In many ways it has to do a great deal with the fact that it's a very prudent system we've developed over the years, where people feel quite comfortable. And of course at any point in time when you start initiating measures that speak to bringing about change, you get those individuals who get excited about it and those who begin to fear it.

That's the reality of change. Basically you have those two emotional reactions to it.

Do you feel that perhaps the system itself needs to be shaken up a bit? MacKay talks a lot about the entrepreneurial system. He feels that we should be moving a little bit more towards entrepreneurship in the financial services sector, and that we have basically maintained the system for a number of years.

What do you think? Should we be injecting that type of change in the system?

[Translation]

Mr. La Couture.

Mr. Jean La Couture: I don't think so. We've left the main topic of insurance, but I don't think that innovation can replace financial security within the system. There is one thing in the MacKay Report which is of concern. Are all measures taken to ensure minimum profitability within these institutions, in order to ensure their viability? As to the stability and the percentage of their numbers or their market share, I don't have any statistics. Perhaps they haven't varied in terms of banking operations, but I'm quite certain that in the past two years, they have increased as have the number of brokers and trust companies.

The Chairman: Mr. Belzile.

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Mr. Réjean Belzile: I think that we have to make a distinction between the tradition banking system and traditional banking services. I believe that the solidity and stability are the main objectives for that sector.

As to the other sectors, especially those of investment companies and brokerage firms, I think that it would be in our best interest to open up the system and to let initiative and competition develop. It plays an important financial role, but it doesn't have this dimension of public service that is associated with the traditional banking system. Some 97% of Canadians, I believe, deal with a bank, while the numbers are much smaller for other types of services. Consumers who buy financial products such as mutual funds are much more sophisticated. I believe that these consumers are in a better position to defend themselves and that we should perhaps look at other levels of activity than the traditional banking system, which is the important element of our payment system and where stability and solidity remain the elements that must be conserved.

[English]

The Chairman: Would you agree, though, that the best safety for consumers is competition, that it's the best safeguard they have? If you're not treated well by one bank, you go to the next, and if they don't treat you well, you can go to a credit union or to maybe these start-ups that MacKay's talking about. Isn't that really what we ought to be focusing on, building more competitive environments?

[Translation]

Mr. Jean-Guy Langelier: You said that the situation was perhaps stagnant. I agree with Mr. La Couture. There is no stagnation inasmuch as we can look at how the savings and credit market work generally. It's not sold by the same players.

As far as the consumer is concerned, there are now choices. There are a large number of single-product players, as I would call them, who sometimes call themselves a bank. I'm thinking here of MBNA, as far as credit cards go, of Countrywide Home Loans, which strictly makes mortgage loans, of Newcourt, in terms of the corporate sector, or of GE Capital. These are all companies which have been created these past few years, and the consumer now has much more choice.

It's the same thing in the area of savings. Ten years ago, at least 85% of traditional savings were placed with banks or credit unions. Now, savings are more widely spread. Therefore when we talk about market share, we see that banking institutions and credit unions have a much smaller share of the whole; therefore, as far as the consumer is concerned, there is much wider choice. However, even if there is more choice, the consumer is perhaps not very well protected because many of these players are not adequately regulated. Often, the consumer doesn't know that he is unprotected when he gives his money or his savings to one company or another.

[English]

The Chairman: I guess you believe, then, that we're already going in the direction of a more entrepreneurial system.

[Translation]

Mr. Jean-Guy Langelier: Assuredly.

[English]

The Chairman: Why do you think MacKay would go out of his way to really spend a great deal of time in his report talking about building up this entrepreneurial system? Was he not aware of the changes that you were talking about?

[Translation]

Mr. Jean-Guy Langelier: Yes, he was aware. He mentions on several occasions, in the documentation, the creation of new players. He looked more specifically at banks and insurance companies, but these single-product institutions that I spoke of earlier exist. In the banking field and in that of insurance, we want to get into these sectors, specialize and offer greater choice. I think that entrepreneurship has been present in the field for at least a decade.

The Chairman: Mr. Michaud.

Mr. Yves Michaud: Mr. Chairman, the market is often volatile and hungry, but it is sometimes intelligent. Why do single-company products appear on the Internet and elsewhere? Because the oligarchic Canadian banking system decided, for example, that the interest on credit card was 17.5%. Caisses populaires and trust companies also have entered this market. It's all the same thing. They call each other and set the rate at 17.5%. There is no more competition. These are monopolistic practices.

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New players arrive and they offer credit cards at 12, 13 or 14%. That creates some competition.

In the interest of the legislator, we have to talk about usurious credit card fees. Credit card interest rates of 17.5% make no sense, penalizing the poorest in our society, because those who are rich pay off the balance every month. We find that the poorest are on social assistance and governments are then obliged to support them because they fall into bankruptcy.

Why credit cards? You know that usury is forbidden by Islam. Usurers have their hands cut off. It's quite a serious matter.

As to how these usurious practices can be tolerated by the government, competition must play a part. I have often asked bank presidents or CEOs of major corporations, including those of caisses populaires, why they didn't have a credit card at 10, 12 or 14% interest. I told them they could grab a great part of the market share. That's what happens with these new players. That is what's happening with the Internet. The market will create within itself a new competition and a new mode of self-regulation to counter monopolistic practices.

[English]

The Chairman: It's not going to be just domestic competition. You're going to be faced with international competition, where you have major banks abroad that have a large capital base that will basically come here and compete for a fair market share.

So the question is whether or not there could be a co-existence in the Canadian banking system between large banks that can in fact compete abroad, because there is a market abroad as well as domestically, and the development of perhaps niche players that could also address the domestic needs of Canadians, as Monsieur Langelier was mentioning.

It's just a question. I look to your wisdom for the answer.

[Translation]

Mr. La Couture.

Mr. Jean La Couture: Yes, I believe that consumer protection may well be served by more competition, but also competition that is more financially solid. I would like to bring up a point that we have often discussed in Quebec and at the federal level, and that is the protection of financial information. We must look into that in a structured way. Each one of us realizes the dangers with access to financial information when trying to sell other products. An individual's bank balance gives us a glimpse of their lifestyle. We can see what other products they purchase and focus our marketing efforts.

In order to answer your question, I would say that in order to protect the consumer, yes there has to be more competition and, secondly, there has to be measured access to personal information, as has been instituted in Quebec.

[English]

The Chairman: Mr. Snelling.

Mr. Roger Snelling: I'd like to put another aspect on this. I think we're talking about financial institutions here and the whole industry.

In fact, what is happening with people on the margins of society is that they don't get in the game. What they end up doing is setting up alternative systems as trading systems that don't use money. More and more people are starting to do this. One of the factors that says you need to provide more and more services is there's something outside of the normal regulations and institutions that means you need to change.

The changes that are suggested are good changes, but they need to recognize people who are on the margins of society who continue to have access to the services.

The Chairman: I agree. We need to recognize everybody.

Mr. Belzile.

[Translation]

Mr. Réjean Belzile: I'm entirely in agreement with the fact that the best protection for the consumer is competition.

When I speak of the priority that should be given to stability and solidity within the traditional banking system, I'm not talking about stability in the number of players. I think that competition would be welcomed.

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We will look for stability and solidity, as all countries do, through a regulatory framework which ensures the solidity of the players working within the system.

I believe that a combination of good regulations and opening the market to a larger number of players would constitute progress for the Canadian financial system.

[English]

The Chairman: Are there any further comments? Madame Girard Plouffe.

[Translation]

Ms Anne-Marie Girard Plouffe (Executive Committee Member, Institut québécois de planification financière): I would like to comment on consumer protection and also discuss another form of competition.

As you know, financial planning is a very high growth sector. That was a very important point in Bill 188. Quebec regulated financial planning, or at least the training of financial planners, to ensure that in a competitive market, all consumers have a right to know what kind of training people must have when they provide financial planning services and advertise themselves as financial planners when delivering products and services.

This is a very important factor that must be examined in any discussion of the future of financial services in Canada. In this competitive environment, we have to see how consumers can ensure that those they approach for financial planning have the necessary training, regardless of their particular area of expertise. We have noted that there's a great deal of upheaval in this sector between self-regulating organizations to determine which organization will have jurisdiction over this profession.

This is an objective that is being examined at this time. If I had another comment to make, given my role in the IQPF, it would be to tell you that you must ensure that this aspect be examined, again in light of the competitive environment, to better protect consumers throughout Canada when they call upon a financial planner. There is a need to define such services and oversee this profession, as was done here in Quebec.

[English]

The Chairman: On the issue of consumer protection, something that really interests everybody here is who should be taking the lead on this particular issue. Does the government take on the lead? Does the industry take on the lead role? One thing we found out is that the awareness level of the financial services sector amongst Canadians in general is not at a high level right now simply because it's not something you talk about every day. For many people, it's not a subject matter of daily discussion.

So now we're engaged in this particular discussion about the future of the financial services sector. What we find is that individuals appear in front of the committee and individuals appear in townhall meetings across the country and basically present their points of view. And in some cases it becomes like a turf protection exercise.

So we're not engaged in designing the future financial services sector, and that's a concern.

Going back to the original question, who should take the lead in public education on this particular issue?

[Translation]

Mr. Michaud.

Mr. Yves Michaud: Mr. Chairman, right now, worldwide, there are about 200 organizations that have formed a network called the Corporate Governance Network,

[English]

the International Corporate Governance Network.

[Translation]

Its last convention took place in San Francisco. It represents all the largest institutional investors in the world, including

[English]

CALPERS, the California Public Employees Retirement System,

[Translation]

and has a pension investment fund totalling $200 billion. We were represented by Mr. Paul Lussier, Vice-President of our association. All the principals of corporate governance,

[English]

corporate governance

[Translation]

first appeared in 1992 in the Cadbury Report.

[English]

Sir Adrian Cadbury was a

[Translation]

Member of the House of Lords who received a mandate from the House of Commons of England to produce a report, the Cadbury Report. In France, you have the Viénot Report. Here in Canada, you have a report of a committee of the Toronto Stock Exchange. In Australia, they did the same thing, as did Japan. In Sweden, there is an association called the Swedish Association of Shareholders, which has a membership of 100,000. Therefore, worldwide, there is a movement that deals with corporate governance and that drafts huge numbers of recommendations that are absolutely essential and critical for the proper operation of our financial institutions throughout the world.

• 1210

This organization has an Internet site. You can visit the site of the International Corporate Governance Network, of which the Pension Investment Association of Canada is a member. The PIAC itself is an organization of all institutional investors in Canada. On this web site, you will find absolutely incredible resources on how to ensure that financial institutions serve the public and are kept profitable. Thus, there is leadership on this issue, both internationally and domestically.

We accomplish our work at the level of Quebec and others do so at the level of Canada. There are a multitude of corporations in Canada. There is Democracy Watch, there is the OMERS, the Ontario Municipal Employees Retirement System. We've seen a frenzy in this area in the past five or six years. We all form organizations so that the world financial system can be in better shape. Let's say that there is leadership in this area, that it must necessarily be supported by legislators in each of the countries concerned, who could be inspired by the principles of corporate governance to ensure that this sector made healthier, more profitable, and that it offer more protection for consumers.

[English]

The Chairman: Okay.

On behalf of the committee, thanks again. It was a very interesting panel.

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• 1313

[Translation]

The Vice-Chairman (Mr. Nick Discepola): In accordance with its mandate under Standing Order 108(2), the committee resumes its study of the report of the Task Force on the Future of the Canadian Financial Services Sector.

Unfortunately, there are two groups that haven't arrived yet, but as it is 1:15 p.m., I would not delay your presentation any further. I hope they will join us during your presentation.

It is my pleasure to introduce representatives of the Montreal Automobile Dealers' Corporation: Mr. Jacques Béchard, President and General Director; Mr. Gilles Richard, former President and President of Circuit Mercury; Mr. Jean-Paul Lalonde, Vice-President and President of Contact Pontiac Buick; and Ms Roxanne Longpré, Executive Vice-President.

From HGB Associates, may I introduce Mr. Harry Baumann, President.

You are familiar with our usual procedure. You have five to 10 minutes for your presentation followed by a round of questions from members.

I would ask Mr. Baumann to start his presentation.

[English]

Mr. Harry Baumann (President, HGB Associates): Thank you very much, Mr. Chairman, for allowing me to appear today. I thank the members of the committee also.

• 1315

[Translation]

I will make my presentation in English, but my text is also available in French except for the appendices. Thank you.

[English]

In any case, in terms of my background, I was an academic, I was a public servant for a long time, and now I'm in management consulting, consulting in economics and government. However, my experience has always been really on the customer side of the financial services industry, and that is really reflected, I would say, in my presentation today. I'm not, in other words, appearing on behalf of anyone in the financial services industry.

In terms of this particular sector, I think from my own perspective the objective here should really be to have a growing, dynamic and secure sector, and these characteristics are based on an improvement in the responsiveness to the customer's needs.

In more specific terms, in terms of, let's say, targets or goals, I think in the medium term what we should be looking for there is to have about four to six Canadian banks in the top 25 in North America. You might know from the statistics that in fact we have five among the top 25 already. It's always best to pick targets that you can achieve, but in any case, what is perhaps more significant is there are at least two other financial institutions that approach this in size, namely Desjardins and also of course the National Bank of Canada, which are about 28 and 33. So they are potential members of this club.

For the longer term, however, I think for Canada it would be important to have a player or two players among the top in the world in terms of global banks. By that I mean banks of the type of the United Bank of Switzerland, the ABN AMRO, or banks of this type. So that's what I put down in terms of a longer-term goal for our banking sector, while of course maintaining those banks that are important players in the North American context.

Similarly, in terms of other institutions, and sometimes people refer to this as tier II-type banking, it's important to have them as viable parts of the overall sector. I don't think you should think of what I've talked about here as a kind of planning target; these are really notional or indicative kinds of goals for the sector.

Why are these particular goals important? I think they're important for about four reasons. One of them is obviously the creation of quality jobs, and by that I mean jobs with a lot of job satisfaction but also high-paying jobs. It's also important because Canada has a substantial current accounts deficit in the balance of payments. Resources over time are becoming less important and are not able to make the same contribution to the economy and to the balance of payments, and therefore we must find some alternatives to that and business services are potentially a growing part of our exports.

Finally, for certain communities in Canada like Montreal, Toronto, Vancouver and of course Calgary, the financial service sector is not only providing services to other industries but on its own account it is a motor of those economies. And in the other communities across the country, the services that are provided by the banks and other financial institutions can make an important contribution to the small and medium-scaled enterprises.

In terms of the goals I've set out, I've talked about how they can be achieved. I've already said that my major theme is really improved responsiveness to the needs of the customers. It would be my view that to the extent this goal is achieved you meet the needs of the other stakeholders as well, namely the employees and the shareholders, and the communities of course.

What does that suggest in terms of really trying to analyse this sector? How would you go about showing whether there is responsiveness or there is not, and how this might be improved?

• 1320

What I'm suggesting is really that you look very closely always in the analysis in terms of who are the customers, and I don't mean that in global terms but specified very closely in terms of particular industries and particular groups in those industries. Where are they located, what are their needs, and how can these needs best be met?

In five or ten minutes I really can't go through all that, but I think the suggestion I would make in terms of the committee is, I've gone through, for example, the presentations of some of the other groups, and specifically the Retail Council of Canada, and that is a good model in terms of the questions that I've just posed; namely, they in their survey divided up the industry between the big chains, the single proprietorship, those in major communities, those in isolated small communities, and they divided up all the services their members needed, and they then looked at the extent to which those can be met only person to person versus electronically.

I'm not trying to push the Retail Council of Canada, but in getting at some of the issues that you're trying to get at in terms of evaluating the MacKay task force and other contributions, that's a good framework to make, and they summarize in a table the various services that their members require.

On the next page, I try to summarize where I think different people came out, including the MacKay task force, merging banks and what traditional economists have to say about the financial services area. I hope I'm not offending anybody, but when you put things in 25 words or less, you're bound to misrepresent to some extent what people have to say. But in any case, in terms of the MacKay task force, I think the essence of that was really easier entry into the industry, consumer empowerment, report cards on the banks to the extent to which they are meeting the needs of communities, and public hearings on the mergers.

If I were to summarize all their supportive documents, my bottom line is that they're looking at achieving the right balance between private interests and social responsibility, and if that is done, that will basically improve performance of the sector. Of course, they're also saying that currently the sector is doing fairly well in meeting consumer needs, but I think they're looking forward and they're saying if you find that right balance between the private interests—that is, the right of the banks to make money and to be profitable—and their social responsibilities, then the performance will improve.

In terms of the merging banks, I think they've said they're going to put increased resources into innovation. They're going to target the needs of special groups, like the small and medium-sized enterprises. They have some ideas they've put forward there, and they promise to keep branches open and safeguard jobs. What I would say is, their view is that if you approve the mergers on reasonable terms, then the performance of the sector will improve.

The traditional economists, neo-classical economists, of course say, well, banks are not any different from other industries; the existing rules, restrictions on ownership and so on are a problem and they should be eliminated—free entry for foreign banks and so on, and let the best person win. So you get a bottom line that says performance will improve through basically a laissez-faire kind of approach.

On the next page what I've done is try to think about a suggested package from my point of view, and what I would say about the situation is that in terms of the entry of new firms in the financial services industry, I think the MacKay task force probably strikes the right balance between, on the one hand, making sure there is more competition in that sector and, on the other hand, guarding against the risks of failures of banks when you do that, and also, of course, the risk in terms of a completely open border, that head office locations will transfer elsewhere.

• 1325

In terms of the bank mergers, I've given you here my bottom line on them, and I've said “Case not proven”. Some of you may know this is a Scottish verdict, and that may mean I'm biased in favour of the Bank of Nova Scotia, but that was not my intention. But that's how it came out.

In terms of the bank mergers, there's been a lot of discussion on things like globalization, scale economies, and invasion. I've looked at some of the reports of the proponents of the merger as well as those of the critics, and my bottom line really is that there probably are some economies of scale, notwithstanding the skepticism of MacKay and others, in some of the services offered by the banks. But remember, some of these economies of scale are easily dissipated in large organizations by increased size of the bureaucracy, and so on.

Moreover, it may be economy of scale, but it's a very difficult argument to make that increasing from $200 billion in assets to $400 billion in assets allows you to capture those economies, as compared with other methods of doing that, whether they would be outsourcing or acting in joint ventures or other kinds of techniques.

In other words, my bottom line on this is, yes, there is some potential here. There certainly is some potential for economies of scale. But I think whether they will be realized or not depends significantly on what I said earlier about the consumers and the customers and their ability to capture some of the benefits of those economies of scale in lower costs.

So what I've said on the bank mergers here is there is a limited upside potential, but there are also some large downside risks. I haven't gone into those, but they obviously have to do with things like systemic failure of the system when you have one or two banks, which then obviously becomes more serious than when you have five or six.

Now, in terms of consumer empowerment, the MacKay task force report really went quite far in assuring that. But I would say it especially emphasized oversight through ombudspersons and others, and regulations as the way to bring that about. My suggestion would be that there be more emphasis on competition and consumer information to bring that about.

Now, other people have talked about that as well, including the Canadian Bankers Association and so on. But here I give an example from the auto industry, not because I think the auto industry is necessarily perfect, or that what you have there is ideal or can be easily achieved in the service sector. In the auto industry, the consumer, if he wants to, has at least the choice of going to things like the J.D. Power reports, which tell you how many defects a particular model of car from a particular company has in the first 90 days of your use of that automobile. Similarly you have the Consumer Reports, which evaluate the repair records and all this sort of thing. Then you have the Automobile Protection Association, and they have their publications, Lemon-Aid and so on.

Now ,what I'm saying is that in terms of the banks and financial services, I don't know how many of you examine all your credit cards and all the different features they have and then try to come to some kind of judgment on which is the better credit card to have. But what I'm saying is there is nothing really equivalent in terms of being able to go to a source where these things are evaluated, one against the other, their features and what you're getting. It's the same with mortgages or whatever other services they have. So I'm bringing forward the idea that more could be done on the consumer information side in terms of improving the situation.

• 1330

Of course, MacKay puts a lot of emphasis on the public hearings in terms of the mergers, and that has been criticized by a number of people as involving a potentially protracted and quite expensive process that becomes extremely political. One of the ways of maybe keeping that somewhat under control is obviously to have the Competition Bureau and the minister really focus on mergers while people like you and the committees and so on focus really on the issues of competitiveness, customer needs, and so on in the industry.

On technology development, one of the things the MacKay background papers indicate is that to the extent that Canadian financial services companies, industries, or institutions are weak, it's really in the area of new products and services for the sector. This is especially true in the international arena.

Now, the question then arises as to how you overcome this particular weakness, which will be of some importance in the future if we're going to have globally competitive institutions. There are things short of mergers that industries have done in order to improve their performance on innovation, and one of the things I've suggested here is like a centre for financial innovation. But the other example, which I again take from the auto industry, is the program for a new generation of vehicles. This combines the efforts of Chrysler, Ford, and General Motors, and they actually got an exemption from the anti-trust laws of the United States in order to pursue collectively and jointly progress on getting an environmentally safe and fuel-efficient car. So this is one of the ways to go in terms of cooperative effort on this front in the industry.

I think what I'd like to say at the end is that the key problem for the Canadian economy now is really that our productivity growth is not at all impressive in either absolute or relative terms compared to other countries. To the extent that we could make some progress on that on an economy-wide basis, of course our exchange rate, among other things, would also tend to be stronger and higher. That automatically would, incidentally, raise substantially the international ranking of our financial institutions, and that would be obviously without mergers.

But the banks and the financial institutions do have an important role to play, I think, in this productivity gap issue, which is especially serious in terms of the smaller and medium-sized firms in Canada vis-à-vis their counterparts in the United States, which have shown a better productivity performance. So what I'm saying is the bottom line on that is that improved financial services to the customers, which in this case are the small and medium-sized enterprises, can make an important contribution also to the productivity gap problem.

Thanks very much for your attention.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Baumann.

[Translation]

We will now hear from the representatives of the Montreal Automobile Dealers' Corporation. Are you going to make the presentation, Mr. Richard?

Mr. Gilles Richard (Former President, Montreal Automobile Dealers' Corporation): Yes.

The Vice-Chairman (Mr. Nick Discepola): Welcome, Mr. Richard.

Mr. Gilles Richard: Good afternoon, ladies and gentlemen.

I would like to thank all the members of the Finance Committee for giving us this opportunity to speak to you today.

The possibility that banks will be given access to the auto leasing market is the most significant problem faced by auto dealers at this time. Given the state of Montreal's economy, this problem may be even more critical for the dealers in this city than those anywhere else in Canada.

In our opinion, the problem is that the position taken in the MacKay Report on the omnipotence of the banks does not take into account what is in the interest of all Canadians.

Essentially, the entire MacKay Report limits itself to what is beneficial for the financial services sector and the banks. It does not take into account what is good for small business, small communities, the auto industry and, in the final analysis, consumers.

• 1335

As elected officials, you must understand that it is crucial that your committee examine not only the future of banks, but also the more far-reaching effects that such a situation could have for all sectors of Canadian society.

It is important that you realize that the MacKay Report contains certain critical errors. For example, the report alleges that since the caisses populaires in Quebec do auto leasing, the banks should be able to do the same.

In reality, this is an erroneous statement. In Quebec, the caisses populaires have a written agreement with dealers stipulating that they will not engage in direct leasing. This is because they are aware of the existence of a conflict of interest. Therefore, they try to establish partnerships with small business rather than compete with them.

[English]

I repeat it in English. It is important that your committee, as elected officials, focus not simply on the banks' agenda but instead on the broader impact on all sectors of Canadian society.

In undertaking this review, you should know that the MacKay report made some key mistakes. The report argued that a caisse populaire in Quebec can lease vehicles directly, so why can't banks? In fact, it is not the case. In Quebec the caisses populaires have a written agreement with the dealership community not to lease directly. This is because they understand the conflict of interest position, and therefore they seek to be a partner with small business, not a competitor.

[Translation]

Similarly, the task force is completely mistaken in stating, as it does on page 108 of the report, that the leasing plans of the auto manufacturers will be more seriously affected than the dealerships. On the one hand, the banks will deprive the dealers' leasing companies of credit, and on the other hand, they will sell for less by buying short term market shares. The leasing corporations of independent dealers will be the first to disappear.

