FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 5, 1998

• 0903

[English]

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Good morning, and I'd like to call this meeting to order.

In accordance with its mandate under Standing Order 108(2), the committee now resumes its study on the report of the Task Force on the Future of the Canadian Financial Services Sector, commonly known as the MacKay task force. On behalf of my colleagues, I would like to welcome this morning, Mr. Michael Lauber, president of the Canadian Banking Ombudsman; Dr. Peggy-Anne Brown, chair of the board of directors, and Jim Savary, a member of the board of directors.

The normal process is that we will give you approximately 10 minutes or so to present your brief, and then we would like to open it up and leave ample time for questions from members of the committee.

On behalf of the members, I would like to welcome you and ask you to proceed with your presentation.

Mr. Michael Lauber (Canadian Banking Ombudsman): Thank you, Mr. Chair.

We appreciate the opportunity to meet with the House Standing Committee on Finance and present the position of the Canadian Banking Ombudsman on the recommendations of the task force. We'll confine our remarks today to the recommendations of the task force that relate directly to the ombudsman process.

I'm Michael Lauber, Canadian Banking Ombudsman. With me today are Dr. Peggy-Anne Brown, the chair of the board of directors of the Canadian Banking Ombudsman Inc., and Jim Savary, a member of the board.

Peggy, would you please continue.

• 0905

Dr. Peggy-Anne Brown (Chair, Board of Directors, Canadian Banking Ombudsman Inc.): Good morning.

The Canadian Banking Ombudsman is an independent organization that investigates complaints from individuals and small businesses about financial services. The CBO is not part of the Canadian Bankers Association. The CBO is led by a board of directors, the majority of whom are independent of the member financial institutions.

Since the Canadian Banking Ombudsman was established two years ago, we have gone through a series of bylaw changes to formalize the very special powers of the independent directors to safeguard the independence of the ombudsman. For example, the independent directors must unanimously agree in order to terminate the ombudsman. We control the size of the budget to ensure the effective operation of the office, and we search for, interview and nominate our successors, and also the ombudsman, who may not have worked for a financial institution.

We are well equipped to carry out our primary function, which is to enhance, guarantee and protect the independence and credibility of the office of the ombudsman. The independent directors bring a geographic and gender balance and are knowledgeable in small business and social needs of Canadians.

I am a small business person in Vancouver. Professor Savary is a recognized consumer advocate and long-time senior volunteer with the Consumers' Association of Canada. Our independent members also include: the chair of the Canadian Institute of Chartered Accountants; a former Lieutenant Governor of Ontario; the director of a graduate business school in Montreal, and the vice-chair of the Nova Scotia Securities Commission.

The MacKay task force has endorsed the structure and operations of the Canadian Banking Ombudsman and its safeguards to protect the independence of the ombudsman. In fact, there doesn't seem to be a single criticism.

Some quotes from the report are as follows:

A system that provides a good model to build on is the Canadian Banking Ombudsman.

We are impressed with the spirit behind, and the structure of the CBO.

Compares well in most respects with similar initiatives in other countries and industries.

The research study supporting the report comments: “The Canadian system performs well on the criterion of independence”. However, the MacKay task force expressed concern over the “perceived lack of independence”. The task force recommended that the Minister of Finance appoint the board of directors and that the ombudsman be accountable to Parliament. In the opinion of CBO, the proposal of a statutory solution would create many new issues in order to resolve a perceived problem, not a real problem.

In our submission to the task force in October 1997, we stated that:

a single independent Ombudsman for the financial services sector would provide seamless coverage for consumers of financial services.

We are pleased that the task force has concurred with this recommendation.

Earlier this year, we amended our bylaws to allow membership from virtually all financial institutions, including trusts, credit unions and specialized lenders. The board asked Michael to approach these other financial sectors to determine their degree of interest and support for our proposal. Obviously, if we attract other sectors, banking would be dropped from our name and the industry members on the board would represent all of the sectors involved, rather than just bankers. The independent directors would remain in the majority.

The bankers on the board have strongly supported the development of the ombudsman process, and have deferred on every single issue to the opinions of the independent directors.

When the board discussed the MacKay report, it was apparent that the psychological transfer of authority was complete and that the CBO is truly an organization led by the independent directors. A board with industry representation from trust, insurance and credit unions would reduce the concern of domination by the banks, the perception issue.

The consumer and small business groups that Mike has met with agree with this assessment. Mike will now discuss the ombudsman process and potential jurisdictional and legal concerns with a statutory financial services ombudsman.

• 0910

Mr. Michael Lauber: Thank you, Peggy.

As Canadian Banking Ombudsman, I'm involved in resolving disputes in all financial services sectors. We're the independent appeal from the internal ombudsmen of the banks. Our mandate includes the bank and all of its subsidiaries. Therefore, we investigate complaints from the customers of the trust, life, and general insurance subsidiaries of the bank and also all the bank products, such as mutual funds.

We will do about 200 investigations this year, of which approximately 20% involve small business. This is about double last year's activity. Almost 1,200 people will contact us.

We worked very hard over the past two years to create visibility for the ombudsman process. We're pleased to find, from the task force research, that 40% of Canadians know about the ombudsman process.

We are six people at the CBO. One is located in Montreal. Four are bilingual. Three are francophones. So we are well equipped to service all Canadians.

It's important to understand what an ombudsman is and is not. The dictionary defines an ombudsman as a person who investigates complaints, reports findings, and mediates fair settlements, especially between aggrieved parties and institutions.

The focus of the ombudsman is dispute resolution. We deal with individual problems; we're not a public policy body. Our mandate is to assess the fairness of the situation and, if appropriate, recommend that the bank undertake appropriate redress to the customer. To determine fairness, we make reference to the various industry codes of conduct and good business and banking practices. There's no cost to the consumer. The parties do not lose their legal rights.

The structure of the current U.K. Banking Ombudsman is frequently misunderstood, and people make inaccurate comparisons between this office and the CBO. Both bodies are industry self-regulatory bodies funded directly by their members. The CBO has a much superior governance structure, and the independent directors have far more power to protect the independence of the ombudsman and to establish the budget. A comparison chart is included in the folder we provided for you with this presentation.

Another issue I'd like to deal with is the function of a watchdog and a regulator. An ombudsman is neither a watchdog nor a regulator. The watchdog function is the role of the Consumers' Association of Canada, the CCRC, Option consommateurs, Canadian Federation of Independent Business, your chambers of commerce, and similar organizations. What we need is well-financed watchdogs to represent the public interest. But we're not a watchdog. We're not that watchdog.

The regulatory function is provided by government or industry self-regulatory bodies, such as the Investment Dealers Association of Canada. Regulators set standards and codes of conduct, and they discipline members for non-compliance. The regulator usually does not have the power of redress to the consumer. Redress is our role as ombudsman.

I'd like to discuss some of the legal and constitutional problems we foresee with the creation and operation of a statutory financial services ombudsman. In Canada, the responsibility for financial institutions is shared between federal authority and provincial authority. For example, banks are federally regulated. Trust companies, however, are mostly provincially regulated, except for Canada Trust, which is federal. Life and general insurance companies are regulated by OSFI with respect to solvency, but market conduct is the responsibility of the provinces. Credit Union Central of Canada is federally regulated, but the provincial centrals, caisses populaires, and credit unions are provincially regulated. The investment sector is entirely provincial.

The ability of the federal government to legislate participation of much more than the banks and Canada Trust is questionable. Further, any federal pressure to encourage the voluntary participation of provincially regulated institutions may result in provincial retaliation by establishing their own ombudsman schemes.

• 0915

Quebec has recently appointed the board of a financial services commission, which has the ability to establish a redress function. Ontario has issued a discussion paper for its financial services commission, which also enables a redress function. Both of these process are targeted primarily at insurance. We run the risk of having a multitude of schemes across Canada that would be confusing to the customer and very expensive for the institutions to comply with in terms of all of the different processes and standards. Surely this is not what the task force envisioned.

Our assessment of the situation and the advice we have been receiving is that a self-regulatory financial ombudsman has a better chance of successful implementation than a statutory model. The self-regulatory model will likely be more acceptable to the provinces than a federal organization.

For how long has Canada been trying to form a national securities commission? Has it been twenty years, maybe? And that's primarily corporate, not consumer focused.

Under a statutory scheme, decisions and procedures might be reviewed by the courts. The possibility of judicial review would require establishing a more formal process for the collection of evidence providing for hearings and written decisions. We believe that our private sector scheme provides faster and cheaper results for the customer and is just as fair.

The U.K. is a unitary state, and they are able to create a comprehensive statutory financial services ombudsman. However, the new body they're creating will have the power to bind the financial institution, and the resultant legal complexity jeopardizes the effectiveness of ombudsmen schemes and creates a quasi-judicial body. The British and Irish Ombudsman Association has expressed concern over the impact of the legal process on the consumer.

There are obvious risks to creating a statutory body that are both legal and jurisdictional. Remember that I'm not a watchdog. That's incompatible with the role of an ombudsman.

There's a need for government in the regulation of the sector and creating standards for the protection of consumers. But is there a need for government in a commercial dispute between a customer and a financial institution? Can an independent self-regulatory organization not fulfil that function?

I'd like to recap the key issues we raised today.

The task force has supported the structure and the operations of the Canadian Banking Ombudsman. We agree that a single financial services ombudsman is in the best interests of small business and the consumer. Board members from all sectors and funding from these sectors would minimize the appearance of the perceived lack of independence, and the self-regulatory approach preserves the investigative and mediative approach of the ombudsman. The statutory body will likely require a far more legalistic approach. Finally, a self-regulatory ombudsman increases the chance of acceptance by the province and the likelihood of creating a comprehensive national scheme. That, I believe, was the first priority of the task force.

Peggy.

Dr. Peggy-Anne Brown: We would like to end our presentation with a request. Our request is for time to demonstrate that the CBO can work together with the financial services industry to create a national financial services ombudsman, providing comprehensive coverage to all consumers.

We would also welcome the opportunity to appear before this committee and report our activities on an annual basis or at the pleasure of the committee. With support from the Minister of Finance and parliamentarians, we believe we can reinvent the CBO as a comprehensive financial services ombudsman.

Thank you for hearing us. We would be pleased to answer any questions.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Dr. Brown and Mr. Lauber.

I'd like to now proceed directly to questions from members, with Mr. Paul Forseth.

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Thank you very much. Welcome to the House of Commons today.

Perhaps we could just go through a number of very technical questions. First of all, where do the source of your funds come from for you to operate?

Dr. Peggy-Anne Brown: The funds come from the member banks. We started with six member banks, and we now have twelve member banks.

Mr. Paul Forseth: What would be your approximate global budget, and how many people are part of your organization?

Mr. Michael Lauber: The budget is just in excess of $1 million. There are six people presently, and I hope next week there will be seven.

Mr. Paul Forseth: The source of that operation of $1 million or so is from the members who buy into the organization and participate.

• 0920

Mr. Michael Lauber: That's correct. Presently the members share the cost of the office based on the ratio of their assets. It's totally related to size. If we're successful in becoming financial services-wide, including other sectors, we would obviously have to develop an appropriate formula to share the costs between the sectors and the individual members within those sectors.

Mr. Paul Forseth: So you have one physical office in Canada somewhere.

Mr. Michael Lauber: We have an office in Toronto and we have a person in Montreal. There's no infrastructure support for that person so we don't call it an office.

Mr. Paul Forseth: How would someone in New Westminister, British Columbia; Regina, Saskatchewan; or Williams Lake, B.C. ever be able to use your services, especially in the remote communities? Often if you're going to the volunteer approach of dispute resolution—the non-formal approach you've presented today—you generally need face-to-face contact with both the claimant and the person being complained about. You can't do it over the phone or with a letter, and you have the country to cover. How do you do this?

Mr. Michael Lauber: The vast majority of the complaints we're dealing with are dealt with by—we have an 1-800 number obviously—correspondence, letters. We like to get information in writing from the customer if they're able to provide it. We have a very busy fax machine and quite a bit of e-mail coming in and so forth. E-mail is a growing thing.

For instance, I was in Vancouver last week appearing before the Senate banking committee and there was a situation out there where I felt it was important to meet with the person. I just wanted to look him in the eyeball and talk to him. I had a meeting at the airport with the two people involved in the dispute before I left. I've done that many times. I get on a plane and go to see them if it's necessary in order to form a fair judgment of that complaint situation.