We are appalled by the position of the MacKay Report and the Canadian Bankers Association, according to which access to leasing by the banks would not really affect dealership given that auto leasing is only a minor one of their activities. The technical report on leasing appended to the MacKay Report states clearly that over 1,000 dealerships that operate their own auto leasing corporations depend on banks for their financing. The argument that only 50 dealership directly lease more than 200 vehicles per year and that the other 1,000 dealerships lease an average of only 25 vehicles per year simply proves that our resources are meagre.

What the banks and the MacKay Report fail to mention is that the average Canadian dealership sells only about 350 vehicles a year. Our question is as follows: would giving almost half the business of dealerships to the banks serve the interests of small business and of Canadians?

I believe that this committee should also be aware that the arrival of the banks in the direct auto leasing market would needlessly imperil the stability of Canada's financial structure.

[English]

I think this committee should be aware that the entry of banks into direct auto leasing would place undue risk on the stability of the Canadian financial architecture.

[Translation]

This month in the Financial Post, I read the headline: "Japan Leasing drowns in a sea of dubious debts";

[English]

“Japan Leasing Drowns in a Sea of Bad Debts”.

[Translation]

As you may be aware, Japan Leasing is the second largest leasing company in Japan. It is now under court protection, which makes it the second largest post-war bankruptcy. Should we expose Canadians to the same threat of inflated credit and poorly calculated residual values?

In reality, Mr. MacKay's technical report on leasing in the United States described the banks leasing activities as a roller-coaster ride. The banks were entering the market and then left it because of enormous residual loses. In the final analysis, it was consumers and small businesses that footed the bill.

• 1340

In contrast, I can assure you that the financing subsidiaries of the automobile manufacturers support us in the long term. They do not abandon dealerships when times are tough.

Lastly, allow me to explain the real reason why banks want to enter the leasing market.

The banks want to benefit from tax advantages they would get for capital cost allowances so that they don't have to pay as much tax on their billions in unfettered profits. That's all. It's quite simple.

[English]

The banks want the tax benefits of capital cost allowances so they can shield billions of dollars of their excessive profits from taxation. That's it. It's that simple. Nothing else.

[Translation]

The capital cost allowance deduction is currently granted throughout Canada to thousands of dealerships who reinvest this money into their businesses. The savings they achieve this way count for a great deal in their ability to reinvest in their sustained growth.

By allowing the banks to do direct leasing, the federal government would be compromising the ability to invest in small businesses and would be giving the banks an opportunity to avoid tax on approximately $3 billion in profits.

[English]

By giving the banks the right to direct lease, the federal government will be taxing this ability to reinvest in a small business and trusting it to the banks' ability to shield approximately $3 billion in profits from taxation.

[Translation]

In addition to the reasons I've already mentioned, auto dealerships are opposed to the introduction of banks into the leasing market for the following reasons.

First of all, the banks' entrance into the leasing market would cost real Canadians thousands of jobs in communities throughout Canada. Secondly, banks have access to highly confidential information, notably on current leasing portfolios, contract renewal dates and leasing payments. Allowing them to compete with small business would create a serious conflict of interest. Thirdly, dealerships must operate showrooms and service centres. Banks will not be forced to invest in their communities in the future. They will not build buildings to house dealerships and will not create jobs.

I would like to quote the former assistant deputy minister for financial sector policy, Mr. Nick Le Pan, when he testified before the committee during the review of the Bank Act in 1990:

In developing this policy (which limits banks leasing power), the government has fundamentally been driven by the opinion that there is a potential conflict of interest in this that is considerable at the local level. If the banks also took part in the leasing market, we are not certain that we could deal with these conflicts through existing legislation and regulations.

The assistant deputy minister then explained the problem in detail. He said:

For example, let's say that I'm a bank manager in Perth, Ontario. A person down the street leases automobiles, and as it happens I finance him through short and long-term credit. I don't know how you will deal with this situation. On the one hand, I'm making credit decisions related to leasing activities by this auto dealer, but on the other hand, my bank is in the same business. I don't know how I would deal with this intrinsically, about separating both issues.

In closing, I would like to remind everyone that the automobile sector provides real jobs to hundreds of thousands of families in this country. In fact, automobile dealerships employ over 115,000 people. This is the lifeblood of the Canadian economy and the backbone of the country. It is difficult for me to imagine what Canada would look like without the economic contribution of the entire automobile industry.

[English]

In closing, I would like to remind you that the automotive sector provides real jobs to hundreds of thousands of families in our country. Indeed, auto dealers employ over 115,000 individuals. It is the lifeblood of the Canadian economy and the backbone of our country. I would really hate to see what Canada looks like without the economic input from the entire automobile industries.

• 1345

[Translation]

I would also like to point out that this economic contribution is not a matter of dry statistics influencing the GDP. It is a major social contribution to the overall welfare of Canada. The spin-offs generated by the automobile industry are the warp and woof of this country's social fabric. They are the key pieces of the puzzle that make Canada the best country in the world.

I would now like to take a few minutes to present the content of a national study conducted by COMPAS, one of the most influential independent polling firms in Canada. The highlight of this study was that the average Canadian automobile dealer contributes over $40,000 a year to local charities. Overall, these contributions total over $117 million annually.

Members of Parliament are undoubtedly aware of the significant participation of auto dealers in charity work, health care causes, amateur sport and cultural events.

You cannot allow an expensive high-pressure campaign financed by the banks to decide the future of this country. We need your support concerning the contribution of auto dealers to the economy and to their communities. We need your support for the owners of small businesses who get up every morning to sell and maintain cars and who work hard to employ ordinary Canadians in local markets. We need you to support us by leaving auto leasing in the hands of competent men and women who are concerned with serving their customers' best interests.

[English]

You cannot allow a high-priced lobby campaign from the Bay Street banks to dictate a country's agenda. We need your support for the contribution of the dealers to the economy and their communities. We need your support for small business owners who get up every morning to sell and service automobiles and who work hard to employ everyday Canadians in the local markets. We need your support in leaving leasing in the hands of capable men and women to serve their customers better.

[Translation]

Thank you. I will be pleased to answer all your questions.

The Vice-Chairman (Mr. Nick Discepola): Thank you very much, Sir. In my opinion, that was a very clear message. We will go immediately to questions by members. I would ask Mr. Ken Epp of the Reform Party to put his questions.

[English]

Mr. Ken Epp: Thank you for coming here. I had a very curious idea when I saw the list of witnesses today. We have a representative here from the General Motors dealership chain and another one from the Ford dealership. I happen to have one of each of those vehicles, both with very high mileage. I will not put it on the public record, but if you want to ask me afterwards which is the better vehicle, you can come and talk to me.

I certainly empathize with the point of view that you're all presenting here. I'd like to start with Mr. Baumann and then I'll come back to the automotive people.

Dr. Baumann, your Ph.D. is in economics, is it?

Mr. Harry Baumann: Yes.

Mr. Ken Epp: So how long have you worked in that wonderful field of economics?

Mr. Harry Baumann: I started working at the University of Western Ontario in 1970.

Mr. Ken Epp: So you have a few years of experience. I've always wanted to ask a real economist the following question: how it is that if you ask 100 economists the answer to a question, you get 200 answers?

Mr. Harry Baumann: I have an answer to that, actually.

Mr. Ken Epp: You do?

Mr. Harry Baumann: When you think about that, always remember that economists cannot be bought, they can only be rented. This explains to you the variety of opinions. It reflects the number of customers.

Mr. Ken Epp: I really appreciated your report. Unfortunately, I just received it and I haven't had time to read it in detail. Just to make you feel really good, I take all of these reports—we now have quite a stack of them—and when I receive them I put a little code on them. Yours is one that says this one deserves full reading, so it'll be on the top of my list.

Mr. Harry Baumann: Thank you.

Mr. Ken Epp: So thank you very much for that. It looks good.

• 1350

You have obviously studied the MacKay task force report in considerable detail. There has to be a balance somewhere between regulations controlling what, say, banks and other financial institutions can do and simply informing the public. Very often the public, even though they're informed, still make wrong decisions, sometimes to their own detriment.

The best example of that is surely the fact that in the last 15 to 20 years we have given more than adequate information to the public about the dangers of smoking. Yet they still keep on buying those cigarettes and they still keep on smoking. So they are informed, but they're still doing the wrong things.

How do you reconcile those two quite variant ways of dealing with the problem of having financial institutions do the right thing? I think you and I would probably agree that the right thing is, by definition, what's best for the average consumer, the average taxpayer, the average citizen of the country. How do you balance those? If you regulate them fully, then really you do decrease competition, because there are some that just can't comply with the regulations.

On the other hand, if you rely only on disclosure— and I've encountered a lot of people who have come to me and asked why the bank has done this and this to them, because they don't know the math.

Even though I've been in the business of educating in the mathematics area for 31 years, there are still a lot of Canadians who never got into my classrooms and they don't know how to solve even simple interest problems. So how do you balance that?

Mr. Harry Baumann: You've raised a very difficult question. Let me tell you that in the late 1970s I became involved in a project of regulatory reform for the government. We were trying to reduce the number of regulations. Since this was mostly in the financial area, not the health and safety area, what we finally came up with was an impact test: if the regulations were passed, what would it mean in terms of additional costs, in terms of, as you mentioned, discouragement of entry into the industry and hence discouragement of competition? Part of my answer to you would be that you should always try to make sure your regulations don't prevent the entry in the industry and increased competition, which is easier said than done.

In terms of the disclosure, there are now lots of rules in terms of disclosure. Perhaps the American system is more further advanced than ours in the whole disclosure area. You're right, in the evaluation of that information it's the information glut difficulty that then arises once you disclose everything. What I was suggesting in my remarks is that we have to have not only disclosure but we have to have an unbiased, relatively neutral evaluation of that information.

I was trying to suggest that in some industries, such as the auto industry, there are sources readily available to the consumer that will rank the automobiles in various ways in terms of repair record and so on. Mind you, that has never stopped anybody, as you remarked earlier, from buying the red convertible with an awful track record, but at least the opportunity is there. What I find as a consumer myself in the financial services area and with running my own business is it's very tough to get a good evaluation of what you're getting.

Mr. Ken Epp: My thinking is that if you have agencies like magazines and even our so-called independent, truthful media reporting on whether or not this company is good and this one isn't, sometimes their decisions can also be wrong. They can kill a company that is really ready to give some fairly solid competition in the field. Of course, they may have had, as in the case of automobiles, one vehicle, perhaps, where the motor fell out from the back. That could happen. That doesn't say all of those vehicles should be written off as being improper, and yet they can really cause a lot of problems.

• 1355

Of course, we had the other example in terms of safety. There was a really fraudulent occurrence attributed to a particular vehicle. When it was proven that it was fraudulent, it actually put the company that promoted this false information out of business.

Now, I'm not going to tip the banks. I don't know if anybody from the banks is here listening today, but I know of one case in which the banks, to their benefit, are not disclosing information that they should be giving to the consumers. In the next year or so, I hope to really go after them on this particular point. Reporting regulations and independent agencies have certain merits, but I think they can only go so far.

Mr. Harry Baumann: There's no ideal solution.

Mr. Ken Epp: There's no perfect one, anyway.

Mr. Harry Baumann: In terms of regulation, you mentioned earlier this balance and so on. In the financial area, where you really need to focus the regulation is basically on the safety side, on the security of the deposits and all that, and on that system. At the end of the day, the governor of the bank and the Minister of Finance will know what to do if there is a crisis. But the problem is that at that stage, it's costly for the taxpayer. You want to avoid that.

Mr. Ken Epp: I have one more question for you, and then I want to get to the other witnesses.

When you talked about bank mergers, you said the case isn't proven. In other words, we shouldn't just buy into it. Of course, there's quite a debate on that. The banks that want to merge and the one that doesn't want to are on opposite sides here, and many of the people out in the field are on opposite sides. In this committee, we've heard different reports, different points of view. But you came back later to say we should encourage and permit cooperation, but short of mergers. If their cooperation results in a better service, a more efficient service, a cheaper service—all things of benefit to the consumer—and the last step, a full merger, would be even better, why would you be against it?

Mr. Harry Baumann: I wouldn't.

Mr. Ken Epp: Oh, you wouldn't be.

Mr. Harry Baumann: No, I wouldn't.

Mr. Ken Epp: Then why did you say, “short of mergers”?

Mr. Harry Baumann: Maybe I didn't use exactly the right expression to make my point. In terms of the cooperation short of mergers, I'm suggesting it as a way out that is potentially better than a merger—and let me explain that.

Let's say you have a situation with innovation in the technical area. You also have economies of scale, as some of the merging banks indicate. If the banks can exploit those economies of scale, they can obviously exploit them more effectively for a particular service, a particular part of what they're offering if all are parties to it. That will then be a much bigger pie than if only two of them merge. That's what I'm suggesting here. There may be activities like innovation and technical change. Like the merging banks are suggesting, we want to put a lot more resources into that new technology. If five of them do it as opposed to only two doing it, then I think you might have a more effective innovation program.

But you're absolutely right. There is a potential argument out there that would say the mergers make sense. In my view, that's why this case they have so far put forward is not proven, but I'm not ruling out that they won't prove it to you a year from now or that they won't prove it to you under different circumstances.

Mr. Ken Epp: I guess the only response that I would make to that is that I know one area in which the big banks do cooperate, and that's in the CPA, their payments association. Among other things, they've used that as a means of limiting others from getting in there to compete.

Mr. Harry Baumann: That's the downside.

Mr. Ken Epp: That's the downside of that, yes.

It's been very interesting talking to you, and I hope we can talk some more later.

• 1400

I'd like to now talk to my friends in the automobile industry. I must say by way of preamble that I don't want you, by the nature of my questions, to presuppose that you know what side of this story I'm on. If I just said I agree with you, we wouldn't have a good debate. We're going to have a good debate here, because I'm going to take the opposite point of view totally.

I think you are just out there protecting your own turf, your own business. You don't want to have anybody else competing with you—

The Vice-Chair (Mr. Nick Discepola): One second, Mr. Epp, please. I'm sorry to interrupt.

[Translation]

We have translation services if you require them.

Mr. Gilles Richard: No, we can speak English.

[English]

Mr. Ken Epp: I envy them for being able to speak both languages, Mr. Chairman.

You are out there just to protect your own business. Obviously you're going to make more money if the banks don't get into this. That's why you'd like to keep them out. Furthermore, I think you are probably not giving the consumers a fair shake here. Quite clearly, if the banks get into full leasing of vehicles, there's going to be a real vigorous competition there and the prices will go down and the service will go up, right?

Mr. Gilles Richard: You have two questions there.

On the first question, I agree with you. We are here to protect ourselves. We are here to protect what we've built over the last fifty or sixty years. We are here because, right after the turn of 1980, all the dealers nearly went bankrupt. Together, the manufacturers and the dealers tried to find a new way to let consumers drive a car in an inexpensive way. We did that, and we built our businesses back up again. Remember how many dealerships were closing their doors in Montreal in 1980? Nearly 30% of the dealers went bankrupt.

Mr. Jacques Béchard (President and Chief Executive Officer, Corporation des concessionnaires d'automobiles du Québec): Two hundred in the province.

Mr. Gilles Richard: Two hundred in the province went bankrupt. What did we do? With the help of the manufacturers, we turned around and found another way to do business. Now, because we're doing good business, we have somebody with a pile of money in their pockets doing a big amount of lobbying to try to steal our business. Is this fair? No, monsieur, this is not fair. We want to protect our business.

Mr. Ken Epp: So you are protecting your business.

Mr. Gilles Richard: You're damn right! What's wrong with that?

Mr. Ken Epp: Nothing. I just wanted to give you a chance to express yourself.

Mr. Gilles Richard: Okay, I'm expressing myself.

Mr. Jacques Béchard: If I may add to his answer, by protecting our business, the bottom line is that we protect the jobs. Here in the province, the 900 dealers who are members of our association employ 30,000 people. In Canada, as Mr. Richard told you, the number is 115,000. That's what we want to protect: the business and the jobs.

Mr. Jean-Paul Lalonde (Vice-President, Corporation des concessionnaires d'automobiles de Montréal; President, Contact Pontiac Buick Inc.): As independent proprietors, we're small businesses. We employ an average of 45 to 50 people, and we make one sale at a time by trying to provide the best service we can. We need the banks as partners in order for us to get the mortgages, to get our credit lines. The banks are an ally. How come they want to take off— if we don't have the banks, we cannot open a business.

But we're doing it. We're doing it with a lot of land, with a lot of big places, and by offering the full line of service. Allies of ours, from their points, want to offer what we can do with a business manager who sits in a chair with only a computer, and that would affect probably close to another 30% of the dealership.

You have to realize that in Quebec we're maybe more payment oriented. General Motors did a survey of all the cars sold last year. In Quebec, 72% were leases. Across Canada—

Mr. Ken Epp: That's above the Canadian average, isn't it?

Mr. Jean-Paul Lalonde: The Canadian average is 55%. In Quebec it's 72%. Among the Metropolitan Montreal population—my business is in Laval, and Gilles' business is in Montreal—we do up to 85% of our business that way. The outer region, the Gaspésie region, probably has a much lower number. Out west, it's again much lower. This is the lifeblood of our business.

• 1405

We're small enterprises fighting every day to have a better deal. Maybe in the short term, increased competition would lower the prices, but nobody comes in to my place to say they want to deposit money. I cannot buy money at the same rate as the banks can buy it. I cannot go into competition with somebody who in the short term could buy the market out and then six months from then be bankrupt.

Also, I see the big banks with their millions and billions of dollars. They have not done a good job with credit cards by charging fees of nearly 20% when they can buy their money at what— All their service charges are now 30% to 40% of their profits. Is it normal? I think the banks have had a monopoly. They charged for it and enriched their own pockets.

We have so much competition amongst ourselves. Just in the Montreal region, there are 210 dealers like Gilles and me who going for the same pie, the same sale. We don't need to go against every bank branch.

I have to fight against my own banker, who has all my financial statements and knows where I make profits. If I do in-house leasing, which I do, he has a list of all my potential customers. What will he do? He'll solicit them. He already has everything.

Mr. Ken Epp: What if there's a regulation that says they can't do that? What if there's a regulation that says if the banks get into selling insurance or leasing vehicles, they cannot use that information? There would be a regulation like that. Do you trust that?

Mr. Gilles Richard: No.

Mr. Ken Epp: You don't trust them?

Mr. Gilles Richard: Can we ask you a question?

Mr. Ken Epp: Sure. Go ahead. Why not?

Mr. Gilles Richard: Why do the banks want to go into the leasing business? Why do they want to lease a car over the counter? What's their main reason?

Mr. Ken Epp: They want to make more money.

Mr. Gilles Richard: They want to make more money. How are they going to make more money?

Mr. Ken Epp: By taking the business you're doing, right?

Mr. Gilles Richard: No.

Mr. Ken Epp: No, then what is it?

Mr. Gilles Richard: It's capital cost allowance.

Mr. Ken Epp: Oh, okay. I get what you say.

Mr. Gilles Richard: Okay. So you represent Canada. You're here to protect our interests. Do you want the banks to pay less income tax? Is this what you want?

Mr. Ken Epp: I don't want to play my hand here.

Mr. Gilles Richard: Do you know what capital cost allowance is?

Mr. Ken Epp: Oh yes. It's big bucks.

I want to ask you then to address the question of competition. Say the banks were to actually get into leasing. For example, in Quebec here, the credit unions already do that.

Mr. Gilles Richard: They do that in the caisses populaires, yes.

Mr. Ken Epp: We're told that the business of the automobile industry has gone up because the caisses populaires do not have a shop in the back, so they're still using the dealers to deliver the product and service the product, and there are more vehicles out there as a result.

Mr. Gilles Richard: Maybe you're not aware of the fact that the caisses populaires do not lease cars over the counter. This is clear. I have here a copy of the written agreement that has been signed by the Mouvement des caisses Desjardins and the dealers association stating that the caisses populaires, which are credit unions, will never be in the direct leasing business. This is because they do believe in dealerships. They cooperate with us. What they're doing is discounting our leasing contracts. But they're not in the leasing business directly. If you don't have a copy of that agreement, I will be pleased to get you a copy.

Mr. Ken Epp: Give it to the committee so we can all have a copy of it.

Mr. Gilles Richard: We'll produce it because this is a very important document.

Mr. Ken Epp: Say the banks federally have to live under the same kind of agreement. Would you then say okay?

Mr. Gilles Richard: Of course.

Mr. Ken Epp: You would?

Mr. Gilles Richard: Yes, but the thing is they won't go there. By doing so, they won't have a capital cost allowance.

Mr. Ken Epp: So you're quite convinced that this is their only reason?

Mr. Gilles Richard: Sir, it's billions of dollars per year.

• 1410

Mr. Ken Epp: Yes, okay. Maybe we should just cut everybody's taxes.

Mr. Gilles Richard: Yes.

Mr. Jacques Béchard: I'll just add to your question, if I may. Actually, in Quebec, as we told you, credit unions don't do direct leasing. They said they want to go through the dealership because leasing is the trading of goods, not banking affairs or financial services. Don't forget, my friends, that leasing is the trading of goods. In the history of banking in Canada—it's the lawyer now talking to you—banks have never had the power to trade goods. Is that what you want to give them right now? We don't think so.

Mr. Ken Epp: So you're saying that they're trying to put leasing into a financial service but it really isn't one. Is that what you're saying? We've always thought of that as being part of financial services, because you're paying for the capital cost of running your business as an individual owning a car.

Mr. Gilles Richard: We're not against them financing any leasing contracts. We're not against the financing of any buying contracts. They've already done this. They're already doing it. Right now, if you come to my store to lease a car, I can discount this leasing contract either to the Royal Bank, Bank of Montreal, or any bank, but the thing is that I'm the one who's doing the leasing and delivering the car to the customer. The bank is making its profit on the percentage of handling charges and financing charges. Call it what you want. It's making part of the profit, and we're doing it for tomorrow's profit. We don't want the bank to be making all the profits, because we won't be there.

Mr. Ken Epp: Okay, so the bottom line is that if the banks get into this, do you think that a whole bunch of dealers will lose their businesses?

Mr. Gilles Richard: Absolutely.

Mr. Ken Epp: Really?

Mr. Gilles Richard: Yes, I'm sure.

Mr. Ken Epp: One of the vehicles I have, I bought quite recently.

Mr. Gilles Richard: I hope it's a Ford.

Voices: Hear, hear!

Mr. Ken Epp: I drove quite a hard bargain. At the end, the salesman said he would take my crazy low offer but I had to finance it through them. I said that I was going to finance it anyway, so sure, go ahead, as long as you give me a good deal and tell me what it is first. I was amazed to find out in the end that in fact he was writing a contract for one of the banks. It happened to be a bank that I didn't have an account with, but that's what he wanted. So now I'm making payments to this bank until I get this car paid for that my wife drives around.

Mr. Gilles Richard: And you were happy about the deal? You got a good deal?

Mr. Ken Epp: I think I got a reasonably good deal, otherwise I wouldn't have bought the car.

Mr. Gilles Richard: Good. Are you paying high interest on your loan?

Mr. Ken Epp: Reasonably.

Mr. Gilles Richard: Good. There are two good deals: one for the bank and another for the dealer.

Mr. Ken Epp: Yes.

Mr. Gilles Richard: That's much better. But if the dealer is not there, with whom would you negotiate, the bank?

Mr. Ken Epp: It would be with the bank manager, yes.

Mr. Gilles Richard: So you got the car. He's lending you the money. He's looking at your bank account. He's looking at your personal line of credit. He's looking at other loans you have. What kind of leverage do you have? You don't have any more leverage. You put everything in the same basket. Is this what you want?

Mr. Ken Epp: Mr. Chairman, I think probably I should pass to some other people who would like to have conversations.

But just before we do that, I have a closing statement. I really appreciate your being here and expressing your points of view so clearly. I want you to know that the Reform Party policy, the official blue book policy, is that the banks should stick to banking. This is just so that you know.

Mr. Jacques Béchard: Thank you very much.

Mr. Gilles Richard: Thank you very much.