Mr. Paul Forseth: I understand you are not a creature of a statute at this point.

Mr. Michael Lauber: No. We are an industry self-regulatory body.

Mr. Paul Forseth: Is is your wish that you perhaps become an ombudsman for financial services, but not become a creation of a statute? The first thing that comes to mind is the history of the Human Rights Commission. That's something I think we would want to avoid. When the average Canadian citizen looks at the apparent cost-benefit analysis of that organization, it's very cumbersome and very much bound up in the kind of thing you referred to that you'd want to stay away from, so perhaps there's an example there.

Could you perhaps describe a little more how, practically, you would get your wish of becoming a truly national organization but yet not a creature of statute—more of a voluntary participatory one?

Mr. Michael Lauber: We identified in our submission to the task force a year ago that it would be ultimately necessary and desirable to have a single financial services ombudsman across the country, so this is not a new goal. In fact, I reserved the name “financial services ombudsman” a year ago, so we were looking ahead in that direction.

How would we get there? It's a matter of getting buy-ins from the various sectors that they recognize the need for an ombudsman process within their sectors, and within the financial services sector broadly, and convincing them of the fact that a single national, consistent body offering a consistent service and direction across the country in all sectors is the logical way to go.

If we don't have a national financial services ombudsman, within a certain time we will have at least ten provincial ones, a national federal body and maybe some sectoral specialist ones, and it will become a zoo for the customer.

I think the executives I've met with from all of the sectors at this point are quite receptive to that argument. Let me put it this way: nobody has said yes, they would love to join, and nobody has said no, they won't join. There have been thoughtful responses to the discussions we've had with some of these people.

• 0925

Mr. Paul Forseth: We've heard the phrase that capacity creates its own demand. Currently you have a very small circumscribed organization that's resolving about four complaints a week across the country. You are a specialist in your field. Do you feel there really is work out there for you to do? Currently there are hundreds of unsatisfied complaints or whatever. There's a potential customer base, in other words. What are you hearing? What is your sense in the field of the need for your service?

Mr. Michael Lauber: Right now, we're dealing with the banks and all of their subsidiaries. The banks have processes to deal with their customer complaints. They have the internal ombudsmen, who settle about 70% of the complaints, and then they come to us.

As for the other sectors, in the insurance industry, both life and casualty, beyond the complaints we would receive from the bank subsidiaries, I don't have a real understanding of the level of those complaints. It's the same with credit unions and Canada Trust, for that matter. The resources would have to be retained. You'd have to hire the appropriate people and keep inventing and redesigning your staff to meet the demand as it came. You'd need some expertise to deal with it in the various sectors.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Forseth.

[Translation]

I would now invite Mr. Paul Szabo to put his questions.

Mr. Paul Szabo (Mississauga-South, Lib.): Thank you, Mr. Chairman.

[English]

Good morning, and thank you for your presentation. I think it's very clear from your presentation that in your assessment you provide an important role and you've been able to do your job as it has worked out. You're not a regulator or a watchdog, and you expect this role will continue to evolve and be a service to Canadians.

Now that we have all that out of the way, I see the ombudsman's office as being one area one could look at to sense the health of the banking sector, as evidenced by the volume, nature and validity of the items coming before you. Although you haven't been operating for very long and many Canadians are not aware of the existence of the banking ombudsman, maybe on a relative basis, or based on the trend line you see, you might be able to give us an indication—I assume the particular cases are confidential in their detail—in a general sense of the categorization of the kinds of things.... You don't have to make an assessment, but we may be able to make an assessment about where there might be areas in which the banking sector has not met the needs of Canadians. As a starting point, just give me an idea of what you're able or prepared to indicate now about the raw data you've received.

Mr. Michael Lauber: Recognizing that we're looking at a very small number of cases within the very large sector, I haven't said much to date on issues of health and so forth because, based on looking at a few hundred cases...I don't want to be an instant expert.

On the things we do see, more than half our complaints in the small business area relate to credit. You'll see that from the various statistics we send to your office periodically. Most of them are on the collection side. The issue, by and large, has not been the business judgment of the banks, it's been more the treatment—the process of collection, the treatment of the customer and so forth. I haven't found the business judgment of the banks to be particularly faulty in that area.

• 0930

On the consumer side you get a wide range of things. There are a fair number of complaints about investments, particularly. We had a lot of complaints in the spring related to the time taken to transfer RRSPs and RRIFs and so forth from one institution to the other. You saw a lot of that in the media at the same time. We have raised that issue in some of the banks and are going to raise it further.

The standard they adhere to in a bank is different from the standard of a trust, which is different from that of an investment dealer, to do what is essentially the same thing. There's a need for some conformity in that case. There are good business reasons at the time in most cases, but there's an inconsistency there. We will be addressing a lot of areas like that more and more.

You raised the issue of visibility. I have a draft letter on my desk that I'm going to be sending to the banks requesting that they display their own brochures on the ombudsman process—their customer satisfaction brochures—in a specific place in the branches. I am going to suggest to them they put them with the required display of the CDIC material so there's a specific identifiable spot where a person can go to see them, and the staff even knows they're there. So those are a couple of examples where we're dealing in the policy or practice area, beyond responding initially to the specific complaints.

Mr. Paul Szabo: Let's go back to the first thing you indicated in the small business area. As you know, it attracts a lot of attention in the discussion of banking activities, and I think it's important to explore it a little bit.

You stated that most of the problems were on the collection side, and small business issues represent over 50%. How many of the small-business-related complaints relate to the collection side?

Mr. Michael Lauber: Since we started, almost 50% of small business complaints are on the collection side. Another 10% or 15% of complaints are on the access to credit, changed terms and renegotiation of credit. So about half of them are related to collection.

Mr. Paul Szabo: I think that's important. We should probably get more data, Mr. Chairman, on the nature of the problems small businesses reflect. It's often referred to as a linear situation—mostly access to credit. I can understand that if anybody comes with a complaint it's usually because they're at a disadvantage or they're not happy with the result of something. Therefore, I would have expected more complaints to be: “They're putting pressure on me to collect because I haven't paid my bill or serviced my debt,” or on the other side, “I have a great idea and they didn't think so, and so they're not giving me credit”.

Mr. Michael Lauber: The internal bank ombudsmen have more complaints on the access to credit they deal with than we do. We're the reverse of them, which would seem to indicate they're dealing with those complaints and resolving them.

Mr. Paul Szabo: My final question is on the transfer of RRSP money to RRIFs or whatever.

When you deal with these things, do you operate on the principle that people should be put in the position they would have been in had everything run smoothly, or within the guidelines? So could you say that, well, if they took two weeks to transfer the money when it should have been done in three days, there is a compensation for the time value of money, etc.?

• 0935

Mr. Michael Lauber: Yes, if their money hasn't been appropriately invested in that period, the time has been unreasonably long, and they have a loss of income as a result of that, generally speaking you would see that the bank made them whole.

Mr. Paul Szabo: What percentage of those complaints in fact turn out to be valid complaints that require rectification?

Mr. Michael Lauber: Maybe about half. For some of them there are very good business reasons the transaction might take two or three weeks to accomplish. The type of products that the person held, for instance, might take longer. They may have to go out for transfer, and so forth.

So there are good and valid reasons for it in many cases. Sometimes it's just an administrative process.

Mr. Paul Szabo: Okay, I guess I'm finished. I can tell you that from what I've heard, you're basically agreeing that the preponderance of customers who come to you are people who are aggrieved. Alternatively, they don't like the result they got in their relationship with the bank on a particular transaction.

Also, maybe half of those who came to you were incorrect in their complaint or....

Mr. Michael Lauber: Well, let's go back to our overall numbers. In the last fiscal year—that's the year ending October 1997, when we dealt with about 100 investigations—we recommended specific action in favour of the customer in about 40% of the cases. This year the trend is down to about 25% of the cases. For these we're making a specific recommendation that something be done.

In addition to that, you could say that maybe another 10% or 15% of the people are satisfied—it's probably not the right word. They're not satisfied, but they understand that their issue did not have substance. We've done the investigation, we've explained the process, we've explained what should have happened, and that, yes, I know you're upset, but the bank did act properly in this case.

So you're probably looking at 40% to 50% of people who are somewhat understood at least, or have had their problems resolved.

Dr. Peggy-Anne Brown: Michael, I think it's also important to add that the banks have accepted his recommendation in every single case.

Mr. Paul Szabo: I think Canadians should be comforted by the work you do, that you're doing your best to resolve things on an objective basis and, wherever possible, to make sure that people have an opportunity to fully understand what happened and why. I think that role is very valuable, and I thank you for your intervention today.

[Translation]

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

I would now ask Mr. Valeri to ask his questions.

[English]

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

Thanks for coming to the committee. One aspect of your submission mentions a perception, how the board felt that this statutory solution would really be trying to resolve a perceived problem rather than a real problem. I don't have a basis for this, but I just want to test the premise itself.

Most Canadians feel that there's an imbalance between themselves and a financial institution, any financial institution. When they walk in, whether it's for an RRSP, a small business loan, a line of credit, or mortgage, there's a certain imbalance in the negotiation or discussion that takes place. I'm wondering whether MacKay was attempting to address that imbalance, the perceived imbalance, by suggesting a statutory solution to this.

Most Canadians I talk to have not heard of the ombudsman. They may have heard of the bank's ombudsman but most often feel somewhat reluctant about the bank's ombudsman because ultimately they work for the bank. They're just not sure they're going to get a fair shake. When they do become aware of your office and that you're funded by the banks, then they feel, well, gee, okay, they're funded by the banks, even though you have this independent board and a majority of the board are non-bank members.

• 0940

So it may be a perceived problem, but I'm wondering whether the actual negotiation, the actual transaction, would become different if a consumer felt they had a very strong back office they could go to. They could feel very comfortable there because of the independence, because they felt that the government or some legislation was there to protect them

Isn't that what MacKay is attempting to address? Your board disagreed with it, so I would imagine you've had some discussion along those lines.

Mr. Michael Lauber: To start with, when they come to us very few people are concerned about the independence. If they ask a question, we give them the answer, and that's pretty much the end of it. From a practical point of view, I don't see a big problem on the independence.

I understand that MacKay is obviously concerned about the perception. As you say, it's the imbalance, the large institution and the small customer. We accept that as being a concern out there. I don't think you can argue with that, but we do have an outstanding structure. I think our structure as an ombudsman office is superior to any I've seen. It's vastly superior to the current U.K. ombudsman's office, which everybody seems to have celebrated and accepted as an independent body.

If you have a statutory body, I could just see people who are coming to me...and if they could say we were not independent, the next thing they're would say to me is, well, you're nothing but a bureaucrat.

So you're just going to get the two sides. I really don't—

Mr. Tony Valeri: Right now they're just saying that you're a private sector bureaucrat.

Mr. Michael Lauber: Well, we fix their problems.

Mr. Tony Valeri: But I appreciate your comment.

Mr. Michael Lauber: We fix their problems; that's the main thing.

Mr. Tony Valeri: Okay. I would like to test another premise.

MacKay also says that provinces should opt in voluntarily to this sort of financial services sector ombudsman. What do you think about a structure or a model that might evolve where there would be joint stewards of this national ombudsman?

Now, I just want to get some reaction to this. I'm talking about moving away from your present structure. This would be where, as provinces opt in to this model, there would be parallel legislation at the provincial level. So you would have things like a report to the provincial legislature, along with the federal house. Also, as provinces opted in, they would have the ability to appoint a representative for the province. That may in fact be some individual from the province, either in the financial services sector, or from a consumer group, or not.

How do you react to that sort of idea?

Mr. Michael Lauber: It's a concept that could work, but you and I will probably be retired before it can be put in place on a practical basis. That's our thrust on this to some extent—and to a large extent.

The first principle we believe in is that there should be an industry ombudsman. Then we look at the second thing.

I've talked to a lot of people at the provincial level, and to a lot of senior officials at the federal level, about the issue of the federal-provincial relationship, and it's a real thing out there. We'll need the odd push, nudge, and so forth, but with some help, I think we can put together a national ombudsman system quickly, on a private sector basis.