Mr. Ken Epp: Thank you.

The Vice-Chair (Mr. Nick Discepola): That was a paid announcement by the Reform Party of Canada.

Mr. Ken Epp: Damn right, and a good one it was.

Voices: Hear, hear!

[Translation]

The Vice-Chairman (Mr. Nick Discepola): We will now ask Mr. Desrochers of the Bloc québécois to proceed with his questions.

Mr. Odina Desrochers: Mr. Richard, you really are a good salesman. One would buy a car from you without hesitation. I respect the other members of the panel, who sell other makes, but quite frankly, you're a good salesman. When you're walking around your car showroom, it must be quite a performance.

• 1415

Mr. Gilles Richard: I take it to heart.

Mr. Odina Desrochers: The survival of automobile dealerships is something that we take to heart as well. I don't need to remind you of the hardships of the recession of the 1980s, when many of your colleagues disappeared because of the very high interest rates. You can rest assured of one thing: we would not want the same thing to happen with the debate going on right now about the future of Canadian financial services.

I have a few questions for you. Of course, there are many companies that have become involved as major players in the financing of car purchases or leasing. Can you tell us what is the share of credit companies who finance the purchase and leasing of automobiles, in Quebec and even in Canada, compared to that of other financial institutions?

Mr. Gilles Richard: I would say that right now that proportion must be about 30%.

Mr. Odina Desrochers: What advantages are there for a purchaser to deal with your credit companies rather than financial institutions?

Mr. Gilles Richard: Here's what happens. I would like to explain, Mr. Desrochers, that under normal circumstances, it is not the consumer who chooses the financial institution. A good dealer looks after his customers. There are 900 of us in Quebec.

Mr. Odina Desrochers: I don't doubt that.

Mr. Gilles Richard: Therefore, a good dealer tries to get the best possible rate on the market. That might be the banks, because they have excess money and want to lend. It may be the financial institutions who want to promote a particular product and subsidize the interest rate.

Let me give you an example. Let's talk about General Motors. The company has in the past offered an interest rate of 0%. It's difficult to do better than that.

Mr. Odina Desrochers: Yes, but there's fine print at the bottom of the contract.

Mr. Gilles Richard: No, no fine print. You come to us and you pay $20,000 for a car; with taxes that's $23,000. You pay for 48 months. Take $23,000 and divide it by 48. That's it. There's no fine print, nothing at all.

Mr. Odina Desrochers: Don't you check the credit rating of the person who is purchasing the car, at Equifax for example? Don't you do a credit check on that person?

Mr. Gilles Richard: Well if the customer doesn't have good credit— If the customer is solvent, his interest rate will be 0%. At that point, no bank can compete with us. In other cases, the manufacturers don't feel the need to subsidize anything, and the financial institution will offer normal rates. Automatically, we ask the Bank of Montreal and the Bank of Commerce what their best rate is and we tell the customer: you can get 6.9% here, 7.9% there, and it will cost you this much. We leave the choice up to the consumer, but we indicate the available rates.

Mr. Odina Desrochers: Do the American companies or others, perhaps the Japanese ones, who provide credit for leased vehicles reinvest in the auto industry?

Mr. Gilles Richard: Yes, they reinvest a great deal in the industry and I'll explain why. Let us take Ford Credit of Canada as an example. Ford Credit of Canada is a wholly-owned subsidiary of Ford of Canada. That company makes profits. The money that Ford Credit of Canada makes goes to Ford of Canada, then Ford in the United States. Billions of dollars are invested in Canada by auto makers. Mr. Béchard can give you details about that.

Mr. Odina Desrochers: I agree, Mr. Richard, but the proportion— I understand. You're referring to communicating vessels. The credit companies invest and that money goes into dealerships in Canada and the United States. What proportion of what Ford Credit Canada earns returns directly or indirectly to consumers and car drivers in Quebec and Canada?

• 1420

Mr. Jacques Béchard: We conducted different studies before presenting various reports to you. Ms Gaunt, the President of Ford of Canada, met with Minister Paul Martin two weeks ago. He was asked the same question. Affiliated finance companies, such as GMAC with GM and Ford Credit of Canada, are very closely related companies. The figure we came up with, and you will like to hear this, is that in the past 10 years, the manufacturers and their affiliated companies invested $25 billion in Canada. $25 billion! Those are very significant amounts.

Mr. Yvan Loubier: What revenue do they get out of leasing, for example?

Mr. Gilles Richard: Profits?

Mr. Yvan Loubier: No, just for the activity of GMAC and Ford Credit of Canada. Do you have that information?

Mr. Jacques Béchard: We have specific figures for each institution, but we don't have them with us here this afternoon. With regard to investment, we just gave you those figures.

Mr. Odina Desrochers: I have one last question to ask before my colleague has the floor. What would the consumer gain if the banks were to become front-line competitors?

Mr. Gilles Richard: The consumer?

Mr. Odina Desrochers: The buyer.

Mr. Gilles Richard: There would be no gains; there would be losses. And I will explain why. In the short term, the consumer would be the winner. Why is that? It's very simple. First, the banks, with their purchasing power, would be able to buy at a very low rate. Secondly, to break into the market, they will offer low financing rates, maybe even at a loss. But what will happen later on down the line? They will be controlling the market.

How much interest do you pay on your credit card?

Mr. Odina Desrochers: The same as everyone else.

Mr. Gilles Richard: If there were others, besides the banks, who offered credit cards, do you think the interest rate would be lower?

Mr. Odina Desrochers: You know at this time, there are already other services that—

Mr. Gilles Richard: Do you know what happens, Mr. Desrochers? Competition now forces us to respond to the needs of our customers. We both sit on the same committee, but he is my competitor.

Mr. Odina Desrochers: And Ms Longpré?

Mr. Gilles Richard: Ms Longpré is my boss.

Mr. Odina Desrochers: She's your boss. I would like to clarify a few things.

Mr. Jacques Béchard: Ms Longpré and myself are managers. So as far as we are concerned, all of the brands are good.

Mr. Odina Desrochers: We won't enter into that debate today, Mr. Richard.

Mr. Gilles Richard: Mr. Desrochers, competition today means that the consumer has better rates. I mean the competition between the dealerships, and between the manufacturers. Read the papers. You see GM, Chrysler, and Ford, all offering 0%. When something sells for $219.00, the others follow suit automatically.

Mr. Odina Desrochers: I don't want to belabour this point. So, you are against the banks entering the leasing market.

Mr. Gilles Richard: Absolutely, sir.

Mr. Odina Desrochers: Thank you. It's Mr. Loubier's turn now.

Mr. Yvan Loubier: I have one last question on that point. Could you not have with the Canadian banks the same type of agreement that you have with the Desjardins Movement?

Mr. Jacques Béchard: No. We have been working on that for a number of years. During that time, a number of dealers as well as myself have met with bankers to explain that their business involved banking and ours involved selling goods. At the local level, managers would tell us, and everyone can confirm this: We most certainly don't want to be involved in direct leasing. But when we moved up one level, to the members of the Canadian Bankers Association, among others, we got the straight goods. We told them: Put in writing the fact that you don't want to enter into the direct leasing market. We still don't have a letter to show you. We have one from the Desjardins Movement, because they understood that their job was financing.

Mr. Gilles Richard: Mr. Loubier—

Mr. Yvan Loubier: Just a second, Mr. Richard. You know, I think I'll buy a car from you. You seem very convincing. Seriously, mine is getting a little worn out.

Mr. Béchard, about three years ago, we, from the Bloc Québécois, worked along with you to see if something could be done. Before meeting with you, we went to meet the bankers and they said: No, we don't intend to purchase any fleets. Another one who was at the same meeting said: Well, we really don't know. We met with you, we told you about that answer, and you replied: We told you so; it isn't clear whether or not they will be acquiring fleets, and entering into direct leasing by going over our heads.

• 1425

After that meeting, we spoke to the Canadian Bankers Association again, just before the election. That's always a good time for groups—

Mr. Jacques Béchard: Were they more forthcoming with you than they were with us? I can't wait to hear.

Mr. Yvan Loubier: That's just what I was about to tell you. Shortly before the election, each of the banks confirmed in writing that they would not be acquiring any automobile fleet nor would they be entering into direct leasing. We were surprised. I'm not sure whether you have seen those letters, but they were about—

Mr. Gilles Richard: Mr. Loubier, if they made an official statement, I don't see why there is now a committee to study the possibility of banks doing direct leasing. At this time, banks are expecting all kinds of leasing contracts.

Mr. Yvan Loubier: But there was also a report submitted to the committee, the MacKay Report, and it contains 124 recommendations. Like all other committees, the MacKay group made recommendations, and that's where the story about direct leasing by the banks began.

I'll come back to the discussion I was talking about. Mr. Béchard was there. At caucus, we started working on something. At first, we couldn't get a straight answer from the banks. Afterwards, the response was clear.

Notwithstanding all of that, even with a clear answer, with a letter, as in the case of the Mouvement Desjardins, would you still be totally against any co-operation with the banks? Or did we misunderstand you?

Mr. Jacques Béchard: Mr. Loubier, our position is crystal clear, and here it is. We don't want to see any change whatsoever in the powers that the banks have. We want to maintain the status quo, the present policy, which means that the banks will finance leasing, as Mr. Richard explained. This debate has been going on for decades. We did it in 1980 and in 1990. In 1990, the deputy minister, as Mr. Richard stated earlier, said:

[English]

“If banks were also in the leasing business, we are not confident that we could deal with those conflicts through regulation and limitation.”

[Translation]

That should answer your question.

[English]

It will answer your question too.

[Translation]

You cannot allow the banks to direct lease by limiting their powers. You won't be able to do that. That's what they said in 1990. Has anything changed in 1998? I say the answer is no.

Mr. Yvan Loubier: We have changed deputy ministers since then. So, with the same—

Mr. Jacques Béchard: Ministers change, but institutions remain. That's a basic principle.

Mr. Yvan Loubier: I'll ask the question one last time and then I will leave you alone. If the banks were to write a letter exactly like the one that you have shown us, but signed by Matthew Barrett and not by Mr. Béland from the Mouvement Desjardins, would that convince you in any way?

Mr. Jacques Béchard: Mr. Loubier, Mr. Richard already told you. If we get such a letter from the banks, then you won't have to amend the Bank Act.

Mr. Gilles Richard: That's what is written in the Act.

Mr. Jacques Béchard: In that letter, Desjardins say that they work through the dealers, as the banks are entitled to do at this time. So with a letter like that one, it wouldn't be necessary to amend the Bank Act.

Mr. Yvan Loubier: If I had seen the letter, I might have better understood what was in it. I thought that you had an arrangement with Desjardins that could have satisfied even the banks, by offering a financing alternative to leasing, but I don't have a copy of the letter. I would like to have one. Three times now—

Mr. Jacques Béchard: The letter from Desjardins? Yes, we will table it, and we will give you a copy.

Mr. Yvan Loubier: Great. Do I have enough time to ask another question?

The Vice-Chairman (Mr. Nick Discepola): We are having photocopies made. We will have them soon.

Mr. Yvan Loubier: That's fine. Do I have enough time for another question?

The Vice-Chairman (Mr. Nick Discepola): You've used up your five minutes. We will continue.

Mr. Yvan Loubier: This is really funny. I find this quite interesting. The way he was going, he could have taken 50 minutes.

• 1430

[English]

Mr. Paul Szabo: He wants to buy a car.

Mr. Ken Epp: That's the way it is. Wherever Reform leads, the others follow.

[Translation]

The Vice-Chairman (Mr. Nick Discepola): Be careful, Mr. Richard. You might sell a lot of cars today, but I'm not sure whether you will make any profit.

Mr. Yvan Loubier: I have a question for Mr. Baumann about his brief.

You said earlier that there is a lot going on in the financial sector today, changes caused by market globalization, and that something must be done. You emphasized, as you did in your brief, that changes to the regulations that would alow greater competition would be most beneficial to consumers. In other words, our objective must be to serve the consumer, and to have an acceptable level of competition; the whole matter of mergers and strategic alliances would then naturally follow, but it shouldn't be our main concern.

This is an interesting point of view. From the very outset, our main concern was the bank mergers; the rest was secondary. There are 124 recommendations in the MacKay Report. Some are acceptable, others are not—Mr. Richard and Mr. Béchard know something about that—but there are fundamental suggestions about the growth in competition, strategic alliances, and the Y2K problem. I would like to hear what you have to say about that because I think you expressed a refreshing point of view compared to the set opinions we have heard, both in favour and against the mergers, while we should have broadened the discussion to include Y2K preparedness.

Mr. Harry Baumann: Could you repeat your question, please? I'm not sure I understood it.

Mr. Yvan Loubier: I would like you to tell us once again what we must do, not only to prepare businesses to become more competitive, either through mergers or through strategic alliances, but first and foremost, what should be done to serve the consumer. What are the next steps? How should we priorize the MacKay recommendations, what measures should be taken? We are facing great challenges, and yet I feel like we are being stubborn while we should be looking at other possibilities. I'm not talking about leasing, but about the bank mergers. I don't want to fall into Mr. Richard's trap this afternoon.

[English]

Mr. Harry Baumann: In the world of globalization, you've asked the global question, right?

The thing is, as you've indicated, in terms of point of view, the perspective one brings to this is, as I've said, the customer and so on. But let me give you an explanation, and I think if we shift things in that direction we'll prepare ourselves with that kind of strategy for the year 2000 and beyond.

Let me give you an example. What has been happening, let's say on the technological side, is that you have electronic banking. You have first the automatic bank machines, and then you have the Internet, and so on. When you look at and study the numbers—let's say a transaction by a teller costs $2, and a transaction through an ABM is maybe 20¢ or 30¢, and then with the Internet it's 2¢ or 3¢—the cost-effectiveness in transactions on the Internet is unquestioned. But it's my perspective that the way the financial institutions, and potentially other industries, have looked at this is kind of supply driven. Namely, we now have this new toy or this new machine or this new capacity, and we'd better make use of it or we'll try to convince our customers to make use of it. Instead, I think this kind of technology should be more customer driven in the sense that when it comes on the scene it will satisfy the customer more, as opposed to convincing the customer that this is really the greatest thing since sliced bread and therefore you ought to use it.

I think that's one general perspective I would give you on that. I know that's not very satisfactory in specific terms, but I think that's the kind of mentality that ought to drive our innovation and technological change in that sector in the future.

• 1435

[Translation]

Mr. Yvan Loubier: This means that you're not opposed to the bank mergers and all the major changes that might come about in the financial sector. The only thing you are asking the legislator to do, is to keep in mind the consumer's needs, by offering them a range of products towards which they will naturally be drawn. Isn't that what you are saying?

[English]

Mr. Harry Baumann: I think that's correct, sure. All I can say is yes to that.

Let me give you another example, though, that may illustrate this point, because you brought up the mergers and so on, and there are mergers going on all over the world, as you know. Recently there was a merger of two banks in Munich that, combined, will have $600 billion in assets. That's more than the Royal and the Bank of Montreal combined. But the thing is that when they put forward the arguments for the merger of the banks they didn't say, it's because of globalization that we need to merge, and so on. What they said was, we're a bank in Europe. Europe is going to have one currency, the Euro. We have interesting business lines in commercial mortgages, in home mortgages and in asset management, and we want to be significant players in those fields in Europe. Here's how it will help us, if we merge, to do that.

In terms of the Canadian banks, I'm surprised that when they put the arguments they didn't focus them a lot more in terms of who their customers are and what the merger contributes toward them serving their customers better. Instead, when they started the debate, they started talking about globalization and nebulous terms like that. That's another aspect of the direction that I think we ought to be going in, namely, if there is an argument, it ought to be made specifically in terms of the consumer needs.

[Translation]

Mr. Yvan Loubier: Thank you.

The Vice-Chairman (Mr. Nick Discepola): Thank you very much. I hope that is all you have to say.

Mr. Yvan Loubier: Yes, sir.

The Vice-Chairman (Mr. Nick Discepola): You have had more than enough time. Mr. Szabo.

Mr. Yvan Loubier: Well, we can always come back.

The Vice-Chairman (Mr. Nick Discepola): Mr. Szabo, you have 45 minutes.

[English]

Some hon. members: Oh, oh!

Mr. Paul Szabo: Once upon a time—

Mr. Baumann, you started off by talking about visions of targets of position in banking domestically and internationally. I haven't thought it out very carefully, but it seems to me that in order for a bank, or a pair of banks, in Canada to be significantly positioned internationally, their size would necessarily violate any reasonable competition criteria for domestic purposes, and so the size of the Canadian banking sector is not sufficient to sustain two large banks.

Please respond to the dilemma.

Mr. Harry Baumann: It is obviously a real dilemma. Obviously they can also make acquisitions, and they have made acquisitions, of assets in other countries. For instance, this week Mr. Fujimori was in Canada from Peru, and I was sitting with somebody from the Bank of Nova Scotia. They have an interest in a bank in Peru, and in Mexico and Argentina and Brazil and so on. And of course the Bank of Montreal has the Harris Bank in Chicago and so on. They can grow without this problem domestically; they can grow by acquiring external assets.

The other thing I would say, in terms of the international business, is they can also grow, as I indicated earlier, by offering products and services that are unique in the international arena, or by having products that are as good or better than the ones being offered by others.

That's obviously not easy to do because it's a highly competitive field. But let's say the Toronto Dominion Bank is now number three in discount banking, and that's not just because of what they do in Canada but also what they do in the U.S. and now recently in the U.K.; they're still far behind Charles Schwab, right? I accept that, but I'm just saying that these are possibilities for them.

• 1440

Mr. Paul Szabo: The simple question is, are the dimensions such that you can't get there from here?

Mr. Harry Baumann: Let's say we were back in the 1950s or 1960s and you had asked me that question about ABN AMRO Bank in Holland. I would have said there's no way.

Mr. Paul Szabo: Okay.

Competition is an assumption that MacKay makes. It's a very major assumption for all other things to really unfold the way they should. In our current financial services sector, who is going to supply the competition that is almost a prerequisite to being able to proceed with any consolidations or mergers?

Mr. Harry Baumann: It's the big unanswered question, but I'll take a stab at it. I'll make it on the assumption that you allow mergers to go ahead. Obviously I see this as having some real difficulties; otherwise I would have walked in here and told you to approve the mergers or recommend that the mergers be approved.

People like MacKay try to go at it by making entry easier by, for example, exempting new entrants from the capital tax. You've seen all the recommendations and so on. Will that do the job?

Historically, if you look at the track record in Canada—because we've tried this before; we've tried to make things easier in terms of entry—at one time, remember, the banks were a closed club, because the Senate decided as to whether you were going to get the licence and they made it very difficult, with large capital requirements and so on. So we changed that. New entrants did arrive on the scene, but several of them failed also.

So notwithstanding that I think the world is changing and maybe there are greater opportunities for new entrants—some of them may be allowing foreign banks to do branch banking and so on—I would have to say to you that I'm an agnostic on that, as to whether that will work. At the margin, undoubtedly the MacKay recommendation will make it somewhat easier and so on, but meaningful— If you're talking about 10% or 15% of the mortgage market, similar amounts for the small and medium-sized enterprises and so on, that would take a considerable length of time.

Mr. Paul Szabo: I have a feeling that a lot of people will want to see this competition before we see fewer numbers of banks in total, but this is a debate that I suspect we've just started. We're not coming to a conclusion on anything.

But I find your comments very interesting. I think you've brought another layer of dimension, which continues to show how complex this is. I've always wondered whether there is a logistical order in which certain things must happen for all this to unfold, as opposed to losing the synergy by cherry-picking the things that you'd like to see. People have views on that.

However, I did want to talk to my friends here representing the automobile industry, who in Ontario represent 30% of the economy of our entire province. I can only assume that kind of magnitude is reflected right across the country and means that we have to be very careful about what we built in our automobile industry, because we're talking about people, as a starting point.

Having said that, I wouldn't have used the same arguments that you used to defend yourself, and I'm going to tell you why. There's passion in here, and passion is good, but capital cost allowance in itself is not a bad thing, and capital cost allowance does not shield profits. What it does is defer taxes and therefore provide you with zero-cost capital.

• 1445

You've made a statement here that the banks just want the CCA so that they can shield billions of dollars of their excessive profits. I'm distracted by the reference to excessive profits, because I think it's important we have a banking system that makes good profits. If they were excessive, I would suspect that every investor in Canada would be investing only in banks because that's where you would get the most profits. But it's not so, and therefore “excessive” is a relative term. Fifty percent of all working people in Canada own bank shares, so having a healthy banking industry is not a bad thing.

From your perspective it's not so bad that there is the CCA, because today you're taking advantage of the CCA. That's providing you with this low-cost capital, zero-cost capital, provided you continue at the same level of business or grow. However, should you contract, the benefits of CCA reverse, and your cashflow is impaired. So you play a risky game if you over-lever yourself and don't manage your businesses well. So we understand that CCA is not bad in a growth situation.

But there is, I believe, a very fundamental reason banks should not be in leasing. They should be in the financing of leases, but they shouldn't be in leasing. There's a difference, and it is the linkage of the ownership, because what the hell are banks going to do with cars when they come off lease? You have that problem now. I don't think the banks really mind.

But they don't want just the leasing. MacKay mentions leasing and insurance through the branch system, open up everything. I'm going to market and I'm going to cherry-pick, and I'm going to do as well as I can.

Technological change has meant that there has been redundancy or excess capacity within the infrastructure of the banking sector. They have a lot of branches and a lot of people, and they're going to close down those branches. Even if nothing happens, a lot of branches will have to contract or even close simply because electronic banking is taking away the physical activity at the branch level.

They need to be in more businesses. If they can get the auto leasing with the insurance, all of a sudden the bundling possibilities are much greater. They can do extremely well, and there's no question in my mind that they would. If I were a banker, I'd go for it too, and I'd hope they would give it to me, because that would be my special interest.

But I'm not a banker, I'm a consumer. I happen to be a parliamentarian right now, but I'm still a consumer. I'm passing through this job. The concern—and I think you have to make the case much more fervently—is that today almost half the cars acquired by people are by lease, and they have to go to you. If they don't come to you and you don't get this opportunity to do that business, etc., then eventually you're going to contract. The slippery slope is that the banks will be able to directly acquire the automobiles, and you'll be redundant. You will be able to buy a car over the Internet, which you can do now in fact, but more and more of that will happen.

Dealerships are now at risk, and that means we're really talking about people. We're talking about the fundamental thing MacKay was talking about, and that's the public interest. It is not in the public interest for the automobile industry, including our dealers, to be in jeopardy because somebody else just happens to have a situation where they could assimilate in order to make their situation a little bit better.

I think this is a people question for you. You know very well there's a threat, but it's not a threat because the banks are bad; it's a threat because your business happens to be structured that way. The best interest of the public is not going to be served if you go out of business. The ripple effect in the automobile industry could be devastating. I think we have to get away from bank-bashing and start defending ourselves, saying it just happens to be the way we are.

So I throw out to you that I'm not against banks doing anything. I want them to be as good, as strong, and as healthy as they possibly can be.

MacKay brought forward the whole concept that we have to look at public impact assessments, and that means on real people, on jobs, on economic growth, on competitiveness, on choices for consumers, and these kind of things, and this is very important.

• 1450

But that people thing transcends everything, especially if real people are going to lose jobs. Today I was reading in the newspaper about TransCanada PipeLines Ltd. Their merger with NOVA means 600 people are redundant, and they're gone. Mergers mean people lose jobs. Should they merge, should they get the leasing, the insurance, and all that other stuff, not only are they going to lose jobs in their areas, but also we're going to lose jobs in other industries simply through assimilation. So this people thing, I think, is going to become far more important, and that's why I think sooner or later somebody is going to say we need to see the people impact before we do anything.

So I hope your message to the government and to the finance minister is to start talking about the reality. The fact is many businesses that have come before us have said, “We cannot compete with the banks. They have an unfair advantage through the networking, the tied selling, or the bundling opportunities, and I cannot compete. That means that ultimately I lose, and I go out of business.” That's the plea. It's really simple. It's not the CCA; it's people.

Mr. Gilles Richard: Thank you, Mr. Szabo, for those remarks.

Perhaps I could add something else. When we're talking about leasing, there's the buying cost and the residual at the end. The difference is what the consumer is paying. Right now residuals are calculated by the many features. Who knows what is coming two years down the road? They already have in their mind that, for example, a Windstar in the year 2002 will be priced at that price, and it will look like this. So when they set up the precision value, they have some confidential information they can use.

On the contrary, the only way the banks could calculate the precision original value is by mathematics, and this is what happened in Japan. Japan, right now, is facing with Volvo billions of dollars' worth of equipment that does not have the real value because they just use mathematics. There is no common sense in that. On the contrary, when it is governed or dictated by the manufacturers, automatically we have a better chance to have the right residual and to protect the economy for the future.

Mr. Paul Szabo: Mr. MacKay did say that we're moving towards a whole new vision of the future, and those who are not prepared to adapt are going to have to pay the consequences. I think you're well aware that your industry has been operating the same way for a long time and that there are new things coming along, such as megastores or megadealerships. Those changes are pretty important. You have some latitude and some time, but we are in some transition, and I know that you're not just banking on your future simply by getting protection on the leasing side.

You have strategic visioning to do with regard to the industry, as do many industries, because eventually the consumer is going to be totally price sensitive. If somebody else gives me a quarter of a point better, I'm gone. The loyalty is not going to be there very much longer, because we're moving very fast right now. We all know this, and I think we need time to make sure we can all survive over the longer term.

Thank you.

Mr. Gilles Richard: Thank you very much.

[Translation]

The Vice-Chairman (Mr. Nick Discepola): Thank you very much, Mr. Szabo. Mr. Tony Valeri, please.

[English]

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

I just want to take an all-encompassing approach to this. I've sat here and listened to a number of your comments, and I don't want to focus on your specific area, the automobile leasing, but I just want to get your sense of MacKay.

MacKay was not written as an analysis of the present situation. It wasn't looking at history; it was attempting to look forward at the kind of financial services sector we could expect or should strive for, in fact, in this country. The bottom line with MacKay was that consumers should come first. It was not a report that was an attempt to promote an industry. At least when I read it, my sense was that MacKay said, let's empower consumers, let's build a competitive marketplace, let's put in place some regulatory oversight to allow for that protection of consumers, and we can compete in the global financial services sector while at the same time maintaining a competitive domestic financial services sector.

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Some would ask when is that competition going to be there? I think you talked about the entrance of foreign financial institutions, and the ability for them to compete and making it easier for them to come into the domestic marketplace. But what I heard in the discussion this afternoon was essentially that the status quo is okay. It's working well. The underlying principle of MacKay was that the status quo is not on and that we will change; the marketplace will change and we have to be prepared for change. And he put in some safeguards to try to prepare us for change.

Are mergers an option? The mergers are a business decision; they're nothing more than that. And he talked about putting in place a process for governments and the public to see what is or is not in the public interest, and to give the public an opportunity to comment on that. But I didn't get that sense from the conversation we had so far today.

Am I correct in my analysis? Has MacKay got it wrong?

Mr. Harry Baumann: I'll take a crack at it. Your question is about how the status quo is not on in terms of MacKay, right? I think he's right about that. Why is he right about that? It's because we're seeing mergers and acquisitions globally, we're seeing technological change happening in this sector because of electronic banking, all this sort of thing. Also, we're seeing some volatility in the financial markets in terms of exchange rates and stock markets and all the rest of it.

Yes, in my view, I think he's basically correct that the status quo is not on. But the question then becomes how will our sector fare and how will it be prepared for responding to these changes? What I was suggesting in my remarks is that they need to become more responsive to their customers' needs domestically and they need to become more innovative internationally. I realize that's quite general and so on, but I think the way of, as I said, achieving that responsiveness is partly through what MacKay says in terms of opening up the competition somewhat; that's part of his strategy.

On the other one you mentioned, about consumer empowerment and so on, my view on this would be that they saw it in a particular way, that is, coming through perhaps increased regulation or increased oversight and so on. I would have seen them maybe put more emphasis on other instruments such as the disclosure—not only the disclosure but also the evaluation of what's being disclosed.

Mr. Tony Valeri: What do you mean by that? Can you just expand on that a bit?

Mr. Harry Baumann: I don't want to repeat what I said earlier, because we're running out of time, but what I meant basically by that is this. If you went to the Canadian Bankers Association right now, they would say they have turned out 1.5 million brochures to inform consumers about all sorts of things, about how banks operate, what services they provide and so on. But what I'm saying is the consumer is faced with almost too much information. There's an information glut in the sense that if you read all of this you wouldn't have time for doing anything else. I'm saying you also need some kinds of institutions, such as exist in other areas, that evaluate this information and allow the consumer to make an informed choice between one credit card and another credit card—

Mr. Tony Valeri: But isn't that what consumer associations can do?

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Mr. Harry Baumann: Consumer associations can help in that regard, but the history of consumer associations in Canada is that they're not very strong.

Mr. Tony Valeri: Are you suggesting that government should do that?

Mr. Harry Baumann: No. I'm suggesting that it has to be at arm's length from the government, but government can certainly facilitate that sort of thing.

Mr. Tony Valeri: And that would assist in the competitiveness?

Mr. Harry Baumann: Yes, in the sense that presumably in that kind of scheme consumers will choose the better product, right? That's an assumption.

Mr. Tony Valeri: I'll just give you an example. Right now, if you go to an Industry Canada document on their website if you have access to a computer, you've got the credit card calculator that could give you the best interest rate based on whatever criteria. You're suggesting that is a key component?

Mr. Harry Baumann: That could be a part of the component, yes.

Mr. Tony Valeri: Okay. Anyone else?

I just see so much in MacKay— Maybe there's too much in MacKay. Maybe it's too much to digest. But what we're trying to do is to get a sense of where he's got it right and where he's got it wrong, to help us.

Mr. Gilles Richard: Mr. Valeri, the word came from us. We brought that word due to the fact that when we have— Why can the banks not do the same as the caisses populaires did, or Mouvement Desjardins did—sign an agreement that, yes, we're ready to finance leasing contracts? We came out said they're already doing it; this is already something the banks are doing. So we don't have to change that. This is actual. Every day I see leasing contracts go to the bank, not necessarily for credit. I'm shopping around to have the best lease rate in order to have a cost so the consumer will lease from me. You lease from me because I'm offering something better than you can get from somebody else.

Mr. Tony Valeri: That's fine.

Let's say it's a given that leasing does not happen at the retailing level. Let's say, with respect to leasing, that banks will continue to finance paper. Are you in agreement with what else is here? Are you in agreement with the other recommendations that MacKay is making that would help us address this changing financial services sector?

Mr. Gilles Richard: Are you talking about how the agreement...?

Mr. Tony Valeri: No, no. Let's say that leasing is not going to happen at banks. Do you agree with MacKay's suggestion of empowering consumers, putting in an ombudsman, allowing second tier banks to come in, the ownership rules and the whole changing financial services sector? Are you in agreement with what MacKay is saying, that the status quo is not on?

Mr. Gilles Richard: No. Mr. Valeri, I will tell you frankly that we cannot take any position in that respect, because we're not competent enough to come up with that. We just took a position for automotive because we know that. We're competent in that matter.

Mr. Tony Valeri: But you're a consumer. You're a consumer like I am.

Mr. Gilles Richard: Yes.

Mr. Tony Valeri: So just from a consumer perspective, do you think there's enough competition in the banking sector now?

Mr. Jean-Paul Lalonde: As a consumer and as somebody who has a business, it is a plus to have more options to get a better loan or to have more possibilities with credit cards to have competition when you see giants wanting to merge. That automatically means that the Royal will stay at the same as the Bank of Montreal. Their criteria will now be the same. You will not be able to present a business plan to one, have a response, and then go to the other and weigh one against the other, more or less. As a consumer, that can scare you. As always, a lot of people lose jobs and choices with different mergers, because now there will only be one product.

Bay Street will love it, because profits will go higher. Will the banks pass savings to consumers? That's a good point. Will savings be passed to consumers? The past is usually a good bet for the future, and I think the banks do not have their customers in a big way. They charge a lot of administration fees and probably don't have each one of their customers really at heart.

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[Translation]

The Vice-Chairman (Mr. Nick Discepola): Thank you very much, Mr. Lalonde and thank you, Mr. Valeri. I have only one question, because we don't have time for any more.

A number of manufacturers protect their distribution network by having authorized "distributors". This is done in the computer industry. To sell IBM equipment, you must be an authorized distributor, an authorized vendor, and you must also supply a high quality of after-sale service.

Personally, I would like to find some way to give the banks the authority, and an opportunity to compete with GE Capital, GMAC and Ford Credit, companies that make their money here and then transfer it to the United States. I would like to find some way to help the banks compete with these institutions while protecting automobile dealers, for example, and I have a number of reasons for that.

Have you ever tried to tell your manufacturers that, if the federal government were to allow the banks to enter the leasing market, it would protect your business by not allowing the banks to sell the vehicles directly?

There's a second part to my question. Do you know what mechanisms should be set in place so that my personal goal can be attained, that is, to allow the banks to compete with GMAC and with GE Capital, without that being detrimental to you?

Mr. Gilles Richard: You have addressed a number of issues, and I will try to respond to most of them.

First of all, at this time, the banks do compete with GMAC, Ford Credit, GE Capital, etc. In fact, whenever I sign a contract with a bank, be it for leasing, purchasing, or for deferred payment, the money stays in the country, as you say, rather than going to GE Capital. We already have that.

How can the banks get a greater share of the market? They can become more competitive. At the end of the day, if you are more competitive, the consumer will benefit. I can tell you that, when it comes to financing, the only thing the banks can do to increase their profits, or reduce the profits for captive companies or American companies, is to drum up more business.

With respect to the second part of your question; I represent Ford. I might say that, for the most part, American manufacturers... First of all, the American manufacturers cannot sell directly to a third party without going through us. Unless they change dealers or the agreements that they have signed with their dealers, Ford cannot sell directly, except to the government. For example, the cars used by the RCMP and by the Prime Minister were bought directly from the manufacturer.

In any other situation, even if you wanted to buy 50,000 vehicles, Ford would tell you to order them from a dealer. That's the case, for example, with short-term leasing companies, like Budget and Hertz, who buy large numbers of cars every year, and who must always buy them through a dealership.

The Vice-Chairman (Mr. Nick Discepola): Thank you for your answer.

On behalf of my colleagues, I would like to thank you for your sometimes passionate presentation. You know that we have a tough decision to make. I think that you have helped make our job a little easier, notwithstanding the fact that, as members, we must make a recommendation to the Minister of Finance. I hope we will be in a position to do this next spring. Thank you very much.

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I would ask my colleagues to remain seated because there has been a misunderstanding. Before hearing the Quebec coalition to maintain jobs and personalized banking services, which involves a large number of witnesses, I would like to ask Mr. Lowenstein and Mr. Wisenthal to come forward. We will take 15 minutes to hear these two witnesses whose names were forgotten from the list for the one o'clock to three o'clock session. We will then hear from the coalition. Thank you for your co-operation.

[English]

Mr. Wisenthal, you have a statement you'd like to make, I was led to believe.

Mr. William Wisenthal (Individual Presentation): Yes. It's on the regulatory framework in which the bank mergers are going to occur or not going to occur.

The question simply is, does the Superintendent of Financial Institutions have the technological and human resources available now to monitor or to regulate or to watch complex financial markets that are open 24 hours a day, seven days a week, and complex transactions that are occurring all over the world? That's the concern I have. Is the superintendent or the regulatory authority sufficiently skilled to handle the banks as they are now or when they merge?

My experience would be that in the insurance side there have been failures or lapses in the regulatory authority.

That would be the question I have, and that's all that I wanted to ask.

The Vice-Chair (Mr. Nick Discepola): Why are you asking that question? Is it in the context of one of MacKay's recommendations? If so, which one?

Mr. William Wisenthal: Well, the other context would be the banks have argued that they want to merge because they can compete more effectively internationally. My comment would be, how successful have the Canadian banks been at competing internationally? There have been large financial losses in derivatives, large financial losses in money markets, large financial losses in currency trades, including some of the Canadian chartered banks as they are now.

My question comes back to the first thing, and that's why I'm posing this question. Is there a regulatory framework available now that can monitor, as the previous speaker said, the technological change and the technology that's available now and the speed with which transactions can occur? I'm questioning whether the regulatory authority is able to monitor it.

The Vice-Chair (Mr. Nick Discepola): Okay, thank you very much, Mr. Wisenthal. Maybe if you'd just like to stay seated, we'll see if there are any questions from members afterwards.

[Translation]

We now have Mr. Paul J. Lowenstein, Chairman of Canadian Corporate Funding Limited. Welcome, Mr. Lowenstein.

[English]

And I apologize for the misunderstanding.

Mr. Paul J. Lowenstein (Chairman, Canadian Corporate Funding Limited): I'm the one who apologizes. I have my notice here that said three o'clock.

Are there any other committee members—

The Vice-Chair (Mr. Nick Discepola): There's a vote at 5.30, so some members had to leave. There are just Mr. Loubier and another member, but we have three parties represented here.

Mr. Paul Lowenstein: Thank you. Fine.

I need about seven minutes to read my presentation.

The Vice-Chair (Mr. Nick Discepola): Maybe if you make it five we can get you two or three minutes for questions.

Mr. Paul Lowenstein: All right.

Thank you for the opportunity to appear before the standing committee.

Canadian Corporate Funding Limited, which has been in business for 20 years, is a privately owned company. We consider ourselves one of the leading providers of merchant banking services to the Canadian middle market, which we define as those companies with annual revenues between $20 million and $500 million. We have offices in Montreal and Toronto and a staff of 17.

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Over a 20-year period we have completed approximately $1.5 billion in transactions. We provide financial advisory services, are capital issuers through one of Canada's leading providers of mezzanine capital, and are in the senior debt private placement business offering corporations an alternative to borrowing from the Canadian banks. Depending upon the transaction, we either compete with or intermediate with Canadian banks. Nevertheless, in coming before you I hope our presentation will be objective because we'd like to share some experiences and some constructive suggestions.

We publish a quarterly newsletter, and in the last newsletter that was published in October we conducted a survey of Canadian mid-market corporations to determine their attitudes with respect to the proposed bank pairings. We canvassed 655 corporations. We had a response rate of 12%, and the findings of that response are summarized on page 2 of the newsletter, a copy of which I believe you have in front of you.

In that chart on page 2, you will notice that close to two-thirds of the Canadian mid-market companies that responded oppose the mergers. However, when asked if they would support the mergers if the federal government eased restrictions on foreign banks operating in Canada and/or increased the 10% ownership ceiling for domestic banks, a clear majority of the respondents came out in favour of the bank mergers.

Clearly the Canadian corporate mid-market believes that greater choice is the way to go. The Canadian business sector we service would accept the mergers if at the same time competition were widened, not reduced.

On the sources of long-term capital growth in Canada, here I'm not talking about shareholder capital but sources of long-term credit to finance fixed asset additions, acquisition financing, business expansion and working capital financing. We view the major Canadian chartered banks as active but inconsistent participants. They often state that corporate lending is not a high profit margin business, and their activity tends to shrink during either a recessionary period, or when banks are faced with significantly increased loan provisions from such other areas of defaults, historically, as real estate or loans to lesser developed countries.

The major Canadian pension funds are generally not active in corporate lending, although there are a few exceptions where support is given to financial intermediaries such as our own firm. The major Canadian insurance companies are increasingly active on both a direct and indirect basis, but limit their activities mostly to what we call investment-grade loans. Only a small allocation of their capital as a percentage of their total assets is allocated for purchase of unrated paper from mid-market companies.

On the asset-based lenders, as you know from the research papers that were undertaken with the MacKay report, there's considerable increased activity from asset-based lenders such as Bank of America, Congress Financial, GE Capital, Newcourt Credit and so forth, but most of this capital is for short-term or working capital loans, and they are very reluctant to provide long-term loans or term debt.

The schedule 2 banks tend to lend only to the upper end of the market. The Business Development Bank of Canada and RoyNat are more active, but mostly in the smaller end of the market.

To summarize the current competitive landscape with respect to corporate lending in Canada, from our advantage point we can only conclude from that quick market survey that if the mergers are approved, today's successful medium-sized corporations—tomorrow's larger corporations—the companies that are the engines of growth and employment, will face significantly less choice for their sources of short- and long-term borrowing.

Turning to the report of the task force, the MacKay report, there were a number of recommendations for strengthening the position of existing participants. The task force made a number of recommendations to encourage the establishment and growth of new financial institutions. To save time, on page 4 of the report I've submitted to you I've summarized the recommendations of the MacKay report for new banks, particularly with respect to ownership provisions, as well as the opportunities for foreign banks to have more extensive activity in Canada.

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We support the recommendations of the task force that will encourage more competition in the bank sector. In particular, we believe every effort should be made to encourage the development of new Canadian-owned banks. We would really like to see, to a significant extent, a made-in-Canada solution for more competition instead of just opening the floodgates to the foreign banks.

The bank mergers, if permitted, will create opportunities for smaller regional-based financial service providers. On the emergence of new community banks in California, for instance, in 1997 10 new bank charters were granted in California focusing on small and medium-sized businesses. We think this attests to the potential in Canada for niche competitors for new banks and similar financial service providers.

The task force recommendation permitting new banks to be closely held or single ownership of banks with less than $1 billion in shareholders' capital, and up to 65% ownership for banks with shareholder equity between $1 billion and $5 billion, with the remaining 35% to be widely held and publicly traded, will go a long way toward broadening the choice of providers of financial services to Canadians. This will be particularly well received by Canadian mid-market corporations, as well as smaller corporations.

We have some concerns that if new banks are permitted, their ability to compete with respect to raising leverage capital could be affected—and I'm talking about certificates of deposits issued in amounts in excess of $60,000—vis-à-vis the larger and perhaps merged Canadian banks. We believe the higher cost of capital for these new banks could affect negatively their ability to compete. They will find that their required spread over cost of funds leads to taking on higher-risk loans, with the result being eventually higher write-offs of loan losses, possibly.

To mitigate this, we would recommend that interest income earned by purchasers of the new banks' deposit certificates be provided limited income tax relief. We suggest a possible structure where the interest income on certificates of deposit issued by new banks up to a certain size in shareholders' equity receive some limited income tax relief. This is not dissimilar to the exemption from taxation on municipal bonds in the U.S.

Several new Canadian banks that were started in the seventies and eighties went out of business or failed. We believe that in order to enhance the success ratio of new banks, especially those commencing with shareholders' equity of less than $100 million, the leverage ratio—that is the debt-to-equity ratio—for these new banks be scaled up over time to the maximum of 20:1, tied to demonstrated profit performance standards and return on capital.

In order to reduce the potential for self-dealing, as well as to enhance corporate governance of new financial institutions, we believe very strongly that the board of directors should be made up of a majority of individuals independent from management or clients—that is borrowers—with a non-executive individual as chairman of the board.

Finally, we recommend that the government consider the privatization of the Business Development Bank of Canada. In order to economize on time, I'll just make that statement without reading from my report in detail.

Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you very much to both of you for cooperating.

[Translation]

I will only allow the members to ask questions, and only for 10 or 15 seconds. We will ask all of the questions at once, and then you will be able to answer them. Is that acceptable?

[English]

Mr. Epp, just a question, please.

Mr. Ken Epp: I'm going to comply, so I hope the others do too.

The Vice-Chair (Mr. Nick Discepola): Please give a single question and a single answer. Mr. Lowenstein, you will come afterwards. Everybody will ask their questions and then I'll ask them to wrap it up.

Mr. Ken Epp: My question is a very simple one. You say that in order to help new banks we should make special rules for interest earned in terms of taxation. That seems to be rather discriminatory. Would it not be better to increase the limit of the CDIC, the deposit corporation insurance part, to make that encouragement?

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Epp.

Mr. Desrochers.

[Translation]

Mr. Odina Desrochers: I just have a comment. I would like to thank you for your presentations; they will no doubt serve to enrich the report that will be tabled within the next few weeks.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Desrochers.

[English]

Mr. Szabo.

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Mr. Paul Szabo: The Governor of the Bank of Canada cautioned us, in a sense, that opening up competition would create a higher risk of bank failures, and we should not lose sight of that. The Superintendent of Financial Institutions also told us that when you open up the competition it is his expectation that they presently don't have the resources to be able to discharge their responsibility fully; in other words, they will have to get bigger.

The stability and security of our Canadian banking system is one of our greatest assets in Canada. Will that stability be jeopardized by opening up competition?

[Translation]

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Szabo. Mr. Valeri.

[English]

Mr. Tony Valeri: Correct me if I'm wrong. I think you disagree with each other. Mr. Lowenstein, you are essentially saying the bank mergers or the need for consolidation in the banking industry is probably not a bad idea. Mr. Wisenthal, you indicated you don't believe there is a regulatory oversight in place to allow this to happen internationally, and that if the banks continue to compete internationally we may run into some problems. I wonder how you can defend that position and reinforce it.

The Vice-Chair (Mr. Nick Discepola): Thank you. I'll give you each about two minutes, maximum. Whoever wishes may go first.

Mr. William Wisenthal: I'm simply asking whether the regulatory authority is capable, whether the banks merge or not, or as this gentlemen just said, if new banks are allowed to come in and there is more competition, if I understood correctly, the superintendent said they do not have the human resources to regulate them now.

Whether the banks merge or not, I'm questioning the ability or capacity of the Superintendent of Financial Institutions to monitor the financial institutions, especially the international part of them, on a...I don't want to say semi-competent level. What's to stop a Barings bank or some of these other long-term capital things in New York from occurring amongst very sophisticated, very knowledgeable people?

With the technology in place now, currency fluctuations and the instability internationally, I'm questioning whether we need some beefing up or a closer examination of the capability of the Office of the Superintendent of Financial Institutions and the human resources they have. Maybe some of the people from the banks should go and work at the Office of the Superintendent of Financial Institutions for two or three years on a long-term or short-term loan basis to somehow bring their level up. That is my point. I'm not really keen on the mergers, but that's not the core of my presentation.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Wisenthal.

Mr. Lowenstein.

Mr. Paul Lowenstein: With respect to the mergers, I am only supportive of them if there is more competition. I think that's clear from my report.

I have every confidence in the regulatory authorities to properly monitor the new banks. I don't think we're talking about a huge number. We have had several new banks in the last number of years, and I don't think OSFI has demonstrated or complained that they don't have the infrastructure or the ability to monitor them.

Mr. Epp, your suggestions of raising the limit of $60,000 would be a viable alternative.

I think that answers the questions. Thank you.

The Vice-Chair (Mr. Nick Discepola): In that case, on behalf of my colleagues, I would like to thank you for your understanding and patience.

[Translation]

We will adjourn for a few minutes so that our next witnesses can be seated. Colleagues, I would ask that you please remain here.

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• 1534

The Vice-Chairman (Mr. Nick Discepola): We are resuming our meeting after a short break.

Pursuant to Standing Order 108(2), the committee now resumes its study of the Report of the Task Force on the Future of Financial Services in Canada.

I would like to welcome the Coalition québécoise pour le maintien des emplois et services bancaires spécialisés (the Quebec coalition to maintain employment and specialized banking services). We have with us today Mr. Gérald Larose, who will be the spokesperson for the coalition. We will give 10 to 15 minutes to the spokesperson for Option Consommateurs, Mr. Jacques St-Amant, as well as Mr. Serge Cadieux, who represents the Laurentian Bank union. The other witnesses will have from five to eight minutes; that should leave us with an hour or an hour and a half for discussions with the members.

Welcome, Mr. Larose. You may begin.

Mr. Gérald Larose (President, Confédération des syndicats nationaux; Spokesperson, Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): Thank you, Mr. Chairman.

• 1535

The debate that you are engaged in involves a societal issue which, in the new economic context, is of utmost importance to the groups that we represent.

As you said, we are a Quebec coalition representing 25 union, community, consumer, and common interest organizations, as well as various groups from Quebec society. We agreed to make a presentation which should take between 45 minutes and one hour, and to save the rest of the time for a discussion with the members.