On a statutory basis, some provinces are going to say right off the top, “No, get out of here. Market conduct for insurance, market conduct for credit unions, or everything for credit unions is our turf. Get that statutory body out of here.” They wouldn't have the same concern—and they should have fundamentally no concern—about the industry choosing to regulate itself, whether it's on a provincial or federal basis. That's the reason. We're focusing on the doable.

The Vice-Chair (Mr. Nick Discepola): Thank you.

Mr. Tony Valeri: I have one final point.

The Vice-Chair (Mr. Nick Discepola): Very briefly.

• 0945

Mr. Tony Valeri: I'm going to ask you to step outside your box for a second. I think that as we move towards a financial services sector that is evolving, your role tends to change. This is happening as we're moving from a banking ombudsman to a financial services sector ombudsman.

The “big shall not buy big” doctrine has sort of been prevalent out there. MacKay says that should no longer be the case. That would have a big impact on your role, the idea that there would be a public or a merger review process, a public impact process.

Can you comment on that? That has very specific ramifications for you. Let us say this financial services sector starts to change, and going into that change, you have a process that scrutinizes change in terms of public interest. The outcome of that would certainly be much different from a situation where there was just a yes or no, let it happen, and the fallout comes to you.

Do you think the merger process review outlined by MacKay is too onerous? Is it sufficient? Given the kind of experience you've had, would you do anything different?

Mr. Michael Lauber: Well, the merger process review is something the government will want to control. If the mergers do go ahead, they will want to have oversight. But that really doesn't affect our office, Tony. Once again, that wouldn't be our role. We shouldn't be worrying about branch closures, employment problems, downsizing, or anything else like that. That's some sort of a watchdog function, which we don't have.

Our role would continue to be to look after 35 million Canadians out there and their relationship with their banks. If their bank happens to be merging, there are fewer banks, but there's the same number of customers.

There may be some issues that fall out of mergers on an individual basis. Some people may fall through the cracks or something, and they may come to us with complaints. Their level of activity may go up, but I don't think we should have any rule on oversight of bank conduct in the merger—

Mr. Tony Valeri: I'm not asking for a result; I just wondered whether you had an opinion on it.

Mr. Michael Lauber: Yes.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Valeri.

We're running out of time. You have about two minutes, Dr. Bennett, and then we'll go to Mr. Plamondon.

Ms. Carolyn Bennett (St. Paul's, Lib.): First, I wanted to say that certainly, on behalf of my constituents, I think you've done an amazing job in two years. Forty percent of Canadians know about you and feel satisfied by your work.

In a discussion about statutory versus the way you are now, I guess I would like to ask Dr. Brown, how did you get such a great board? I think that if you look at the qualifications of the people on your board, that is what makes Canadians feel well looked after. I think you would want to know that people like that were always on a board such as yours.

As we look at the future of financial institutions, how would we make sure there was that calibre of board members there, and that Canadians wouldn't feel they were really just secretly agents of banking interests? How would you ensure the quality of the board?

Also, now that you have a majority of outside directors, how do you set the budget? Do you then just give the invoice to the banks, or how does that work? Did you get to set the budget, and then depending on the percentage of assets, how do you get everybody there?

I guess there was one little criticism I heard, and I would want to know.... People say that unless a bank or an institution has its own ombudsman, they can't come to you. Is that correct? How would we make sure that all Canadians could use your services?

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

Very briefly, please.

Dr. Peggy-Anne Brown: I think the calibre of the independent directors will continue, because they are selected by the present independent directors.

We go through quite an arduous process in looking for individuals, not people who represent certain constituencies but individuals who are interested in this as a public service.

Yes, we set the budget. The independent directors committee sit down, we decide what we need, and the bill just goes to the member banks.

• 0950

It is a requirement of the process that whatever financial service would join us also appoint an internal ombudsman. We see this as a very important process. One of the things I think has happened as the result of having a national ombudsman service is that members have done a better job of resolving the complaints within their organization. Because we exist, there is downward pressure on them. And I think there is also some competitive pressure among them, because we publish the complaints by the member institution—the numbers.

Ms. Carolyn Bennett: Do you publish lists of people who have chosen not to belong? What's the moral suasion to get people to belong?

Dr. Peggy-Anne Brown: No, we don't publish lists at this point.

Ms. Carolyn Bennett: In the public interest, shouldn't the public know which people aren't belonging?

Mr. Michael Lauber: At the moment, basically all the banks that do business with the public and small business are in.

Ms. Carolyn Bennett: Are we looking to the future?

Mr. Michael Lauber: Well, that's right.

The Vice-Chair (Mr. Nick Discepola): We'll have to move on, because we're already over time and we have our next guests here.

[Translation]

Mr. Plamondon, please. You have five minutes maximum. You don't have to take that whole time.

Mr. Louis Plamondon (Bas-Richelieu—Nicolet—Bécancour, BQ): Thank you, Mr. Chairman. I will use my judgment.

I would like to discuss an aspect that's somewhat different than those broached in the other questions. Ever since I was 25, I've been working in small business as an owner or shareholder. I'm 55 years old now; so I've been doing this for 30 years. I'm currently the owner of four small companies, and almost 125 employees work in one company in which I am a majority shareholder.

I've been in politics for 14 years, and many constituents come to my office not because I'm their member of Parliament, but because they knew me as the president of the Chamber of Commerce, or because I took part in various movements in my riding. They talk to me very confidentially, but at the same time very openly about their problems with the banks. The best advice I can give to someone who comes to my office and tells me that he wants to start a business is that if he didn't need a bank, he'd be very happy in business. The worst thing is to end up being the slave of bank rules, especially when you need to use your line of credit occasionally.

You are the ombudsman. I've dealt with people who share your occupation because I have had to file complaints with the ombudsman of each of the banks. In one case in particular, the bank's ombudsman was the vice-president of that bank. Conflict of interest or not, the resolution of my complaint was not a big success. In another case, when I represented one of my constituents in Tracy who wanted to file a complaint, I was confronted with an answering machine in Toronto with a unilingual English message. In another case, I was successful when I helped a lady who had filed a complaint with the ombudsman of a bank regarding a credit card. I'm speaking here of bank ombudsmen, and not your group, although you supervise them.