I would like to begin by introducing the members of the coalition who are with me here today. They are Mr. Jacques St-Amant, from Option Consommateurs; Ms Nicole Jetté, from the Front commun des personnes assistées sociales du Québec; Mr. Claude Faucher, from the Centrale des syndicats démocratiques; Mr. Jacques Proulx, from Solidarité rurale; and Mr. Gilles Fournier, from the Association québécoise de défense des droits des personnes retraitées et préretraitées. We also have with us Mr. Serge Cadieux, who is the union adviser for the Fédération des travailleurs et travailleuses du Québec; Ms. Claude Grenier, President of the union for the Laurentian Bank; Mr. Laurent Pellerin, from the Union des producteurs agricoles; Mr. Gary Saxe, from Projet Genèse, representing cultural groups; Ms Thérèse Hurteau-Farinas, from la Fédération des femmes du Québec; and Mr. Alexis Boyer-Lafontaine, representing the students.

In order to give you a better idea of the coalition that we represent, I would like to ask those who are with us to please introduce themselves. That will give you a complete idea of those who are concerned about what is being discussed today. I would ask these people to please introduce themselves.

Mr. Henri Gervais (Secretary General, Forum des citoyens aînés de Montréal): Henri Gervais, Secretary General for the Forum des citoyens aînés de Montréal (Montreal senior citizens' forum).

Mr. Daniel Lachance (Vice-President, Centrale de l'enseignement du Québec): Daniel Lachance, Vice-President of the Centrale de l'enseignement du Québec (Quebec teachers' corporation).

Mr. François Legault (President, Fédération de l'âge d'or du Québec): François Legault, President of the Fédération de l'âge d'or du Québec (Quebec golden agers' federation).

Mr. Roger Lagacé (President, AQDR, Montreal Region): Roger Lagacé, President of the AQDR for Montreal North. I am also the AQDR delegate for the Montreal region.

The Vice-Chairman (Mr. Nick Discepola): What does AQDR stand for?

Mr. Gérald Larose: The Association québécoise de défense des droits des retraités et préretraités (Quebec advocacy association for the rights of retired and early-retired persons).

Mr. Jean Lortie (Fédération du commerce, Confédération des syndicats nationaux): Jean Lortie of the Fédération du commerce of the CSN.

Ms Marie-Danielle Lapointe (Secretary General, Conseil des travailleurs et travailleuses du Montréal métropolitain (CTM-FTQ)): Marie-Danielle Lapointe, Secretary General of the FTQ section for the Montreal region.

Mr. Phil Lamoureux (Group of retired union workers): Phil Lamoureux of the Regroupement des syndicalistes à la retraite.

Mr. Roland Meunier (Coordinator, Montreal Region, Congress of Democratic Unions): Roland Meunier, coordinator for the Montreal region of the Congress of Democratic Unions.

Mr. Normand Guimond (Servicing Representative, Fédération des travailleurs et travailleuses du Québec): Normand Guimond, Servicing Representative of the FTQ.

Mr. Charles Cantin (Assistant Director General, Union des producteurs agricoles du Québec): Charles Cantin, Assistant Director General of the Union des producteurs agricoles du Québec.

Mr. Michel Lessard (Treasurer, Confédération des syndicats nationaux): Michel Lessard, Treasurer of the CSN.

The Vice-Chairman (Mr. Nick Discepola): How many Quebeckers does your Coalition represent?

Mr. Gérald Larose: We certainly top one million. Whenever you bring together all of the union movement...

The Vice-Chairman: Thank you.

Mr. Gérald Larose: It is clear that the reality of the "financialization" of the economy raises significant problems for society and for all the groups we represent. However, the restructuring of the banking sector as proposed by the banks themselves raises even more questions, especially with regard to globalization and national control over this activity that is so important for society.

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These are also questions that can oppose the interests of savings account holders with those of shareholders. They are also questions that are put to us regarding the services the banking sector owes the public as well as the services owed to various regions but especially the more peripheral regions. But many of the questions concern employment and the future of employment following such a massive restructuring effort.

Therefore, we would first like to ask the spokesperson for Option Consommateurs, Mr. Jacques St-Amant, to present an analysis of this report with regard to personal banking services.

Afterwards, Mr. Serge Cadieux will present the common statement that has resulted from a consensus of these organizations, and then each of the groups—students, welfare recipients, the elderly, rural communities, cultural communities, women, farmers and other union organizations will have their say on the same proposal.

The debate will be coordinated by Mr. Michel Lessard who will immediately take my chair to continue this presentation. First, I would ask Mr. Jacques St-Amant to make his presentation.

Mr. Jacques St-Amant (Analyst, Option Consommateurs; Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): Thank you, Mr. Larose. Mr. Chairman and members of the committee, we have noted that bankers prefer the electronic highway. That is understandable. The problem is that they are failing millions of Canadians. These citizens cannot currently open a bank account or obtain services that meet their basic needs.

The Task Force on the Future of the Canadian Financial Services Sector has painted a rather accurate picture of the major trends that have led to these results. We will be discussing some of these factors. But this is an area where things are evolving very quickly and we also hope to be able to share with you some data collected through our experience in the field and some research that we were able to conduct in the past months and years.

The Task Force drafted its recommendations in sectors that are of interest to us. Although generally speaking we share the general thrust of the recommendations, it is our opinion that the substance of the solutions proposed by the Task Force must be strengthened. Therefore, what I'm presenting to you is in some ways a prelude to our own recommendations.

It should be pointed out here that we will be mainly discussing routine services, deposits, and especially routine payment services. Our position is simple; people must be able to open an account in an institution, they have to be able to obtain adequate services and these services must be easily understood and affordable.

First, here's a quick snapshot of the main trends, some of which have a direct impact on the relationship between financial institutions and Canadian consumers and the effects of which are of some concern to us in certain cases.

First, there are two phenomena that have had a highly significant impact on the services offered to us: disintermediation and the rise of telematics. Disintermediation has meant that increasingly, financial institutions seek to increase their non-interest revenue and thus place more emphasis on a new range of value-added services other than routine services. In some cases, they also tend to increase service fees for routine operations. Another effect of disintermediation is that the proportion of household savings deposited in a simple bank account has been diminishing in the past few years, which means that banks are less tempted to maintain branches in neighbourhoods and regions.

In addition, telematics gives banks the technical means to replace more and more of these branches by automatic teller machines or the Internet, for example. In principle, it also allows them to reduce certain commercial obstacles to their entrance into the market.

The result of all this is that banks are withdrawing and are less interested in providing routine services. Later, we will examine the possible consequences of this.

Moreover, the Task Force is betting that competition will increase in the financial market, and I hope that will be the case. The Task Force is nonetheless aware that in this jungle, not all have equal weapons. It therefore also emphasized measures aimed at protecting the interests of communities and consumers. Thus, the Task Force is essentially optimistic and constructive.

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However, those of us who work in the field on a daily basis feel a need to remind you that if we don't take some special precautions, the evolution proposed by the Task Force could quite simply create millions of marginal and excluded individuals. This is a tragedy that we're already seeing in Montreal and elsewhere. Not only must we avoid aggravating the situation, but we have to seek to improve it.

First of all, we must ensure that everyone can have access to basic personal banking services because such services are essential. If one doesn't have a bank account, life is quite complicated. Income is usually received in the form of a cheque or an electronic deposit. One has to make payments every day, some of which are too large to be convenient cash transactions. If one does not have an account in a financial institution, the government, for example, cannot make an electronic deposit in our name despite the advantages that that might have. The government will cut a cheque that the citizen must cash somewhere. If that person is very, very lucky, even if he does not have a bank account, he will find a bank or a caisse populaire that will simply agree to cash the cheque.

Outside Quebec, you may go to a chain such as Money Mart or Insta-Cheques, for fees equivalent to 2.9% of the value of the cheque, which is considerable, plus a flat fee. The cheque recipient may also go to the owner of a local corner store. In short, he will have to deal with parallel networks, marginal networks, which are in all cases very costly.

Canadian citizens are aware of the importance of this issue. According to an Ekos poll conducted for the Task Force, 85% of Canadians think that it is very important or essential for everyone to have an account in a financial institution. According to the same poll, 55% of Canadians feel that it is up to financial institutions and the government to see to this jointly. Thus, it is high time that we look into this. The Task Force reminds us in its report that there are over 600,000 adult Canadians who do not have a bank account. That's 3% of Canadians; it's 8% of the people who live in a household with an annual income of under $25,000. Therefore, the problem is concentrated, especially among people with low incomes, among others.

For a few years now, community organizations of which Option Consommateurs is one, have been cooperating with the financial institutions, the Government of Canada and the Government of Quebec to try to put an end to this situation and find solutions.

As late as 1996, in a study we prepared, we stated that the banking policies in the area of identification were, at the time, the main obstacle to opening an account. That brought about the February, 1997 agreement that you doubtless know about between the Department of Finance of Canada and the Canadian Bankers Association, an agreement that mainly centred on this matter of identification and it set limits as to what banks could demand.

The working group, in its report, also emphasized those problems. However, new data should be taken into account even though the working group wasn't able to access them and didn't have time for analysis.

In November 1997, Option Consommateurs set up a little project in Montreal just to find out, a few months later, how the agreement between the CBA and the Finance Department was being implemented. At the time, we found out the agreement wasn't being very well honoured., Especially, we noticed the emergence of new obstacles to opening an account, more particularly appointments being demanded and a multiplication of credit investigations.

During the spring and summer of 1998, the A.C. Nielsen firm, in turn, set up a broad inquiry on the implementation of the 1997 agreement and this time it was done for the Canadian Bankers Association. During the first phase of that examination, the investigators tried to open 179 accounts in communities all across Canada using essentially the ID documents allowed by the agreement. In 41% of those cases, they were unable to open an account because of ID problems, in particular, but also for other reasons in many other cases. Those results were published by the CBA last August 28.

In the context of another study published quite recently in Consommation magazine of which I've handed copies to the clerk, who will be able to distribute them to you, we examined bank fees, but we also used the opportunity to see what was going on in Montreal when trying to open an account in those financial institutions. We visited 36: seven banks, four branches per bank, four caisses populaires and a trust company. In over half the bank branches, someone with the documents mentioned in the agreement with the Finance Department would have been unable to quickly open an account either because ID requirements were set too high—amongst other things, they were often asked for a card with a picture—or because, in many cases, a credit investigation was demanded.

• 1550

Mid-October, hardly two weeks ago, to get an idea of the situation elsewhere, we also phoned 40 bank branches and credit unions in Toronto and Vancouver. Yet again, they were happily and regularly violating the February, 1997 agreement.

In Toronto, for example, they were asking for a card with a photo in 18 branches out of 20, in 90% of cases, in other words. We suggested that our investigators who said they had a welfare cheque try the Bank of Montreal in Toronto. It's the Bank of Montreal in Toronto that puts out those cheques. So, in 9 of the 14 bank branches other than those of the Bank of Montreal we visited, the people were told: "No, we don't cash those cheques. Go to the Bank of Montreal."

That behaviour has consequences for consumers and citizens. For people who enjoy little mobility, for example, people in poor health, the aged, people who have young children, it's difficult and sometimes costly to go to a branch two or three times to open an account because they've been given an appointment for three days down the road or the next week.

Another aberration we found is a national bank branch in Montreal demanding that someone have a credit card to open an account: no credit card, no account opened. It's that simple.

Quite recently, we had a caisse populaire in Montreal refuse to open an account for someone who had gone bankrupt in 1995, even though he was discharged, as well as for his daughter, a minor. He's been through a bankruptcy, he's a risk, so he's not wanted.

In brief, in practice, in the field, the situation is getting worse. Almost two years after it was signed, the agreement between the Finance Department and the bankers is being found to be a failure. In practice, self-discipline doesn't work.

While the information available to the working group, when it wrote its recommendations, mainly emphasized ID problems, the CBA investigation and ours indicate that obstacles to access are multiplied. By the way, and even though the working group hardly mentioned it, amongst those obstacles you should count the policies of freezing funds and minimum deposits that are being imposed by the different financial institutions.

Also, rather curiously, the different studies indicate regional differences. Some obstacles are found in Montreal, for example, that you find to a lesser degree in Toronto or Vancouver and vice versa.

It's interesting to see that the federal government has just changed regulatory requirements in the area of ID having to do with recycling of criminal products or money laundering. The regulations coming into force on October 16 stipulate that anyone wanting to open a bank account need only present a single piece of ID. So the government doesn't seem to think there is any serious problem or that you need two, three or four pieces of ID, pictures and so forth.

Another thing complicates access to banking services, but it also has other consequences. This is the growing number of branch closings. The working group is seriously looking at these questions and it unfortunately appears resigned to these closings, but we don't share its point of view.

The Island of Montreal, for example, has lost some 200 bank branches since 1997; almost one third of the bank branches there were on the Island. The population, however, hasn't decreased or almost not. In a poorer area like Hochelaga—Maisonneuve, 16 of the 20 bank branches closed over the same period: 80% of the network simply disappeared. Consumers, of course, have less choice.

Data from the U.S. provided to the working group indicate, however, that people prefer going to an institution in their neighbourhood. In Hochelaga—Maisonneuve, for example, that translates into very strong membership of the residents in the Desjardins Movement. There were Desjardins points of service 20 years ago; there are still eight and over three-quarters of the neighbourhood's population is a member of a caisse.

Outside of Quebec, however, the situation is often less rosy because the cooperative movement in many cases is less accessible. Branch closings in the country and in poorer neighbourhoods aren't less numerous. We might also mention that we deplore the fact that the working group didn't emphasize the situation in rural areas very much.

The branch closings also mean that it's a lot more difficult for consumers to have access to the services they need. On that, the financial institutions will say, "Yes, but there's no problem. People can use the automatic tellers and other electronic networks." Reality isn't that simple. The Ekos survey done for the working group reveals that 13% of Canadians never use their automatic teller card and this goes up to 38% in the ranks of our senior citizens.

In Quebec, the situation is even more of a concern. A CROP survey done for Option Consommateurs last February, with a sample of 1,000 persons, indicated that 23% of consumers never use an ABM and this proportion goes up to 27% outside of Montreal and Quebec City, up to 39% for lower-income families and 53% for people 55 years of age and over and 60% for people with a lower education. There's an enormous pool of people who don't use electronic services and, of course, who use telephone or Internet or ATM services even less. All those people need the personalized services provided by a branch.

• 1555

To explain why it's resigned to bank closings, the Task Force particularly said that branch-based transactions are becoming fewer and fewer and represent a decreasing share of retail transactions. However, this is a fallacious argument. In fact, the total of transactions is increasing because you're now including transactions being done by ATM, for example, while the number of counter transactions is slowly decreasing. Besides, there's available data that indicate this and there are also data in the Ekos survey done for the working group as well as in our CROP survey that show that people still regularly go to branches and want to keep on doing so.

Concerning services, I'll simply say a few words. Our investigation, which is published in the magazine, first reveals that they are extremely complicated. Even the banks' regional headquarters have all the trouble in the world calculating how much it will cost consumers for a flat rate given in monthly terms. In this respect, the Task Force's recommendations about the legibility of contracts should be extended to rate schedules.

The rate schedules also encourage consumers to turn to electronic transactions more and more. In brief, people who want to do regular banking over the counter pay more than the others, but it's also quite probable, despite the little data we have, that the electronic transactions are a very major source of revenue for the financial institutions.

The Task Force is counting a lot on an increase in competition and, more specifically, is counting on the appearance of new financial institutions that will offer a broader range of services. We don't know if those institutions will ever appear on the horizon, and we know even less whether they'll set themselves up in those neighbourhoods and small villages that the big banks have deserted. It's really not all that clear whether this will settle the problems that people have today.

If we want to make sure that all Canadians can obtain the basic banking services they need, rules that don't exist will have to be established—and we can see that this does cause problems—rules that all the big institutions will have to follow. In this area, self-discipline isn't enough. That's why we have suggested three major recommendations that Mr. Cadieux will now present to you more specifically.

The Vice-Chairman (Mr. Nick Discepola): Thank you very much, Mr. St-Amant. Mr. Cadieux, if you please.

Mr. Serge Cadieux (Laurentian Bank Union, FTQ; Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): Thank you, Mr. Chairman. I will carry on.

Mr. St-Amant has described the situation in broad terms. The coalition has come up with three specific demands concerning access to personalized banking services and has analysed the Task Force's Report based on those three elements.

First, a document was handed to the clerk and you'll find in there the statement on which the coalition agrees. I will read you the whereases and then go point by point with additional information.

On the first page of the statement, we say:

Whereas:

- basic banking services are public in character and central in our society because they are essential to integration into socio-economic life;

At the outset, I would draw the attention of the members to that point. The Canadian banking system, with the legislation that has been its framework since the very beginning, has always been considered as a public service. The legislation protects banks against foreign investment and there are privileges granted banks to ensure their financial health, but in exchange for that, they must serve the population in general and not just a privileged group of people in society.

I would remind the groups here that the capital of a chartered bank is made up as follows: 95% provided by the savings of Canadian men, women and businesses and only 5% from shareholders' monies.

So it's important for the Task Force to look at length into matters directly concerning the Canadian population: ordinary people, the middle class and the people who have to do business daily with the financial institutions.

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Here are the second and third whereases:

- the clients of the banks and the other deposit-taking financial institutions must retain the choice of the kind of transaction they want to use and must, insofar as possible, retain the possibility of addressing themselves in person to human tellers at a place of business that is reasonably accessible to them;

- the financial institutions, and more particularly banks, are now adopting policies whose effect is to decrease accessibility to personalized services at an affordable rate;

Mr. St-Amant addressed this in his presentation. Of course, there are a series of measures that are now being adopted by the banks to force consumers to use their electronic networks. Transacting business at a wicket in a bank branch with a teller costs a lot more than transacting business with an ATM. So the banks are encouraging clients to use the electronic network. There are also many other steps being taken: branch closings, dramatic decrease in hours of business, and so forth. I'll give you the example of the Laurentian Bank whose branches are open between 11 a.m. and 2 p.m. from Tuesday to Friday, Thursdays excluded. That doesn't encourage people to go to the branch. It's more and more difficult to have access to a branch to transact business.

However, as we will soon see, there are public surveys that don't lie: the Canadian population wants the choice to remain. We are not against having access to ATMs, but you must have the choice. There are people who prefer ATMs while others prefer branches and others who also use the two. As Mr. St-Amant pointed out, based on a 1992 survey, 23% of the population still doesn't even have an ATM card. That's something the banks just don't care about.

[English]

Mr. Ken Epp: I have a point of order, Mr. Chair.

The Vice-Chair (Mr. Nick Discepola): Yes, Mr. Epp.

Mr. Ken Epp: I regret doing this, and we always enjoy having the media in here. I think it would be fair, however, to request of them not to focus on the notes we're taking. Thank you.

A voice: I'm not copying notes. I can't read at all.

Mr. Ken Epp: I observed you watching him there. Just don't do it, okay?

[Translation]

The Vice-Chairman (Mr. Nick Discepola): Carry on, please, Mr. Cadieux.

Mr. Serge Cadieux: I would draw the attention of the committee members to the last whereas.

- the proper authorities, more particularly the Government of Canada, in the coming months, will have to make determining decisions concerning the evolution of the financial sector, based more particularly on the recent recommendations of the Task Force on the Future of the Canadian Financial Services Sector;

Then we set out more specific demands. We recommend that three legislative steps be taken. The first is a measure obliging banks to ensure that any person requesting so legitimately may open an account, including conditions concerning requirements in matters of identification and other obstacles to accessing basic banking services.

As Mr. St-Amant pointed out during his presentation, to have access to personalized bank services, you first have to have access to a bank and a bank account. The working group noted that there was a real problem because 600,000 Canadians, or 3% of the adult population, do not have a bank account. It is growing increasingly difficult to open an account. It even took the intervention of the Finance Minister who came to an agreement with the Canadian Bankers Association in February, 1997, to establish the ID that may be required of a person wishing to open an account.

The February agreement that was accepted by the banks specified that two pieces of ID were enough to open an account. Already, we can see that this agreement is not being honoured. It is not being honoured and, besides the ID problem, the banks are adding extra obstacles that mean that people are far from gaining better access to a bank account. On the contrary, it's increasingly difficult.

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Mr. St-Amant said that, among other things, it is now being required that the person be a tenant or prove the fact by producing a lease. Requirements are being added concerning appointments. They're not opening accounts for someone just showing up at the branch. The person is given an appointment for two or three days down the road. In many cases, ID with a picture is being asked for. All this is contrary to the recommendations and the February agreement.

We can see that the banks are not able to discipline themselves on that matter and it's the duty of the lawmaker to intervene and specify that the banks must open a bank account for any citizen so wishing on simple production of two pieces of ID as was provided for in the February agreement. Once again, during the last Option Consommateurs survey, we saw that the banks were not disciplining themselves on that.

Once everyone is able to have a bank account and access to a bank branch, the second legislative step to be taken will be to ensure that everyone has access to personalized banking services at a reasonable distance from wherever they live. Also, the legitimacy of branch closings must be monitored more specifically by setting up a justification procedure with an impartial public consultation mechanism that will hear the people representing the affected communities and which will apply whenever a bank wants to close a branch. It should be accompanied by sanctions, including the establishment of compensation for those communities, as the case may be; a mechanism for the evaluation of the quality of services offered by the banks to the population which would come into play in the case of operations like bank mergers; finally, regulations concerning minimum banking hours during which counter service will be offered.

That is really at the heart of our concerns. What we're seeing increasingly is closings of branches and a decrease in the number of hours during which you can transact business with human tellers. More and more, banks don't want to give the population a basic business service.

There are interesting figures in this respect. The February, 1998 Option Consommateurs survey and the CROP survey show, and this is extremely important, that 75% of the population still transacts business in a bank branch almost once every week, or 3.5 times a month exactly as was the case 20 years ago.

The bankers are saying that it is becoming less and less necessary to have bank branches open for current business transactions because people are using electronic methods more and more, but there is fallacious data being given here. When you talk about electronic transactions, you include the Interac type transactions. The Option Consommateurs investigation showed that 20 years ago, when someone went to the bank to change his pay cheque, he withdrew $200 simply to get through the week, pay for the groceries and so forth, and the rest was deposited into the bank account.

What is the consumer doing today? The consumer still goes to the bank branch once a week, but instead of withdrawing $200 from the account, only withdraws $50. Groceries are paid for with the Interac debit card as well as other things that are being paid for either with Interac or whatever credit card is being used.

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It is true that Canadians are using alternate methods of payment more and more when they don't have to use cash, but we also have to consider that Canadians still go to the bank branch to transact business with a human teller. There's an interesting statistic that was published in the 1997 Canada Trust Annual Report, that you will find on page 5 of the document we've handed you. At the top of the page, you'll see the evolution of electronic counter transactions during the years 1995 to 1997.

You'll see that in the case of over-the-counter transactions, in other words when a client goes to the branch to transact business with a human teller, in 1997, there was a decrease of only 4% compared to 1996 and 3% compared to 1995 and 2% compared to 1994. Just the same, you can see that the increase in the number of transactions through the electronic network is enormous. In 1995, there was an increase of 49% in electronic transactions as compared to preceding years, 49% in 1996 and 36% in 1997. At the bottom, you can see that the total of transactions, over the counter and electronic, did increase but there is no significant decrease in transactions done over the counter. So there's still a real need in the population for this sort of thing.

When we say the population wants to be able to continue to transact business with human tellers in accessible branches near the home and whose hours of business are reasonable, it's not a farfetched request. It's not artificial. This isn't done to maintain a structure just for the pleasure of maintaining a structure. There is a real need. The behaviour of all Canadians is a demonstration of this.

Finally, we would like the committee to look at bank fees. We're asking for legislative measures ensuring the highest level of transparency for bank fees, equitable treatment for those consumers who choose to bank over the counter as well as a periodic examination of bank fees by the authorities.

In this respect, it's a total free-for-all. All the financial institutions have different rates. There isn't a single financial institution that is able to tell a person which kind of account is best adapted to that person's situation in the matter of fees. So we think it's fundamental to have legislation concerning this whole fee business. Thank you.

The Vice-Chairman (Mr. Nick Discepola): Thank you very much, Mr. Cadieux. I would now ask Mr. Boyer-Lafontaine, the student representative, to make his presentation. You have five minutes, Mr. Boyer.

Mr. Alexis Boyer-Lafontaine (Fédération étudiante universitaire du Québec; Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services: Thank you, Mr. Chairman. Thank you, honourable members. I essentially have two things to say.

First, I'd like to tell you why we're part of the Coalition. We're part of the Coalition because we're citizens and these are problems that the population has. We're also part of the Coalition because of the bond that exists between financial aid and the financial institutions.

There are three problems I would like to point out to the members of the committee, problems that we as students have with the financial institutions. I would like to tell you how we are affected, as students, by this reflection on the future of the financial sector that you are trying to get underway and hold up to the light of public scrutiny.

The first problem is a student problem. It's a problem that we presented time and again. It's the increase, over the last years, of student indebtedness. I have the figures in front of me. If I had more time, I could give you more details, but let's just say that, globally, the average debt in Quebec at the university level for 1996-97 was about $12,000, an increase of 41% as compared to 1992-92. So at that level you have a problem that we're trying to bring to the attention of parliamentarians and the political world at large as well as of the population in general, anytime we get an opportunity to do so.

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The second problem is linked to the first and this is a vision problem, a problem of logic. For the Quebec government, anyway, and doubtless for the others governments in Canada having to deal with the Canadian loans program, financial help to students is an investment in human capital. It's the basis of those investments. On the other hand, in the financial sector, the logic is often that of profitability, shareholder profit. In short, it's a rather different logic.

The problem is that a vision of that type has an impact on the real lives of students, when they go to the branch of their financial institution regarding the money they received in loans. A number of points could actually be made, but in recent years, we've had an opportunity to talk to students who called us and we have seen some practices that could be described as abusive. We saw people having trouble opening a bank account, because of their financial situation, and because they were receiving financial assistance. We have also seen, and we are seeing this more and more, sole-parent families faced with huge student debt loads, and we have seen how banks and some caisses populaires fail to understand the problems experienced by students.

The third problem is a social one. The Coalition is appearing before you today to call for personalized services. We fully support this claim because in future, whatever the experts say, we will not be able to negotiate the payment of our student loans through a web site, and this is an extremely important point. What is required? We need people, we need a staff, and people who listen, as well as personalized services to meet the needs and expectations of these students, who are seeing their student debt repayment problems worsen. Thank you.

The Vice-Chairman (Mr. Nick Discepola): Thank you very much for showing such discipline.

I will now ask Ms Nicole Jetté to continue the presentation.

Ms Nicole Jetté (Common Front of Quebec Welfare Recipients; Quebec Coalition for the maintenance of jobs and personalized banking services): Good afternoon, Mr. Chairman and committee members.

I represent the Common front of Quebec welfare recipients. These are totally dependent people, who live off the cheques they receive. Whether it is a welfare cheque, a unified benefit cheque for children, a family allowance cheque or a support cheque, they have no choice: they are in a situation of dependency as regards financial institutions.

Banking institutions impose all types of requirements about opening an account, freezing funds and minimum deposits, without which the costs become so high that they are usurious. We therefore think it is essential that the government intervene to discipline banks regarding their dealings with these Quebeckers, but it should also discipline the other provinces. A high percentage of the population has no savings. They wait daily for their cheque in order to pay the rent, buy groceries or buy their medicine at the drugstore.

• 1620

What happens if these people cannot open a bank account? They have to turn to intermediaries who can charge whatever percentage they like to cash the cheque.

We think that if the government does not discipline banking institutions, it is leaving out a large percentage of the people of Quebec and Canada. When people cannot use a legally recognized intermediary as a public service to cash cheques, we are putting...

Mr. St-Amant was talking about street people, but at the moment, banking institutions are even freezing government cheques. If the cheque is deposited using an automatic teller, it is frozen for seven to 10 days. If it is deposited at the wicket, it is also frozen for several days. And these are government cheques.

It is clear that welfare recipients cannot leave any money in their bank accounts, because, in order to be entitled to social assistance, they must have nothing in their account. They have to spend the money they have before they can get welfare. So they cannot accumulate money while they are receiving welfare and make more for banking institutions. That much is clear.

Do people realize that cashing a cheque that allows people to buy some food and pay their rent without having to pay usurious fees or bank charges is a right? The people who pay the highest bank charges relative to their income are the poorest members of society. Is that as it should be? It is also clear that these people cannot play the stock market. Their puzzle is rather to determine how to pay the rent, and pay the grocery and drug store bills, like anyone else.

The reason we established the coalition is that bank services have already gotten worse, and they already cost too much. It is clear to us in the coalition that personalized banking services and the right to use public banking services must be recognized as essential for the people we represent. Thank you.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Ms Jetté.

I will now ask Mr. Fournier to speak on behalf of seniors.

Mr. Gilles Fournier (Quebec Association Defending the Rights of Retired and Early Retired People; Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): I'm pleased to have this opportunity to tell you about what happened to me when I came back from my vacation. I found a little card in my mailbox telling me tersely that banking hours had been shortened. Rather than opening at 10:00 a.m., banks would now open at 11:00 a.m., and rather than closing at 3:00 p.m., they would now close at 2:00 p.m.

Of course, that is all I needed as a defender of seniors' rights. I went to meet with the assistant manager and the consulting services clerk to tell them about my objections. I was told that all we had to do was use the automatic teller. I pressed my point and maintained—since it was the only argument I had available—that older people generally hate using automatic tellers. In some places, it almost feels like you are in a confessional, and behind you is a line-up of people who are pushing you because you're not going fast enough.

Moreover, a number of seniors don't trust automatic tellers. I asked one of them why, and he told me that the machines ate the envelopes containing money, and that no one was there to speak to you and say thank you. I found that rather funny.

They also worry because they feel insecure and fear they will be cheated. They are afraid that their information is not kept confidential. I must say that their fears are borne out by the way in which some wickets and systems are set up.

The other point I made had nothing to do with seniors. There are also the illiterate, the disadvantaged, those who have no account and the physically and mentally handicapped. I then pointed out that the bank was much more interested in making profits than in providing service to its customers. Their response was that that was quite true, because the bank was not making enough profit. He added that this was not his fault, that he had not been involved in the matter and that incidentally, seniors, particularly retired people, had all the time they needed, and that three hours a day was certainly sufficient. I then asked him what would happen to the employees. That is when you find out that banks have some funny ideas.

• 1625

I then focussed on the other part of the brochure and pointed out to him that all the banks seemed to be interested in was providing counselling services for investments. In fact, the hours these services were available had been lengthened. I told him I found that outrageous and frustrating, because it was clear that all the bank wanted was our money and our investments, whereas what the bank was offering was not very good value. I also added that in any case I was planning to change banks. You should have seen how he changed colour.

The poor manager was quite taken aback and told me that I should at least take my time. He wished me good luck saying that in any case I wouldn't find anything better elsewhere.

But what took place the next morning was far more interesting. The following day, I showed up at the counter on some pretext. I found out from the teller that she had 15 minutes for her lunch, to powder her nose and if she was a smoker, to go smoke a cigarette outside. She complained about the fact that reduced hours meant lower pay for her and taking into account her costs for child care, she ended up a lot poorer.

My opinion, shared by lots of seniors, is that ATMs are quite useful outside business hours, except when they break down. Some of these teller machines are too quick for seniors or for some of the poor and disabled. You don't always have time to finish your transaction. If you insist, after three attempts, the machine eats up the card and you see a message telling you to come back and get a new one in three days. A fat lot of good that does you!

Bank machine transactions are not reassuring for seniors. That is why they prefer going to the counter. They feel a lot more comfortable being able to talk to someone and ask questions.

Although personally I like computerization, I don't think it's for everyone. We have to stop using stereotypes and forcing people to make use of this as has been done. I can manage quite well but I can tell you that several of my colleagues in the different groups I belong to are not able to do so. They don't understand how it works and they're afraid of it.

I can only conclude then that these changes are for the sole purpose of reducing staff and the costs for banks. Paradoxically, user fees are on the rise. So we are seeing reduced service for the benefit of banks and at the expense of employees. Thank you.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Fournier.

I now call on Mr. Jacques Proulx, who is representing rural citizens. I'd like to welcome you, Mr. Proulx.

Mr. Jacques Proulx (Solidarité rurale du Québec; Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): Thank you, Mr. Chairman. My name is Jacques Proulx and I am from Solidarité rurale du Québec. This organization was set up following the meeting of the rural Estates General in 1991. It is made up of 21 large Quebec organizations along with individual members. The main purpose of Solidarité rurale is to bring about the revitalization of rural Quebec.

Rural Quebec consists of some one million and several hundred thousand persons along with a large number of small and medium communities covering 90% of the territory of the province. I think that you probably have a fairly good idea of the consequences for rural inhabitants of this increasing trend towards concentration in all areas of production and processing and the effect that this has on the services for people living in rural areas.

We are working hard at revitalizing communities through our efforts in training and by developing alternatives to present practices. We also accompany these communities in their efforts and initiatives and work at creating links among them to ensure the best possible flow of information.

Why are we also members of the Coalition? I think that I have made it clear to you. The proposals that are likely to result, those under discussion here today, will mean an increasing concentration of essential services both for the small communities scattered throughout the provinces and those that have already been grouped together in larger units.

I could legitimately ask myself why I am a member since there aren't any more banks in rural communities. When I say there are no more banks, I'm hardly exaggerating. There are so few left that you have to look far and wide to find some.

• 1630

At the present time, some banks are trying to make a comeback but only through the use of ATMs and to offer more profitable services, not to offer day-to-day service. That is what is happening in our area and, in my view, it is completely unacceptable. It is a sign of contempt towards people.

Let me conclude by saying that it is important for your committee to raise this matter with the minister responsible for rural Canada, Mr. Lyle Vanclief, Minister of Agriculture. He is also responsible for the Rural Secretariat which, this winter, announced it would be putting into place what is described as "the rural looking glass". Any bills or changes being examined by the Government of Canada must be examined from the rural perspective to find out what exactly their impact will be on rural communities. This instrument is in place and I think it is important for you to emphasize the need for us to make use of it. It is not simply a recommendation that we made, the mechanism has now been adopted.

I personally then would strongly encourage you to require the minister responsible for the Rural Secretariat, and thus the government, to ask this group to carry out an impact study. Thank you, Mr. Chairman.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Proulx. We'll now hear from Mr. Gary Saxe, the representative of the cultural communities.

Mr. Gary Saxe (Projet Genèse; Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): Thank you, Mr. Chairman. I am here as a representative of Projet Genèse, a community organization active in a very poor and very multicultural neighbourhood.

Last year we helped people who were having problems with housing, either as welfare recipients, immigrants or refugees, people from approximately 120 different countries.

We are members of the Quebec coalition for the maintenance of bank jobs and personal services because access to banking services does give rise to specific problems for members of different cultural communities, particularly those who have just arrived.

Too often, it is more difficult for them to open a bank account or to make use of ATMs. If we wish to facilitate the integration of immigrants in an open and welcoming society, we must take into account their particular needs.

Imagine the following situation. A refugee status claimant comes to Canada without any ID because it would have been too dangerous for him to leave his country of origin if the border authorities were in a position to identify him. On arriving here, the government gives him an ID card, a single one with the number IMM 1442.

Having escaped his country without any belongings, he is unable to rent an apartment or to buy food. He has to apply for welfare. To be able to pay his first month's rent, for an apartment he has found, he shows up at a bank with his first welfare cheque. The bank is not open because it is 2:10 p.m. The next day he goes back to the bank only to be refused an account because he does not have an I.D. card. To avoid having to spend another night in a homeless shelter and eat another meal in a community cafeteria he asks then if he can cash his cheque, a guaranteed cheque issued by a government source. This request is refused because the bank's policy is not to cash welfare cheques without I.D.

This time he's lucky; at the shelter he is sent to a community group that has an agreement with the particular bank. He is given a letter of reference to be presented to the bank and then finally is allowed to open an account. He deposits his cheque and then tries to make a withdrawal to pay his landlord but the money is frozen for 10 working days. That means he has to spend another four nights at the shelter.

Two weeks later, he goes back to the bank and, once again, it isn't open. The last time he was there, the teller explained that it was preferable to use the ATMs. He's never used this kind of machine but decides to give it a try. Instructions are given in English and French but he is unable to read these languages.

The situation is not always this difficult for all refugee claimants or people who are newly arrived but this example does illustrate the kinds of problems faced by far too many people in obtaining access to banking services.

Members of cultural communities, particularly those who have just arrived, require personalized banking services. ATMs may be unaccessible to people because they are illiterate in French or in English or simply because they have never come across this kind of technology before.

• 1635

We must also ensure that standards are the same for all financial institutions to avoid having one bank that agrees to open an account on presentation of ID document IMM 1442 and another that refuses. Banks must also be flexible in their requirements for ID and the period during which funds are to be blocked and also show some sensitivity not only to the needs of cultural communities but to the needs of everyone. Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Saxe.

We'll now hear from the women's group represented by Mrs. Thérèse Hurteau-Farinas. I would like to welcome you.

Ms. Thérèse Hurteau-Farinas (Quebec Federation of Women; Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): Mr. Chairman, committee members, the Quebec Federation of Women recognizes the importance of financial institutions in society.

However, the question we ask is whether the merger of these institutions will allow people to receive the kind of services they are entitled to? It is our view that the merger of banks may result in drastic consequences for Quebec women. The first thought that comes to mind is the job loss in an economic sector where women are by far the majority. It may also result in decreased banking services for the entire population, men and women of all ages.

If bank mergers do in fact bring about branch closures, loss of jobs, a higher number of ATMs and a lessening of competition in the financial sector, it is difficult to believe that the population, and particularly women, will not be affected.

Will all the men and women in Quebec have easy access to banking services? Will such access end up costing more? Will the consumers of banking services appreciate the fact that there are fewer tellers to answer their questions? Will poor people in Quebec have to travel longer distances to find an ATM? Will a machine be able to answer all their questions?

We in the Quebec Federation of Women are in favour of human banking services that are adapted to people's requirements rather than adapting people to machines. We cannot accept having our behaviour and our choices dictated by strictly financial interests. We are all entitled to use financial services that are adapted to our needs. In other words, let us allow the men and women of Quebec to make their own choice to use either automatic teller machines or customer services.

We, in the Quebec Federation of Women wish to emphasize that if the bank mergers take place, they must respect women in their integrity and specificity. We should bear in mind that they make up half of the population, a half that is not often recognized at its true worth. Women are fed up with being sacrificed on the gallows of neo-liberalism.

As it is, banks already make billions of dollars in profits every year. If bank mergers mean loss of jobs for hundreds of women so that a handful of the rich can earn even more lavish incomes, the Quebec Federation of Women cannot go along with such a proposal and joins with the other members of the coalition in demanding that personalized banking services be maintained since we are firmly convinced that a healthy and just society is based on respect of all its members. Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you, Ms. Hurteau-Farinas.

I'd now like to ask Mr. Laurent Pellerin to continue the round of presentations. Mr. Pellerin.

Mr. Laurent Pellerin (Union des producteurs agricoles du Québec; Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): The Union des producteurs agricoles as you know, is an association of all agricultural producers in Quebec and, as such, is very familiar with the financial concerns faced by our producers daily.

Although we are generally favourable to the recommendations made in the report of the work group, we do have some comments to make about particular points.

First of all, a general comment about the overall concern expressed in relation to banks. Canadian banks have developed through a regulated system that has granted them a number of favours and advantages. They have chalked up huge profits because of this regulated system. I do not feel any compunction in requiring from them something that strikes me as quite normal in view of the benefits that they have obtained, that is accessible services for the Canadian population at large. That is the least we can expect from the Canadian banking system, in view of the way it has benefitted from very permissive regulations.

• 1640

My second comment concerns personalized services and the importance of human relations in financial transactions. I think you were given a fairly clear illustration of the difficulties involved in opening an account. You must not imagine that they come to an end once the account is opened.

In rural communities, given the small number of banking institutions covering a very large rural area, such as the Mouvement Desjardins and the National Bank, there is a fairly limited choice of services for producers. The other banks are almost completely absent.

In rural communities just as in cities, a network of acquaintances and friends is very important for access to credit. Farm producers are large consumers of credit and when there is no possibility of human relations to allow for the development of such a network, there may be far fewer benefits to obtain from the banking system. It is extremely important to create such human relations.

Once all banks operations are automated, who will be left to have some personal knowledge of individuals? Loans are based on guarantees and very often on the appearance of people when they come to the counter. If people no longer come to the counter, how can they make an impression on someone? How can you establish a credit file when you are not able to develop human relations over banking transactions conducted on a daily basis?

I am quite accustomed to automatic transactions. I'm on the road almost all the year because of my job. My wife looks after my operation and hers, the two farms. When I show up in person at the service counter of my caisse populaire, I am asked to show ID to cash my cheque or carry out my transactions because I am not recognized by the teller. That is, I think, a normal reaction. There must be some way of getting to know people, of having a chat with them when they open an account, so that they are known and can be recognized. That is something that is developed over time and has to be maintained.

We share the views of the MacKay report chapter on SMEs, more specifically the difficult relationship between SMEs and the banking system. We share those concerns. I think that they also apply to a large extent to farm operations. I think that a great many of these recommendations can apply to farm producers in the same way they apply to SMEs and other sectors of activity.

Service delivery in Quebec as a whole constitutes another problem. If the two institutions that are now present in rural communities are required, because of competition, to adopt the same kind of behaviour as the other large Canadian banks, how can we expect to maintain comparable costs for institutions aiming to provide service to vast territories and those institutions that are concentrated only in areas where it is profitable, with no intention of going anywhere else?

If we compare the operating costs of these two types of financial institutions, it will certainly be difficult to maintain certain types of services that are now available to rural communities. What types of alternatives are being proposed? When your loan application is turned down in your village, there's no point in trying to obtain credit in the next village or even in a neighbouring city.

So we are very concerned about this concentration of banks and this increasing trend towards greater efficiency because it will be very difficult for banks in rural communities to keep up with this competition. There's a strong risk that we will end up without any service. Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Pellerin.

I'd now like to ask Mr. Faucher and Ms. Grenier whether they intend to make a joint presentation. We shall begin then with Ms. Grenier.

Ms. Claude Grenier (President, Laurentian Bank Employees' Union; Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): I have been an employee of the Laurentian Bank since 1975 and I have been president of the union representing Laurentian Bank employees since 1993. Thus I have seen and lived through a number of technological and organizational changes, such as new work tools, ATMs, the creation of the administrative centre, multitasking, new business hours and so forth.

• 1645

These changes have had an impact on the employment of women. They are the ones who occupy the non-professional jobs in banks and these jobs have been affected by all these changes. Over time we have seen the transformation of full-time jobs into part-time and casual jobs. Now these jobs are becoming even more precarious with the proliferation of employees from agencies and even the appearance of autonomous workers in our working environment. In addition, employees are now working in telephone centres, which leads us to conclude that telework is at our door, with all the difficult questions that gives rise to.

According to the MacKay report, financial institutions employ more than half a million people. That is a significant number. The report however does not deal with employment in relation to technologies although such technologies are an integral part of the report. It would have been advisable to consider labour regulations as they affect bank employees. We undergo the effect of technology and organizations that are set up very quickly.

One of the recommendations in the report does have a direct effect on employees and it is rather surprising. It is recommendation 90(g) on page 216. Reference is made to "training programs for staff" and "compensation policies at the branch level, to ensure that the objectives of the February and December 1997 agreements on access are achieved".

I don't think it's necessary to convince anyone, here or elsewhere, that it is not the tellers and personnel responsible for opening accounts who determine the guidelines for branches and the procedures to be followed. These women apply the written directives established by the institution for which they work and follow the verbal instructions of their immediate superiors who also do the same thing.

If the intention of this recommendation 90(g) is to have the 1997 agreements respected in practice, then legislation is required and not window-dressing. We shall see what the intentions are.

Increasingly large numbers of people are being excluded by the banks in their effort to attract the most profitable clientele. Technology is helping them do this. The credit investigations carried out for the opening of an account are a good example of this.

Furthermore, banks are now able to segment their clientele on the basis of the revenue that this clientele generates. We will see what kind of practices this will lead to. We will have à la carte service. Banks will be able to tell their clients what they are willing to offer and what they are no longer willing to offer.

The process is already well underway. Profitability is becoming the only yardstick. ATMs are a good example. They have been in existence for 20 years. In fact, they are appreciated by customers but obviously not to the extent that they want to see them replace tellers. Clients see these machines as providing an additional service and prefer to carry out transactions with the teller. The statistics mentioned to you by Messrs. St-Amant and Cadieux are quite enlightening in this respect. So people will continue to do business with tellers while making increasing use of the debit card. That is what made the statistics go up in recent years.

The banks are having a hard time containing their impatience. Imagine all those savings and profits that have not been realized. That explains their decision to compel customers to use ATMs. In the Laurentian Bank between May 1997 and June 1998, 28 branches were shut down and 45 no longer offer any teller service. Out of the 164 branches in Quebec, only 55% provide a full range of services and of those that remain, the business hours have been reduced.

Today the banks are imposing ATMs. Tomorrow it will be telephony and Internet. Yet a survey conducted in 1996 demonstrates that 92% of customers wish to do business with tellers. In other businesses that I know, the opinion of customers and their satisfaction are important. Why should it be any different in banks.

The report notes on several occasions that Canadians are very critical of their financial institutions. It is their right and their duty. Our banks have developed under the shelter of legislation and they have been protected by these laws.

The same Léger & Léger survey in 1996 reveals that 89% of the people of Quebec believe that the government should legislate in order to maintain personalized services.

As an employee of the Laurentian Bank and as a Canadian I strongly hope that the government will legislate along the lines recommended by our coalition.

• 1650

I'm afraid that the imposition of technology by our banks will end up playing some nasty tricks on all of us. If clients find themselves in a situation where they are no longer able to go to their bank regularly to conduct business, because the bank is closed or there are no longer any tellers, if only those who are negotiating a mortgage or an investment are entitled to do business with a person at least once a year, then for the people of Canada there will be no difference between doing business with a large Japanese or American bank and a Canadian bank. It seems quite clear to me that we are shooting ourselves in the foot.

The decision to entrust a financial institution with one's money is based mainly on confidence and a willingness to listen, as someone already said. These are feelings that are developed with people and not with a machine. That is the opinion of the people of Canada. I'm afraid that bankers' strategies are aimed only at increasing the short-term assets of shareholders. That is why I would like to see the Canadian government show more concern for the long-term assets of Canadians than as been shown by our bankers. Thank you.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Ms. Grenier.

Mr. Faucher, you can have a few minutes.

Mr. Claude Faucher (Congress of Democratic Unions, Quebec Coalition for the Maintenance of Jobs and Personalized Banking Services): Mr. Chairman, ladies and gentlemen, first of all, I would like to say that I agree with the statements made by Mr. Barrett, the Chairman and Chief Executive Officer of the Bank of Montreal when he said that the decision that will be made will not only settle the future of one or a few financial institutions, but will largely determine the kind of country we will be living in.

The union movement is very concerned about these mergers of large corporations or institutions because they promote greater economic concentration and lead to some deterioration of the political power, and therefore of democracy and freedom. Neither is there much discussion of the consequences of these mergers on employment. However, all analysts have come to the same conclusions: the effect of mergers on employment would be dramatic. We are told that there has been an agreement between the Bank of Montreal and the Royal Bank to reduce the number of jobs as little as possible. However, the most optimistic among them, Mr. McCallum, the Chief Economist of the Royal Bank, stated at the outset that in his opinion, there will be between 7,000 and 8,500 jobs lost. Among the least optimistic, there is Mr. André Bérard, of the National Bank, who tells us that he thinks there will be a bloodbath with 60,000 jobs disappearing.

Throughout this debate, there has been no discussion of jobs becoming increasingly precarious; there is no discussion of the deterioration of working conditions for those who keep their jobs; there is no discussion of the insecurity this will create; nor of the lowered standard of living or of impoverishment; there's no discussion of the tactics that will be used to force people to retire; it's never stated that this is a sector with a very large proportion of women workers.

In our society, employment is what enables people to live better, to eat, to clothe themselves, but also to educate themselves and have access to culture and even, too often, to have access to health care. You simply need to discuss this with people who don't have access to employment to understand that a job is very often what allows us to be recognized as full-fledged citizens.