All this brings me to the following question: Is it not your duty to reflect on the behaviour of the banks or the habits that some of them have developed over the past seven or eight years, mainly that when things are a bit tight in the small business and it encounters some financial difficulty, an audit company which is a contractor of the bank is sent to examine whether the inventory is correct or whether the business is operating properly? Most of these subcontracting companies are highway bandits who work for the banks. I don't say this lightly: they are highway bandits. These companies settle in as if they were the boss and tell the small business that it can pay this or that supplier but not another because they know that supplier, they do business with him, they have already verified that company's activities or will be getting a kickback. In closing I will give you an example.

The Vice-Chair (Mr. Nick Discepola): You should at least allow our witnesses a few minutes to answer your question.

Mr. Louis Plamondon: In my opinion, this example is relevant. I calculated that you gave the other side seven minutes; so I should be entitled to at least five minutes.

The Vice-Chair (Mr. Nick Discepola): But you've already taken up four minutes. That's why I'm drawing this to your attention.

• 0955

Mr. Louis Plamondon: I will use my five minutes to talk to you about a specific case. I developed a project in conjunction with the Federal Business Development Bank, which is now called the Business Development Bank of Canada, and succeeded in obtaining a loan of $150,000 after three months of working to prepare files, carry out market studies etc. When the $150,000 was deposited in the bank's account, the bandits sent by the bank appropriated $115,000 for salaries. We lost the $150,000 that were to enable us to get a big $2 million contract with France.

This is shocking. A whole system has been set up. The auditors are ordered to work with the companies and get them to use their credit margin. In one year, they succeeded in charging $300,000 in banking fees to a company with a turnover of $3 million! I have these figures in hand. It's incredible.

I'm wondering whether your mandate is limited to examining individual complaints, or whether it also covers such audits of the behaviour of banks.

[English]

The Vice-Chair (Mr. Nick Discepola): Very briefly, please, because he has left you minus five seconds to answer.

Mr. Michael Lauber: Thank you for the question. I'll try to be brief, if I may.

As a chartered accountant who has practised for the last 32 years, I was never one of those bandits. But some of my clients were victims of those bandits, and I didn't think much more of them when I was advising a client. It is not a very comfortable process.

Mr. Louis Plamondon: I will give you the name of this bandit.

Mr. Michael Lauber: Okay.

Coming back to a couple of points you raised, the ombudsman is a vice-president of the bank. Most of them have been employees of the banks. It is a trade-off issue, independence on one side, knowledge on the other side. Personally, I think the knowledge works better.

With regard to being unilingual, that is unfortunate. I'm sorry that I am, but when you call my office, there are four people out of six who will speak to you in French. So we're in good shape, and all of the banks have an arrangement to deal properly with the French-language customers.

You mentioned that I supervise the ombudsmen. I don't supervise them. I accept appeals from their offices. I don't have any supervision over them. We work together and so forth, but I don't supervise them.

As far as behaviour within the banks is concerned, the banks tell me that the emphasis on the customer and on customer service—which comes from processes such as this committee and some of the work the industry committee has done, the creation of the ombudsman within the banks, and the creation of our office—has put a downward pressure within the banks to focus on customers and on resolving their disputes. I don't have any history in banking or within the institutions, but the people in the institutions say that it is making a difference, it is having an impact on the culture within the banks to have this ombudsman process taking a specialized and hard, independent look in view of the complaint. I accept their statements.

I would be happy to discuss your constituent issue afterwards.

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

[Translation]

Mr. Plamondon, the clerk has told me we have a little more time. Therefore, I will allow you to ask a final question, with no preamble, please.

Mr. Louis Plamondon: When I spoke of service in both official languages, I was referring to a telephone call that I made on behalf of a client to the ombudsman of a bank. I had to communicate with the Toronto office, because there was no office in Montreal, as there should have been. I received a unilingual English message. All that I was asking is that the message be communicated in both languages. When we telephone offices located in Quebec, the message is always in both languages, but it never is outside Quebec.

It doesn't bother me that your office may have only one person who speaks French, provided I can get service in both languages and am told with whom I should deal. This is all I wanted to raise.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Plamondon.

[English]

Mr. Michael Lauber: I will pass that back to the ombudsman.

[Translation]

The Vice-Chair (Mr. Nick Discepola): As a Quebecker, I also ask that the service be provided in both languages in Quebec.

Mr. Louis Plamondon: The service is always offered in both languages in Quebec; it is only outside Quebec that service is offered in only one language.

[English]

The Vice-Chair (Mr. Nick Discepola): I would like to ask you a very brief question. We have run out of time.

• 1000

[Translation]

Mr. Louis Plamondon: Mr. Chairman, I would like to correct the misconception. Call any bank in Quebec, and you will be offered service in both languages. But if you call any bank outside Quebec, the service will not be bilingual.

The Vice-Chair (Mr. Nick Discepola): I didn't say anything. I asked...

Mr. Louis Plamondon: You said that you wanted bilingual service in Quebec. You already have it.

The Vice-Chair (Mr. Nick Discepola): I said that I would like to have the same service in Quebec.

Mr. Louis Plamondon: That's it, you already have it. But when I leave Quebec, this is not the case.

[English]

The Vice-Chair (Mr. Nick Discepola): I'd like to ask very sharp, quick questions because we're running out of time.

In your single financial services ombudsman model, you're saying that you would act for all the four pillars. Do you see any potential areas of conflict among the representatives on this board? How would you address the complaints? Are they similar complaints? Would you have to have specialization, one for the insurance sector and one for the stock brokerage sector, or do you think that given the proper training, a single officer could handle all types of complaints?

Mr. Michael Lauber: I think with the proper training a single person can handle a great deal of the investigation. Right now we don't have banking specialty within the office, so we determine the issues and then we can go to specialists and ask what should happen in this area, what is good practice, what's generally accepted, and so forth. It may be the same way. Certainly on insurance there'd have to be people there who understood insurance products, the distribution of insurance, and the standards of the industry, or who would have access to those people.

The Vice-Chair (Mr. Nick Discepola): You stated that your role is not that of a watchdog. As a matter of fact, you said that the role of a watchdog is almost incompatible with the role of an ombudsman.