What about the job prospects we are offering our young people if we adopt an attitude that will dramatically cut employment in a tertiary sector such as banking? Is that truly what we want as a society? As a society, are we in favour of reducing and dehumanizing services? As a society, do we want to advocate job losses and reduction in the standard of living? Do we want to leave control of economic and political power in the hands of a privileged class to the detriment of society? Is that really what we want? I don't think so. At least, the union movement certainly does not agree with such a prospect, and it seems to me that we must take this opportunity to tell our economic gurus that the economy must work in favour of society and not have a society at the service of the economy. That's the message I wanted to leave you with on behalf of the union movement. Thank you.

The Vice-Chairman (Mr. Nick Discepola): Thank you very much, Mr. Faucher.

• 1655

I will give 15 minutes to each political party. I will give the floor first to the spokesperson for the Reform Party, represented by Mr. Epp.

[English]

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

I think you have done a fantastic thing by bringing everyone together and doing this really good concerted report here today. I would like you to carry my congratulations to Mr. Larose, who had to leave, and I thank you both as a group and as individuals.

You have certainly brought to our attention some very serious problems that face a lot of people, and we're not impervious to those either. I assure you that, as members of Parliament, we frequently receive input from people like yourselves—not from people who represent others, but from the actual people right in the field. We hear from farmers. We hear from the elderly. We hear from those who are handicapped. You didn't have anyone here who talked from that last point of view, but we hear from those people and about the difficulties they have in doing even their basic banking.

This is something we need to explore when we look at the future of our financial services. I certainly agree with what you are saying. The way our economy has developed, Canadians really do need to have access to a banking system because it has become an essential. It wasn't so when my family first came here and homesteaded way out in the west. There were no telephones at that time and the services really were very primitive compared to now. But we have these people who need to be able to open an account, cash a cheque, and conduct their transactions to pay their rent and buy their groceries as the bare necessities. Except for the farm group, most of you didn't talk about the problems of getting loans and other things like that.

I'm concerned about the problem of opening accounts, so I'm going to start with that. When people go in to open bank accounts, sometimes it's a hassle in order to determine the identification. But if you look at it from the other point of view, the bank's attempts at making sure they open an account for a person who is in fact the person who has presented themselves is for the protection of the person who isn't there.

Again, as a member of Parliament, I have personally had representations from several people who have been in trouble with the banks because of improper identification. In one case in particular, a lady lost literally thousands of dollars and had a great deal of trouble getting it corrected. The problem was reduced right down to someone presenting themselves with the wrong ID.

We need to find a balance here somewhere. Yes, the person who walks in from the street and wants to open an account should not have endless hassles in doing that. At the same time, if the person goes in there and says he's Ken Epp and would like to open an account, I appreciate the bank being able to say he's not the Ken Epp they know. That person may have found one of my cheques, which for some reason got lost or stolen, and may want to cash it next week. Now he's going to open an account with my name. Next week, he marches in, deposits that cheque, and then writes a bunch of cheques on that account. I'm the one left holding the bill unless I can prove it wasn't me. That makes it a big hassle for me.

We had better keep this in perspective. I'm not defending some of the bad things that banks do. In fact, I asked the camera not to focus on my notes because I think there would maybe be enough here for the banks to want to sue me. That's why I was concerned.

• 1700

Don't get the impression that I'm just defending the banks here, but we need to find some sort of a better way of doing this.

I'd like your response to this. Some of the people you're representing either feel ill at ease, or in some cases, I think probably because of language and other barriers, are unable to access the technology. The banks are now experimenting with things like instant fingerprint ID, so that instead of having a card, you would simply put your finger into the sensor and it would confirm whether or not you were the person presenting yourself. That could be done at a counter or at an ATM machine.

I even read recently of an initiative where it takes the pattern of your retina. When you look into the camera, it actually takes the retina pattern, which is unique to each person, just like a fingerprint. I don't know. I think personally I approve of that. I haven't really thought it through deeply, but I think I like the idea that we have a good system of individual personal IDs.

I would like some of you to comment on that. I think you're not representing just a case of a person who says, I have the right to walk into a bank and open an account just like this, and don't give me a hassle; I think we should be looking at how to reduce that hassle.

[Translation]

The Vice-Chairman (Mr. Nick Discepola): Who would like to answer this first question?

[English]

Mr. Ken Epp: Some of you have comments on that.

[Translation]

The Vice-Chairman (Mr. Nick Discepola): Mr. St-Amant.

Mr. Jacques St-Amant: I will try to answer it. I will answer your questions in reverse order.

The use of fingerprints or retinal patterns to identify individuals raises extremely serious questions in terms of privacy protection. As the member for Elk Island undoubtedly knows, the government has just tabled a bill concerning privacy protection in the private sector. This is a growing concern among Canadians.

Moreover, many people will be very uncomfortable and would feel treated like criminals if their fingerprints were taken every time they entered a bank.

The City of Toronto has implemented this type of system for certain welfare recipients in the past few years, and this has led to a great deal of criticism, because many people are uncomfortable with these kinds of mechanisms which, by the way, are not perfect. For example, there are people whose fingerprints are very hard to read or whose retinal patterns are difficult to capture and who, for all kinds of reasons, cannot easily be identified with these methods.

The whole problem of identification is extremely complex and is currently of some concern to people worldwide. I don't think we're going to solve this this afternoon, but beyond appearances, we have to look at the philosophical underpinnings of this problem which are quite significant in some cases.

Let me get back to your first question, regarding fraud. Essentially, the problem here is the risk that someone will pass for someone else and which identification cards should be required.

The few surveys that have been conducted show that approximately 98% of Canadians have two identity cards, but whenever more are required, the proportion of people who can identify themselves with three cards drops considerably. This is one of the main reasons why the agreement between the Department of Finance and the Canadian Bankers Association provided for only two cards to be required.

Let me remind you of what I stated earlier, that is that the Government of Canada, which is greatly concerned with money laundering, came to the conclusion in its very recent amendments to regulation on the laundering of proceeds of crime that one piece of identification was sufficient. That is not surprising, because instances of fraud are very, very rare.

We made inquiries among certain provincial ministries to get some idea of the incidence of fraud involved in welfare cheques. This is in the order of 0.01% to 0.001% of all cheques issued every month. It's infinitesimal. Yes, there are problems with fraud, but they are relatively rare.

You referred to the situation of an individual who has their chequebook stolen and whose bank account may be emptied by the person who passes themselves off as the holder of the account. That's another problem. That's the problem of financial institutions who, when they provide cheques, run the risk of not being able to verify signatures. When these are cheques processed through inter-bank clearing, the signatures are never verified. Financial institutions assume this risk everyday, a risk of several billion dollars, because it is more economical for them to operate that way.

• 1705

Given all that, it seems to us that they can assume the very limited risk that on occasion, a person may falsify identification papers and pass for Mr. Epp and open an account. But here again, the banks can keep the cards that the perpetrator of this fraud has deposited in the account. The risk is no more significant.

I hope that gives you some idea of—

The Vice-Chairman (Mr. Nick Discepola): Would someone like to add anything? Mr. Cadieux.

Mr. Serge Cadieux: I would like to add one thing. With regard to identification, the real problem is not identifying oneself with two cards. Financial institutions place obstacles to opening an account because they want to be able to select their clients. The problem is not a matter of having two or three ID cards.

Laurent Beaudoin goes into a bank branch without an identification card. They will open an account for him. Mrs. So-and-so who's a welfare recipient, goes to a financial institution. She will be asked for more than two pieces of ID. They will do a credit check. They will ask for photo ID. As Mr. St-Amant has mentioned, for a multitude of other costly operations, two pieces of ID are sufficient. Why does the bank add other requirements? It's for another reason, namely to discourage a client from having access to that financial institution.

We mustn't turn a blind eye to this. There is a problem out there as we speak. The banks want to attract a more affluent clientele and don't want to have as clients people who are not profitable, and who don't make investment transactions. That is why it is necessary to intervene.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Cadieux.

Mr. Gary Saxe: The solution that Mr. Epp proposed will not settle the problem of verifying fingerprints or retinal patterns.

Imagine the situation that you've already described. If I find Mr. Epp's pay check and I go to a bank to open an account in his name, they can check my retinal patterns or fingerprints. Two weeks later, after I've cashed the cheque, they'd recorded my fingerprints. That will not solve the problem.

I think this has already been mentioned. You talked about balance. We have to strike a balance between the banks' actual risk of fraud and the needs out there. Needy people such as welfare recipients need the money their cheque provides right away. When someone goes to a bank to open an account, they're sometimes given an appointment a week later. That is when they are asked for two pieces of ID, which delays the opening of the account.

We have to be sensitive to the real needs of a bank, which is to have some type of verification, but we also have to strike the balance you referred to.

Thank you.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Saxe. Mr. Epp.

[English]

Mr. Ken Epp: Thank you.

I'm really quite aware of these problems. I think we should probably somehow work together.

I think the message from all of you probably is that the banks in this country, through our regulations and through basically the good solidity of our society, have made very good money, very secure money. Of course, that's for the shareholders and all depositors, including most of you here, I suppose. You probably have some sort of pension plan or something with somebody, and that's part of the financial institution.

If the banks are healthy, it is actually good for all of us. What you're saying, though, is that because the banks have the regulatory protection in Canada, they now have the obligation to provide a service to those from whom they won't make a great deal of or no profit. Is that a fair statement for basically all of you?

[Translation]

The Vice-Chairman (Mr. Nick Discepola): Mr. Lagacé, did you want to add something?

• 1710

Mr. Roger Lagacé: Mr. Chairman, with your permission, I'd like to get back to Mr. Epp's statement concerning the future possibility of fingerprint identification in some way or other.

Our organization, which works to advocate for the rights of pensioners, is a provincial organization. Therefore, I'm not talking only about our region or our small town of 80,000 people. However, I know what's going on in our town and I know that its inhabitants are no different from those of other municipalities in Quebec. Since I know the people in my region quite well, since I attend many meetings and conventions that we organize to defend their rights, I know that they are already quite reluctant to use automatic teller machines. For them, the main criteria is security. They're not sure that the transaction they will make will be secure.

If, in addition, they were asked to identify themselves by touching something, I'm convinced this would lead to chaos. Rather than using the ATMs or the secured technology that this bank seems to want to sell them, people would be even more reluctant. Incidentally, let me say that the 26% we referred to does not apply among seniors. It's surely more. Earlier we referred to over 53%. Therefore, a very large percentage of seniors would not want to use modern technology.

On behalf of my association, let me say that I'm firmly against this proposal to have touch control identification.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Lagacé. Mr. St-Amant.

[English]

Mr. Ken Epp: Can I just ask a question?

The Vice-Chair (Mr. Nick Discepola): Certainly, it's your time, although you're over it already.

Mr. Ken Epp: I'd just like to ask you something, sir. If the person actually still has the right to go to a counter to talk to a teller, but the teller doesn't know him or her and asks this senior—maybe an 80- or 85-year-old—if he or she would mind putting their finger in here just as an ID, would that senior object? I'm thinking of the seniors I know, and I don't think they would object. Are you saying they would here? I'm listening. I want to hear you.

[Translation]

Mr. Roger Lagacé: Here's my answer to that question. To my mind, there are two problems here. There's the problem of the teller, who has to be a human being, and the problem of the automatic telling machine and of technology. My comment was about technology, of course. If you're talking about tellers, that's another matter.

Identification through a card where there's a photograph is not yet part of their culture. Identification through touch is even less so.

The Vice-Chairman (Mr. Nick Discepola): Mr. St-Amant.

Mr. Jacques St-Amant: Thank you. Let me get back to the second question by the member for Elk Island. There is an immense social cost in refusing services to a segment of the population. It's easy to say that banks are taking a risk, that when they refuse services, there's a considerable cost that isn't calculated anywhere but that is borne by the entire population. There are societies that decided that all people had to have access to a bank account and where the necessary measures were taken. For example, in France, the law allows any person who's had two banks turn down their request to open an account to go to the Banque de France. The Banque de France will then order a bank to open an account and offer minimum services to that person. There are also states in the U.S. that have taken measures to ensure that just about everyone can have access to banking services. Therefore, there is a need, there are considerable costs if that need is not met and there are measures used elsewhere that could also be applied to Canada.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. St-Amant. Mr. Lessard.

Mr. Michel Lessard: We don't want to see two-speed banks, banks for the rich and banks for the poor. We want to have banks that respond in a universal way, with appropriate services, for the entire population. The banks have social responsibilities. The money they have is given to them by 80% of the population. Normally, there should be some payback for that. That's quite clear.

With regard to personal ID, beyond the act of identifying oneself through touch, behind all that, there is a background of control over privacy and daily life.

• 1715

Information about us is already on file somewhere. All this reeks of a police state. We can have a debate on the way of identifying oneself, but we think that in the current context, traditional ID cards are perfectly sufficient since government itself issues a number of such cards. Therefore, it probably presumes that these cards are authentic and should be used for a number of different purposes.

The Vice-Chairman (Mr. Nick Discepola): Thank you very much. I will immediately give the floor to Mr. Desrochers, of the Bloc Québécois.

Mr. Epp, you've had 20 minutes. If you pull a face—

[English]

Mr. Ken Epp: I thank you.

[Translation]

Mr. Odina Desrochers: Naturally, I'm very impressed by the quality of your presentations and all the work that you have done to prepare for your appearance here today.

The phenomenon of the disappearance of certain financial institutions is not a new one. I remember the Banque canadienne nationale and the Banque provinciale, which merged to become Banque Nationale. At that point, we saw some small banks and small municipalities disappear. Right now, the Mouvement Desjardins is starting to cluster its services. Even though it maintains minimal service in some municipalities, people have to travel if they need certain kinds of advice-related services.

This is a very complex issue. I heard some members of the panel in September, when they appeared before us at the Bloc Québécois caucus. Last week, I also met Mr. St-Amant during a presentation he made to the Commons' Finance Committee.

We of course heard about the human side of things. We are also thinking about the job losses that occurred when the Laurentian Bank's operations were restructured.

I would like to tell you something. About three weeks ago in a caisse populaire, I wished to transfer some of my own money from one account into another, and my own cheque was frozen for five days. So when you talk about access to credit, you can go for quite a while.

I have a number of questions. I do not wish to penalize anyone. I think that I have a good name. If there was no intervention from a group like yours, we don't know how far it would go. I'm going to ask a number of questions, and I would like most of the participants to answer.

Let me start with Mr. St-Amant. Last week, you said it was easier to obtain a credit card than to open a bank account. You even talked about the financial institution in question. Could you make a comparison between the bank charges associated with a credit card and the charges associated with a bank account?

Mr. Jacques St-Amant: Of course it depends on the account and the credit card. There are some very inexpensive accounts in Quebec and in Canada, costing about $4 or $5 per month, but in general people will gladly pay $10 per month to get half-decent bank services package.

As far as credit cards are concerned, it depends on how you use them, but as soon as you fail to keep up the payments, it can be quite expensive, with interest rates of 15% and more. In addition, the more deluxe cards can involve fairly high fixed annual fees.

But aside from all that, there is something quite out of line when you tell someone that in order to do essential transactions and live in society, you must undergo a credit check and must possess a tool that will enable you to go further into debt. That's something I don't get at all.

Mr. Odina Desrochers: So, for a few months, in addition to requesting two pieces of identification, people have been asked to undergo a credit check.

Mr. Jacques St-Amant: It's happening more and more frequently. In 1996, they did an initial study on banking fees. Accounts were opened in 15 or 20 branches with no difficulties at all. But when they tried to do the same study on fees this year, among some 30 branches, there was a whole set of obstacles. We were asked to make an appointment and come back next week. In 60% of the branches, we were told that a credit check would be done first. If there was no great problem, we could then come back the next week and get our account opened. There is a constant series of increasingly varied and numerous obstacles involved.

• 1720

The disturbing thing is that everything took place at a time when supposedly an agreement was being prepared to deal with questions of identification in the opening of accounts. They thought that the problem was pretty well settled, but then five or six other issues came up. Perhaps the solution is not to deal with one problem at a time, but to simply say, "people must be able to get an account."

Mr. Odina Desrochers: Would you like to add something?

Mr. Gilles Fournier: Some strange things were observed among seniors. When they conduct investigations they ask whether people have investments and income. If they find out that you have a good income then they immediately send you to someone else. I hear this kind of thing quite often, because I am involved in taxation matters in the movement. They try to get us to transfer our investments to the bank. I do not feel that the return from the banks is very generous. It's very good for them, but not for us. When the person on the other side of the counter is far from being an expert but is trying to persuade someone to transfer his or her pension plan—this would not happen in my case—you can get stung. It happens often. I am in charge of tax matters. I get at least three calls per week from people asking me for advice because they are getting unsatisfactory answers. Thank you.

The Vice-Chair (Mr. Nick Discepola): Just a second please, Mr. Desrochers. Mr. Proulx has something to add.

Mr. Odina Desrochers: Okay, go ahead.

Mr. Jacques Proulx: This is not an answer to your question. I have a good deal of difficulty understanding why we feel we must help out the banks. As far as I know, Canada's banks are not in danger. Perhaps I misread it, but I thought that the Royal Bank made a profit of $1.68 billion last year. That's almost twice as much as General Motors, and I don't feel sorry for GM. We do not need to spend too much energy finding ways of helping them to make even more. That's the first thing.

Second, let's not think that doing everything by computer is going to solve our problems and make people tremendously honest. If you have been watching television these days, you will know that a police officer was suspended and two people were arrested for cheating elderly people with credit cards. Using computers does not solve the problem of fraud.

I do not completely reject automated services, but let's not spend so much energy leading people into virtual transactions. People want to deal with other people. In the rural community, people know one another. You don't need to scan their eye or take their fingerprints. The people know one another, but there must be someone on the other side to recognize them.

Mr. Odina Desrochers: Thank you Mr. Proulx.

The Vice-Chair (Mr. Nick Discepola): Mr. Desrochers.

Mr. Odina Desrochers: Mr. Cadieux, you say that there are 600,000 people in Canada right now who do not have an account. Do you have any statistics on Quebec? Of that 600,000 people without accounts, how many are there in Quebec?

The Vice-Chair (Mr. Nick Discepola): About 25%.

Mr. Jacques St-Amant: Give me a minute and I will find the figures from the Environics survey. I do not have the exact number, but I have the percentages. The 1995 Environics poll found that the number of people without an account was far lower in Quebec. I will give you the breakdown by regions...

The Vice-Chair (Mr. Nick Discepola): Once again, it's the federal government's fault.

Mr. Jacques St-Amant: No. We believe that it's mainly because of the Mouvement Desjardins. Here are the figures: all of Canada, 3%, Quebec; 2%, Atlantic, 6%; British Columbia, 5%. Those are the percentages of people who do not have a bank account. Quebec is going relatively well. That is why a Canada-wide study was conducted in 1996. The people outside Quebec said, "Are you complaining? Come and see what it's like here. You haven't seen anything."

Mr. Odina Desrochers: Thank you, Sir.

I have a question for Mrs. Grenier. I think that the employees of your Laurentian Bank were greatly affected by the institution's administrative reorganization.

• 1725

Have you done any research to find out how much it costs to install an automatic teller? And what about the training needed to teach people how the automatic teller works. How does this compare to the cost of a face-to-face cashier?

When you talked to your financial institution, were you in a position to say that the Laurentian Bank was competitive with the staff it had before the reorganization that affected you so much took place?

Mrs. Claude Grenier: As far as the technology and training investments at Laurentian Bank are concerned, it is quite difficult... On my part, I don't know but for the people who examined the institution's financial statements before seeing what was going on, it was not clear. I am told that the annual reports of banks are not all that transparent.

Your second question was about...?

Mr. Odina Desrochers: You have already gone through a period of restructuring.

Ms. Claude Grenier: Yes.

Mr. Odina Desrochers: I presume that if mergers were ever authorized, some employees would lose their jobs. Have you done any studies to find out whether your financial institution would remain as competitive if it kept all the staff?

Ms. Claude Grenier: When you look at the figures, you can see that in recent years, the Laurentian Bank has always maintained a significant profit level, year after year. The only year in which they declined was when an acquisition made the previous years caused accounting losses. The costs were amortized over one year rather than several years. That happened once, and it was caused by an acquisition which was apparently done to make it more profitable.

So, in the figures published quarterly there is absolutely nothing to indicate that if the Laurentian Bank had more employees, more branches, more services, it would not be competitive. There is nothing to indicate that. Quite the contrary.

Mr. Odina Desrochers: It would be about the same thing for the other banks that would like to merge, in your opinion?

The Vice-Chairman (Mr. Nick Discepola): She cannot speak for the other banks.

I would like Mr. St-Amant and Mr. Cadieux to continue the discussion.

Mr. Jacques St-Amant: First of all, a detail. When the Banque Canadienne Nationale and the Banque Provinciale merged in 1980-81 in the Montreal region, they closed about half of their branches. I don't know whether that is important or not.

What you are saying about investments is interesting. More and more, financial institutions seem to be turning the investments of time, energy, training and equipment for daily transactions from the branch to the consumer. The consumer is the one that has to learn how to use the machines. The consumer must have a computer and a modem to do Internet transactions. Increasingly, all a financial institution has to do is to process the transactions. The consumer is the one who must invest the time and the money to link up with the institution. It's a little disturbing.

The Vice-Chairman (Mr. Nick Discepola): Mr. Cadieux.

Mr. Serge Cadieux: You asked whether the Laurentian Bank would still be competitive if it had not made these changes. I do not have any figures with me, but having studied them previously, I can say that in 1997-98, when the Laurentian Bank cut half of its branches, the profits for ordinary shareholders had been at the same level for seven years, and they increased in 1997-98. So by this operation it made some net profits which were distributed to the shareholders. It did not carry out this operation because there were problems. It wished to give higher profits to its shareholders, but it was very competitive.

Moreover, if you look at the growth of the seven chartered banks on Canada over the past seven years, you will see that their growth was 10%, while that of the Laurentian Bank was 12%. The growth of the Laurentian Bank was 2% higher than that of the six major chartered banks.

• 1730

Mr. Odina Desrochers: Mr. Chairman, I have a final question for Mr. Lessard.

You know that the Bloc Québécois has applied pressure to extend the consultations now being held. They were supposed to go on until March. They had to end on December 3. On December 3, a preliminary report will be tabled to make known the thoughts expressed on the MacKay Report.

Now you have gone a step further, and a coalition like yours must surely need financial and human resources. Did you get a favourable reply? In Quebec, when groups must appear before the BAPE, for example, to talk about something very technical, they receive financial support to defend themselves. Given the complexity of the MacKay report, is the federal government helping you?

Mr. Michel Lessard: Some applications have been made but so far they have been turned down. It would be quite appropriate for the federal government to support a coalition like ours, which represents many groups and members, as it supports other organizations in other operations. It would also give people means to express their viewpoint. One of the coalition's objectives is precisely to air people's views.

If we had one recommendation to make or suggestion to make, it would be asking the government to help us air our views. We have the basic means, but we intend to do everything we can in this regard. We would like assistance, but we do not want to have conditions applied or aid that is directed.

The Vice-Chairman (Mr. Nick Discepola): You feel that Mr. MacKay's task force and the Senate group that studied the bank mergers did not give you enough opportunities to express your point of view?

Mr. Michel Lessard: As a committee, you should make recommendations in order that the discussion might be carried out in the public at large. They are asking for a much broader consultation than that which currently exists. Moreover, that's what the coalition is calling for.

The Vice-Chairman (Mr. Nick Discepola): It took 18 months for the MacKay study and x million dollars—

Mr. Michel Lessard: Mr. Chairman, the MacKay report—

The Vice-Chairman (Mr. Nick Discepola): The Parliamentary Library has volumes on all the different studies that have been done.

Mr. Michel Lessard: When talking about consultation, they don't talk about a committee consisting sole of parliamentarians or a committee—

The Vice-Chairman (Mr. Nick Discepola): Mr. MacKay's group was not a committee of parliamentarians. It was an independent committee defending the interests of Canadians.

Mr. Michel Lessard: Yes, but we want Canadians to be a part of the discussion, not to impose a report on them.