I have a concern about the recommendation Mr. MacKay made in his report that banks be allowed to use personal information to sell insurance across the counter as long as it wasn't in a coercive manner. I notice from your statistics that the ombudspersons of individual banks report that out of 2,471 cases over a period of 8 months, there were no incidents of or even complaints about tied selling, and that of 699 small business complaints, there also were none. That's the same with you. Out of your almost 700 complaints, you've never had a complaint on tied selling.

So I'm concerned that one of Mr. MacKay's recommendations may not be actually “policeable”. I thought that maybe your office would be able to take complaints from people who would possibly have been unduly influenced. So where do these people turn if there is a case of coercive tied selling? Is it the legal system that is the recourse Mr. MacKay was proposing?

Mr. Michael Lauber: No. To start with, the statistics you have there are to October 1997. Those numbers just got rounded out, they were so small, because they were dealing with percentages there.

At this committee in March, when the committee dealt with tied selling, I believe the information I reported was that we had six people approach us on the issue of tied selling and that it didn't appear that any of them were. A small number of complaints on the issue of tied selling had gone to the bank ombudsmen, and that was the information I provided to the committee at that time. A very small number of people have called to discuss the issue. I don't think there were any formal complaints coming forward since that time. As you recall, at that time, too, OSFI reported to you that 25 or 30 complaints on the issue of tied selling had been registered at OSFI.

With regard to where we fit in tied selling, now that this committee has recommended that it be promulgated in the act, which has been done, the customer has the right to address the bank's dispute resolution process. They have the right to go to the bank ombudsman. They have the right to appeal to our office. At each level we will attempt to resolve the issue and to satisfy the customer on the issue.

Now, coming to my office, I would say “Look, the process has addressed this, and if you're not happy....” I would point out to them, “This is a statutory issue, it's in the Bank Act, and you have the right to go to OSFI.” I would make them aware of their legal right to go to OSFI as well as to the self-regulatory process to deal with it.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Dr. Brown, and Mr. Lauber and Mr. Savary. You've brought to the table a different point of view, and a very important point of view also, and we would like to thank you.

I'd like to suspend for a brief 30 seconds while we ask our next guests to take their places, please.

• 1005

• 1008

The Vice-Chair (Mr. Nick Discepola): Our next guests are from the Canadian Heritage Foundation. I'd like to introduce Mr. Brian Anthony, the executive director, as well as Mr. Douglas Franklin, the director of government and public relations.

Gentlemen, I understand there is no brief, but you have five to ten minutes to present your findings and then we'd like to leave some room for questions from members. Welcome.

Mr. Brian Anthony (Executive Director, Heritage Canada Foundation): Mr. Chairman and members of the Standing Committee on Finance, I would like to thank you for the invitation to appear before you in the course of your consideration of the report on the Task Force on the Future of the Canadian Financial Services Sector, submitted this September to the Minister of Finance by its chairman, Harold MacKay.

Before proceeding, I would also like to reiterate my appreciation of the opportunity of appearing before you last week in the context of your pre-budget consultations. At that time, Mr. Chairman, I promised to send you and your committee colleagues additional material on the Heritage Canada Foundation and have done so. For the benefit of those who may not yet have received this, or for those who were not at the hearing last week—and with the indulgence of the one member who was at the hearing last week—I thought you might appreciate a little background on Heritage Canada.

• 1010

Now celebrating its 25th anniversary, the Heritage Canada Foundation, better known as Heritage Canada and not to be confused with the Department of Canadian Heritage, was created in 1973 by the federal government as a national not-for-profit charitable foundation to promote the preservation of the built heritage of Canada. Created by way of endowment in order that the foundation might be financially as well as administratively independent of government, we were also, however, granted crown trustee status so that, as appropriate, we might act on behalf of the government in certain circumstances, notably in the field of tax.

What interest would such a body have in the subject at hand, you might be asking yourselves. Indeed, some observers here this morning have already asked me that question. Simply put, a goodly portion of the built heritage of Canada is owned and operated by financial institutions, and we would not wish to see this placed at risk by changes in that sector.

As members of this committee in particular will be aware, significant changes in the public sector have occurred in recent years. The federal government, for example, has rethought and restructured itself, reduced, consolidated, off-loaded and outsourced a great deal, and other governments have done the same. In the case of the federal government, reduction in responsibility and activity has resulted in a considerable amount of heritage properties being declared surplus to the requirements of custodial departments in question. The pressures on such heritage properties have been of increasing concern to us, and it is for this reason that we have been working with the federal government, most particularly with the department that unfortunately has a name similar to ours, to find the ways and means by which heritage buildings, both remaining on the federal inventory or to be removed therefrom, may be preserved for posterity.

Similarly, actual or proposed changes in the private sector—in this case the financial service component thereof—are of concern to the heritage community as it is feared that such restructuring and consolidation may leave heritage buildings exposed to risk. It is that issue I wanted to raise with you today.

As members will know from their own observation, some of the earliest and finest examples of our architectural heritage in communities large and small across Canada are these erected by financial institutions, notably, but not exclusively by any means, bank buildings. They were deliberately designed so as to convey permanence, stability, respectability and confidence. Along with such other examples of landmark architecture are churches, post offices, railway stations and city halls. These buildings have served and defined their communities for generations. The challenge for us all is to find, in a changing environment, the ways and means by which these buildings can be preserved for posterity.

I was pleased to note in the MacKay report reference to the fact that financial institutions should work more closely with the voluntary sector, and we would clearly like to see this expanded to include the heritage community across Canada.

Similarly, the report notes considerable concern about the potential loss of financial services that communities have traditionally relied upon, to which we would add the concern for the many heritage structures in which those services are housed and from which they are delivered.

Given the concern of the heritage community, and at the behest of my board, I have written to the five major banks in this regard and have also written to, and met with, the Canadian Bankers Association to stimulate a dialogue on this subject. There are many examples of heritage buildings owned by banks that have been carefully restored, or of surplus buildings for which sympathetic new uses and users have been found. Similarly, there are some examples of sound policies and best practices in the financial sector in this regard upon which I feel we can build.

It is my hope, and indeed my sense, based on initial meetings, that we have the makings of a productive working relationship. That said, I did feel it was appropriate to raise this concern with you in the context of your review, as developments in one area of endeavour can, and often do, have unintended and unforeseen consequences in another seemingly unrelated field.