The Vice-Chairman (Mr. Nick Discepola): We went all over Canada.

Mr. Jacques St-Amant: Just to take part in forums like yours, we need resources. They are sadly lacking.

I would simply like to point out to the committee that the working group itself recommends that resources be supplied to representatives of the public, in particular consumer organizations, in order that these representatives, now and in the coming months and years, might participate usefully in the extremely complex discussions that are beginning and are going to continue.

The Vice-Chairman (Mr. Nick Discepola): Thank you. Mr. Cadieux.

Mr. Serge Cadieux: You say that there were a number of consultations after the presentation of the MacKay report. We have formed a coalition on personalized banking services.

We have to say that the task force has failed to provide any major solutions. There are a number of provisions concerning bank mergers, because it came up and the minister gave the task force this mandate. On the MacKay report there is only one consultation planned in Quebec, and it is taking place today. That's the only day, and we have formed a coalition to make the presentation easier.

• 1735

There are plans to continue the consultations. Originally they were to end in the fall, but they decided to extend them to January, February and March. The problem is that at present, the consultations are slated to take place in Ottawa.

Mr. St-Amant has said that there is a cost issue, if only the cost involved in appearing before the Finance Committee with an intelligent presentation, one based on research and that makes a useful contribution to the consultation process. There are also travel costs. A number of groups from Montreal cannot go to Ottawa. If the committee were to continue to work in January, February and March, we would like to make a more complete presentation and put forward some intelligent ideas. We would like to see people having the greatest possible access to these consultations. It would therefore be a good idea to hold further consultations in Montreal or Quebec City, or in both places. The people of Quebec are important and they have things to say.

The Vice-Chairman (Mr. Nick Discepola): The Standing Committee on Finance has been consulting Canadians across the country since September. We have been to every province. Since February, the Liberal task force has had one meeting in Montreal. I think that Mr. St-Amant was in fact invited to make a presentation in Ottawa. If you should wish to make any presentations in Ottawa, your costs will be paid.

We are talking more about providing money for research, studies and so on. I don't really know whether we should be funding your coalition, but we are getting sidetracked here a little. I'm now going to give the floor to Mr.—

Mr. Odina Desrochers: Mr. Chairman, I would ask you to receive the recommendation and make your comments later.

The Vice-Chairman (Mr. Nick Discepola): Well, they didn't make any recommendations.

Mr. Odina Desrochers: As far as I know, Mr. Chairman, everyone around the table made recommendations and a report will be prepared. You can express your views at that time.

The Vice-Chairman (Mr. Nick Discepola): I'm not required to express my views. That is part of the—

Mr. Odina Desrochers: For a few moments, Mr. Chairman, you looked more like a Liberal than a chairman.

The Vice-Chairman (Mr. Nick Discepola): Thank you, thank you.

I will now give the floor to Mr. Szabo. We will give you 22 minutes, like the others.

[English]

Mr. Paul Szabo: First of all, I also want to thank all of you for your interventions.

When people come before us in an advocacy role, it's not because they have ulterior motives, it's because they've recognized the need and want to be absolutely sure that those who are unable to take care of themselves or get the kind of support they need are taken into account. So from that standpoint, you have done an excellent job, not only on identifying the problems, but in maybe spurring others on to think of some solutions.

The ID card one is one that can be dealt with. There are some ways to deal with this. Upon looking at my own wallet and seeing all the different cards I have—the health card, the social insurance card, a credit card, a driver's licence card, etc.—I'm wondering why our federal and provincial governments can't put their minds together and come up with a universal identification card with a picture on it and whatever else they need that all should respect. That would maybe provide that third card.

However, one of the things I wanted to ask your input on was the need for competition in the financial services sector. Now, it appears we're talking more about banks, and if you wish, I think it can apply. But the recommendations that were made, for instance, that the banks should do this, making sure they do that, or you've got to have a branch here, and you can't do this....

And of course all of these represent rules of the game, restrictions or conditions that generally speaking would probably be barriers to new competition. That's problematic, because we all win when consumers have more choices, and we can decide who is giving us service, who is taking care of those who are in need, and who has the reputation of delivering that kind of service.

• 1740

I think somehow we have to balance the rules or the regulatory environment with the need for more competition. The more regulations you have, the more barriers you have to others entering it—for instance, for the credit union or caisse populaire movement to be able to get into full-service banking. And where are they going to be left?

I know the credit union movement is very excited about the MacKay task force report because it provides, for the first time, the prospect that they would be able to have national banking services. One major credit union in Vancouver called VanCity has actually proposed a merging of over 800 credit unions across Canada to be able to fill in the niche where they feel banks aren't doing that. I think more competition is probably useful.

But it still is important that the banking sector make profits. We can debate all day how much is appropriate, but I don't think anybody here would be comfortable if they were on a not-for-profit basis and simply broke even year after year. It certainly wouldn't provide us the stability and security we need in Canada to make sure there aren't bank failures and all Canadians don't get stuck paying the bill when something bad goes wrong. So you need a healthy banking system.

I need your advice about how we can get more competition. Is there enough there now? Or do some of the problems you've raised about having the right mix of hours, employing enough people, being sensitive to seniors and women, dealing with refugees and others who haven't got the right kinds of ID...? Is it good thinking that maybe more competition would help deal with those problems?

[Translation]

The Vice-Chairman (Mr. Nick Discepola): Mr. St-Amant.

Mr. Jacques St-Amant: There's already very little competition in the Canadian banking sector. It is apparent that in many regions, there are just one or two financial institutions. Yes, it would be a good idea if there were more competition.

There is even less competition in some rural regions and in low-income neighbourhoods in urban centres. To a large extent, banks are no longer present in these areas. Would any new institutions offer services in those areas that have been abandoned by the banks at the moment? What will convince them to locate in Hochelaga—Maisonneuve, in Tuxedo Park in Calgary, or in certain very poor parts of Vancouver? I'm not at all sure that they would do that willingly.

What is worse is that if competition does in fact develop in the more profitable sectors, perhaps the banks established there will decide that they are now making a little less money than formerly and that they must therefore further reduce their services. If we do not take steps to ensure that all Canadians have banking services, I am anything but sure that the market, left to its own devices, will take the trouble to make services available to everyone.

In the United States—I will take this example because theoretically it illustrates the free enterprise so well—legislation was passed to encourage banks to remain and to provide services in all regions, including poorer neighbourhoods. I recently saw a decision made by the Federal Reserve Board about a bank merger in Philadelphia. The two major banks were told that they could merge, but that one of the conditions of the merger would be that if a branch of either of the merging banks were to close, the banks would have to ensure that another branch, within one-third of a mile, remained open. That is not a very long distance. Steps were taken to ensure that services would always be available to customers in Philadelphia.

The Vice-Chairman (Mr. Nick Discepola): Mr. Barrett and the Royal Bank also guaranteed that in places where there are at least two branches, they would not close down both.

• 1745

Mr. Jacques St-Amant: With all due respect for Mr. Cleghorn and Mr. Barrett, we should perhaps examine the competitive situation in the Canadian market. Outside the large centres, if I recall correctly, in 53% of the Canadian towns and cities served by a financial institution, only one such institution is present. In 23% or 24% of these places, there are only two. In other words, 57% or 76% of the places with banking institutions in Canada have a maximum of two such institutions. There is very little competition.

In most of these cases, one of the two institutions is a caisse populaire or a credit union. The net result is that there are very few places in Canada where there are two banks in competition. Do you know how many places there are in Canada where both the Royal Bank and the Bank of Montreal are present? That is the situation referred to by Mr. Cleghorn and Mr. Barrett. There are 21 such places. The promise made by Mr. Cleghorn and Mr. Barrett applies to 21 communities. I don't think that deals with the problem facing most Canadians.

The Vice-Chairman (Mr. Nick Discepola): Mr. Szabo.

[English]

Mr. Paul Szabo: The 600,000 figure says quite a bit about the number of adults who don't have a bank account. You should be aware that if you are of the Islamic faith, it is against your beliefs to have a bank account and earn interest on deposits. They cannot do it. And there are a lot of people of the Islamic faith in Canada.

The 5% number in B.C. was kind of interesting too. I won't speculate on why it's so high, but I suspect that if you look hard enough, you may come to some conclusions.

If we reflect on what has happened to the kinds of jobs we have, and on the rapidity or the velocity of information movement as a result of the computer, I think MacKay has told us this is what is taking place in our financial services sector. In the absence of any changes other than just simply technological advances, jobs are going to be lost. There's going to be compression in the whole system; there's going to be more electronic banking.

The statistics we've had show phenomenal growth in electronic banking—ATMs, the Internet, telephone, etc. This isn't done by the banks; it's done by customers of the banks. Because this is the way it's going, the banks are therefore being responsive to consumer demand in a lot of respects.

I think what you've told us is that we're leaving some people behind while we are in transition. There's no question about that, but I want to ask whether you feel this is the sense of it. Because they operate under a preferred status and have been able to be so successful, banks have a social responsibility to deal with all of the things you've raised, either before or at least on an equal par with the needs of their shareholders, as it were. Are you asking that the banks be more socially responsible to the realities of Canadian needs? Keep in mind one of the things you're asking for: even if you're in a geographic area where the population is small, you still want them to provide services, even if it means they're going to lose money.

[Translation]

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Szabo. Mr. St-Amant.

Mr. Jacques St-Amant: I will raise a number of points quite quickly. I'm quite sure my colleagues would like to add some clarifications as well.

I know a number of Muslims in Montreal who have bank accounts. I find your statement very surprising, because it is quite clear, when we look at the list of the 1,000 largest banks in the world, that many of them are located in Muslim countries. In Arab countries such as Bahrain, banks are prosperous and are doing wonderfully well.

It is true that the number of electronic transactions is increasing, but as we said earlier, the number of wicket transactions seems to be stable. A CROP poll done in Quebec last February showed that 75% of people still go to the wicket and they go to the bank three and a half times a month—or once a week.

• 1750

The Ekos poll commissioned by the task force also contains some interesting facts. For example, 56% of Canadians say that we should never allow a bank to close down a branch as it chooses and that there must be some control procedures. Many people feel strongly about maintaining services in bank branches, as the CROP poll showed as well. The fact that there are more electronic transactions does not mean that many Canadians find them convenient and no longer require personalized services. Do they prefer good old bank branches or not? That is a different issue, but Canadians do feel strongly about being able to deal with human tellers.

We therefore have to make sure that banks deal with people's needs, and that they meet the community's needs. As we said earlier, since banks offer a public service, it is in everyone's interest to have access to the most basic banking services. Steps must be taken to achieve this objective.

The Vice-Chairman (Mr. Nick Discepola): Mr. Faucher, please.

Mr. Claude Faucher: I don't understand how such a question could be asked. Society is made up of natural persons and artificial persons. I don't think there is any debate about the responsibility of artificial persons or corporations to be there for natural persons. Corporations must understand that they are there first and foremost for the well-being of the population. Otherwise, people serve corporations and certain wealthy groups that control the economy at the expense of society generally.

I'm not saying that companies must not make profits or that they're not entitled to some freedom of action, but they must be made aware of the need to provide a service to people and that their raison d'être is first and foremost to be a public service.

The Vice-Chairman (Mr. Nick Discepola): Thank you, Mr. Faucher.

Mr. Lessard.

Mr. Michel Lessard: Mr. Szabo asked whether banks should meet customers' needs. Of course they should. Did customers call for the disappearance of personalized services? Can you answer that? Customers never asked for that.

The Vice-Chairman (Mr. Nick Discepola): Let me give you an example. Over one billion transactions are done through Interac.

Mr. Michel Lessard: So?

The Vice-Chairman (Mr. Nick Discepola): Is that not in itself proof that consumers are demanding this type of service?

Mr. Serge Cadieux: They do still go to branches.

Mr. Michel Lessard: Yes, they still go to branches. They are not calling for the abolition of—

The Vice-Chairman (Mr. Nick Discepola): That is just an example.

Mr. Michel Lessard: Yes, but they are not asking that—

The Vice-Chairman (Mr. Nick Discepola): I'll give you another example.

Mr. Michel Lessard: I can give you many examples too.

The Vice-Chairman (Mr. Nick Discepola): You asked for some examples. Some may say that technology perhaps reduces service, but of all the industrialized countries, Canada has the most automatic tellers.

Mr. Michel Lessard: Yes.

The Vice-Chairman (Mr. Nick Discepola): Consumers today may be looking for this type of service, whereas others may prefer more traditional services. Consequently, the role of banks is to provide both types of service.

Mr. Michel Lessard: That is what we are saying. If that is understood, everything will be fine. We must continue to have personalized services, because people need them. We've had quite a clear demonstration of the need of seniors, young people, students and farmers.

You have a portrait of society before you. Look at the representatives assembled here. They are the components of our society. They have not asked you to eliminate automatic tellers. They asked you to force banks to maintain personalized services, located close to people. People want accessible services. Don't tell me that is not what they want. That is exactly what they want. Yes, there are automatic tellers, and nothing is going to change that. They will continue to exist in the future.

The Vice-Chairman (Mr. Nick Discepola): Mr. Cadieux.

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Mr. Serge Cadieux: We are not asking banks to maintain personalized services just because banks have decided not to do so. You must consider the context in which we are calling for this. We accept the fact that the federal government has given the banks a public mandate to act as deposit-taking institutions. That is the basis from which we must work. The government has given the banks the responsibility. GM cannot open a bank branch to perform certain transactions. The government assures chartered banks that deposits they receive from Canadians will be guaranteed up to a maximum of $60,000.

The Vice-Chairman (Mr. Nick Discepola): Anyone could open a bank branch with $10 million, I think. What is the magic number? Even Mr. MacKay made this recommendation.

Mr. Serge Cadieux: I'm referring to the current legislation, Sir. I'm not talking about recommendations, but about the legislation in place at the moment. It has meant that the federal government has protected banks and the deposits made by Canadians. We should remember that 95% of the capital of our seven chartered banks is made up of our money. That is the source of the capital of Canada's chartered banks. These banks have received good protection, and the government assumes most of the liability for risky loans. The banks do not insure them, various government programs do.

Once we accept the premise that banking is a public service, we have to ask how this public service should be provided. Banks—and this is where the problem lies—have decided that they no longer wanted to act as deposit-taking institutions, but that they wanted to continue to enjoy the advantages of being banks. What they want is to shift away from being deposit-taking institutions and away from their ordinary customers. They want to put all their eggs into the financial services basket and broker financial services, real estate and other transactions. That is what the banks are doing. Wait a minute. Let me finish.

The Vice-Chairman (Mr. Nick Discepola): I would like to develop this point. You say that if banks no longer function as deposit-taking institutions, they will no longer have any resources, no raw materials, so to speak. They must continue to accept deposits. Please explain your viewpoint to us.

Mr. Serge Cadieux: I will do that. They act as deposit-taking institutions for customers who are profitable for them—people who buy RRSPs, shares and various other financial products. Twenty years ago, banks accepted welfare recipients who wanted to open a bank account; they cashed their cheques. Today, banks choose their customers and they account for 15 to 30% of the total number of customers. Banks do not want to serve the others. Why? Because those people don't have a cent to buy an RRSP, shares, a mortgage or various investment vehicles. Banks want money. They are not trying to accommodate Canadians with a piece of paper they want to cash. People are not paid in cash and have cheques for which they want money. Why don't banks want to do that? The reason is that the transaction is expensive for them.

Customers are directed to the automatic teller, because it costs less. That is what the banks are doing. They say that they are going to maintain certain transactions, but that those who wish to deal with the banks will do so using automatic tellers.

We're not asking the banks to discipline themselves. We are asking the government to assume its responsibility. Banks are a public service. If the government decided that under the existing legislation chartered banks would be the institutions that cash government cheques and pay cheques and would invest people's money, the government must ensure that in exchange, banks will not choose their customers and will provide equal service to all segments of the population. That is what we are asking for.

The Vice-Chairman (Mr. Nick Discepola): Thank you. If I were to focus on just one recommendation, that would be it. I am the first person to say that banks have a special status in Canada and that, for this reason, they have a social responsibility.

Let me ask you a few questions. In his report, Mr. MacKay made some recommendations that are in line with your concerns. I would like to know what you think of them.

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He makes the following recommendation about access to basic banking services:

The federal and provincial governments should make low-cost personal identification available to anyone requiring it, so as to eliminate problems of access arising from lack of satisfactory identification.

We talked about that concern for 10 to 15 minutes. Do you agree with this recommendation? Do you see it as meeting your demands?

Mr. Serge Cadieux: Would you like to answer, Jacques? Go ahead.

The Vice-Chairman (Mr. Nick Discepola): I don't want to reopen the debate, because we have already been through it.

Mr. Jacques St-Amant: First of all, introduction of personal identification raises a host of questions about privacy. To what extent will the personal identification be revealed? To what extent will people be stuck with the personal identification? This is an extremely wide-ranging subject.

On the other hand, you can't fool yourself. Government documents don't settle the problem. Let me give you an example. Ontario legislation forbids companies from claiming the health card as an identifier, for all types of reasons tied to protecting privacy information. So, yes there is an identifer but, the company cannot use it for a whole series of reasons.

These are not easy issues. Far from it. I think that the working group did disservice in this area.

The Vice-Chairman (Mr. Nick Discepola): The second recommendation deals with a standard bank account. It says that banks should offer a range of standard services. As far as you are concerned, what type of services should we offer—I believe we asked you this question in Ottawa also—and how many transactions should be provided in this basic service that you are asking for?

Mr. Jacques St-Amant: We tried to look at that, but it's always a little bit of a guessing game because we don't have any specific data. In using one of the profiles that we used in the survey in the magazine, we tried to look at the case of an individual who carries out relatively few transactions and does them in person with a teller.

Generally speaking, people make two deposits a month, as well as six or seven withdrawals. They have at least four bills to pay, sometimes two instalment payments to make, in other words two transfers of funds from one account to another, and five, six or seven cheques to write out, depending on what they do. You end up very quickly with some 20 transactions that people carry out regularly.

Obviously, people with low incomes, who have a small cheque and pay a lot of money in rent and who can't even afford a telephone, will do less transactions when we talk about minimum requirements, but the average citizen can make some 15 to 20 transactions per month.

The Vice-Chairman (Mr. Nick Discepola): The MacKay recommendation says:

Financial institutions, governments and social groups should cooperatively define a series of common services...

Would you agree with this recommendation?

Mr. Jacques St-Amant: There's certainly work to do to have a clearer picture of transactions which are carried out. The data is very difficult to obtain. Bankers tell us that they don't have any idea of the transactions that people carry out in their accounts. There are no specific statistics in this area. Therefore, yes, the task force recommendation in this regard is welcome.

The Vice-Chairman (Mr. Nick Discepola): Do you agree or not?

Mr. Jacques St-Amant: Yes.

The Vice-Chairman (Mr. Nick Discepola): You agree.

Mr. Jacques St-Amant: Over all, yes.

The Vice-Chairman (Mr. Nick Discepola): The third MacKay recommendation is the following:

Deposit institutions should offer basic accounts at a reasonable fee.

In your presentation you did not define what a reasonable fee would be. Could you elaborate on this please?

Mr. Serge Cadieux: You can already see that if you use an automatic teller, it's a lot cheaper than if you go to the teller. Therefore, obviously, what we would like is that fees should be identical whether the transaction is carried out at the teller or through an ATM. That's the first thing we say. The task force does not necessarily answer this question. Secondly, one has to evaluate what one means when saying reasonable fees. We recommend that tools be added into the legislation in order to ensure that fees are reasonable.

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There exist a certain number of institutions, amongst others in Quebec, which regulate the cost of a product. We do not let the market determine the cost alone, especially when we're dealing with public service. In the case of electricity and other formes of energy, a permanent commission is set, a committee which will control the prices. An institution which wants to increase the prices must justify this increase before this committee.

Currently, there is nothing like this for financial institutions. They have total freedom. So first of all, there should not be a difference between fees for a transaction at the automatic teller or at the wicket. At present, there is a big difference between the two. The cost of a transaction at the wicket may be double, sometimes even more, the fee charged for an automatic teller transaction. So that is one of the first things that the legislation should establish. Secondly, mechanisms are needed to monitor increases in these costs.

The Vice-Chairman (Mr. Nick Discepola): In the same recommendation the task force says:

From time to time, the Department of Finance should monitor the MacKay Report basic account prices charged to ensure that they remain reasonable.

I think the mechanism is already there, Mr. St-Amant.

Mr. Jacques St-Amant: We had the opportunity, at Option Consommateurs, to talk to some banks and the Desjardins Movement about possibly offering accounts for those who make few transactions or do not have a great many resources. These discussions were held over the past two or three years.

Some institutions currently offer accounts with a $3 or $4 monthly fee which often includes both teller transactions and electronic transactions. These institutions tell us that they are not making money with these accounts, but they are not really losing any money either. So, there is room to manoeuvre. There is already some openness. If people could sit down, or if the Department of Finance could compel these people to sit down, I'm sure we could make some good progress here.

The Vice-Chairman (Mr. Nick Discepola): One solution would perhaps be to deposit funds directly once opening an account had been approved. The MacKay task force recommends the following:

In order to encourage access to accounts, governments should use direct deposit for all government programs that provide regular benefits.

If this could settle some of the problems, how many people on social assistance could benefit from direct deposit?

Mr. Jacques St-Amant: Obviously, to have direct deposit, people must have a bank account. The two go hand in hand.

I feel that generally—my colleagues will contradict me if necessary—most community organizations and unions in Quebec would agree to a direct-deposit system as long as it is voluntary and optional. This element of the task force recommendation is very important.

In Quebec, unless I'm mistaken, over 20% of people agreed rather quickly to direct deposit of their income security benefits. So it's a solution which may be popular and of interest to everyone, provided of course that people have accounts.

The Vice-Chairman (Mr. Nick Discepola): So you would agree with this recommendation?

Mr. Jacques St-Amant: Yes.

The Vice-Chairman (Mr. Nick Discepola): Madame Jetté.

Ms. Nicole Jetté: Regarding the voluntary aspect, it's important that people have a choice whether to go with direct deposit or not. And that is clear for people who are on social assistance as well as for people who receive other family benefits. Senior citizens often choose direct deposit because it is safe.

I'd like to come back to another issue. We talked a great deal about competition. We talk about services, price setting and so forth. Given the people whom I deal with most... We talked about competition in the telephone system. It's supposed to reduce costs, but more and more low-income families don't have a telephone, they just can't afford a telephone.

Currently, some people cannot get a bank account because of fees or other conditions. Opening a bank account requires more than just two pieces of identification these days. There are a lot of conditions attached to the two pieces of ID. Currently, a lot of banking institutions impose conditions and so people cannot exercise their right to a public service such as a bank account. Some citizens who are entitled to these services are excluded. The government must prevent the exclusion of people that the banks want to leave by the wayside for the sake of competition. This should be the government's concern about banking services.

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The Vice-Chairman (Mr. Nick Discepola): Thank you, Ms. Jetté.

Mr. MacKay also makes a recommendation about holds on government cheques:

To eliminate any reason for financial institutions to place holds on government cheques when adequate identification is presented, governments should implement indemnity programs with financial institutions pursuant to which low-income people, whether or not they are customers of the institutions, can gain immediate access to their funds.

Do you support this recommendation?

Mr. Jacques St-Amant: I'd like to say two things in this regard. In principle, we support this recommendation obviously. In practical terms, such agreements already exist; for example, the agreement between the federal government and the banks about cashing cheques. Very often, bank branches and other financial institutions do not respect Rule G8 of this agreement. So it is not enough to have agreements. You also have to ensure that they are implemented.

Secondly, the problem of these holds is real and increasing. We could perhaps look to the American legislation adopted during Mr. Reagan's term which considerably limits the time that the funds can be held, which means that in the United States, banks hold funds for less time than in Canada.

The Vice-Chairman (Mr. Nick Discepola): Thank you very much. Are there any other questions from honourable members?

Then I will simply thank you for your presentation. I think that you have added a great deal to this debate. But it's not over. This is just the beginning. Thank you so much.

I would also like to thank the researchers and all the staff, and especially my colleagues who participated in these hearings. I look forward to seeing you in Ottawa tomorrow morning.

The meeting is adjourned.