Thank you, Mr. Chairman, for your interest in this matter. I'd be now happy to answer any questions you and your colleagues might have.

The Vice-Chair (Mr. Nick Discepola): You did provoke my interest, because as we were sitting here watching the list of the next guests, we asked ourselves, what is their interest? And that's why I sent the clerk to ask you if you were here as part of the MacKay task force report or the pre-budget consultation.

Mr. Brian Anthony: I could see your eyebrows go up.

The Vice-Chair (Mr. Nick Discepola): But I do want to thank you because you brought to the table something else that we may not have considered. I'd like to thank you for that.

• 1015

Mr. Forseth, please.

Mr. Paul Forseth: Thank you very much.

Welcome. One of the phrases we hear about the bank mergers and so on is that it's largely a bricks-and-mortar issue. They want to divest themselves of, rationalize, and so on about what they call bricks and mortar, which is the euphemism for the buildings and the old structures. They anticipate the new ways of interfacing in financial services, such as through satellite services and computer networks, and that at some point coin and cash will disappear, and we'll have cash cards like the phone card. We just can't imagine how financial services will continue to change.

One of the historical aspects of that is the bricks and mortar, as they say. Do you have a list of practical suggestions as to how we can preserve some of that heritage? We can talk about grand schemes of committees, boards, and so on, but you must also have a kind of practical to-do list that would actually change something in a very small prairie community where maybe the largest building in that little town, beside the grain elevator, is a local financial institution, which now stands empty.

Mr. Brian Anthony: Thank you for that question. Through you, Mr. Chairman, I'm glad Mr. Forseth has raised the example of grain elevators, because the concern of the heritage community is not simply related to the financial services sector. There are changes going on in our society and our economy across the board that have placed at risk what I would call landmark buildings that define communities and regions of the country, and certainly changes in the transportation sector have placed grain elevators at risk. The sentinel of the prairies is now a disappearing phenomenon, and because of the nature of the structure of grain elevators, it's harder to find new uses and new users for those buildings.

Similarly, outside of the prairie context, lighthouses are a disappearing phenomenon because of changes in navigational systems. Anyone with a decent boat now probably has radar, depth-finders, and GPS, so you don't have to rely on that one light from that lovely old building standing on the promontory. These are buildings that are on the calendars of pictorial Canada and have been for years and years. Can you imagine the 1999 pictorial calendar of Canada without a lighthouse or grain elevator?

It's in the same context that we're looking at changes in the financial services sector, because, as you say, many communities have been deliberately defined by these kinds of buildings, such as banks and some of the huge insurance company buildings that populate Toronto and Montreal, which were built by companies that may no longer exist or that may have been bought or merged several times over.

Mr. Paul Forseth: There's also the House of Commons building where my office is.

Mr. Brian Anthony: That's right, the Metropolitan Life building.

Mr. Paul Forseth: It's not on Parliament Hill, but it's a heritage treasure, and it was built by an insurance company.

Mr. Brian Anthony: I think there are, as I mentioned, some good examples and some best practices we could draw out of our discussions with the banking community and that we could play across the entire community in order to encourage finding new uses and new users for the bricks and mortar that may be deemed surplus.

There are certain things the federal government can do, as those members who may have received our brief to your sister committee, the Standing Committee on Canadian Heritage, would be aware of. That committee is currently involved in reviewing cultural policy concerns.

As I mentioned to this committee in the pre-budget context, there are changes in the tax structure that could empower us and other quasi-governmental organizations to make it attractive to the financial services sector to donate buildings, in order that we could set about creating a kind of protective covenant that would protect those buildings in permanence and would enable us to work with the heritage community to find new uses and new users for those banks or other buildings that are owned by the financial services sector. As I say, I think there's enough of a positive set of experiences upon which we could build. I'm hopeful that from our discussions with the CBA and its member banks, we'll be able to draw some of that out.

Mr. Paul Forseth: Thank you. I'm done.

• 1020

The Vice-Chair (Mr. Nick Discepola): Mrs. Redman, please.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chair.

I appreciate the fact you're here today. As Mr. Forseth said, one of the things we've seen is that there is a trend in banking, certainly with the niche market players from the United States; they're not interested in bricks and mortar. So we're looking at a financial sector that probably won't leave the kind of heritage trail the banking sector did in the last century.

I represent an urban riding—Kitchener—and we're still reeling from the fact that 25 years ago our city hall was torn down because it was fashionable at that time that you rent space and not have a city hall. There's still a lot of bitterness, despite the fact that we now have an award-winning city hall that is very functional.

We also revitalized our downtown sector, and one of the things the retail consultant told us when he came in was “Get the banks off the main corners of your street. It's not good for retail; it's not good for the vibrancy of your downtown.”

The question I'd like to ask is, given the fact that the financial sector is changing and we do have these heritage buildings, what's the proper balance the government can retain between the carrot and the stick? How can we entice financial institutions that may change how they look and may not need the space they're occupying? You talked about tax incentives, but do we regulate?

One of the things we deal with in the MacKay task force is whether we are overregulating. Are some of the regulations that are recommended onerous? We've heard yes and we've heard no, depending on who you ask that question of. What's the proper balance in the role the government can play in ensuring that those heritage buildings are there, even though the use may change?

The Vice-Chair (Mr. Nick Discepola): Mr. Anthony, please.

Mr. Brian Anthony: There are a number of things the federal government can do, but clearly the federal government isn't the only player. We have to keep in mind that in dealing with the financial services sector, there's a great deal of sensitivity to the question of incentives.

If one were, for example, to give us the powers to not only give an income tax receipt for the value of the property upon donation, as we currently can, but also to waive the capital gains tax that would be applied to the appreciated value—the value of that building that might have appreciated during the period of ownership—the media would probably pounce on that as a way of giving money to the already rich financial institutions. That said, I would still like to proceed with that because I don't think large banks, small banks, or any other financial institution should be singled out and denied access to incentives that are already in place.

But as I say, the federal government is not the only player involved. There are provincial and even local considerations. I'm glad you raised the example of your city, because I was a keynote speaker at the Annual Conference for Community Heritage Ontario held there earlier this year in the new city hall, and I was encouraged by the current mayor to come back in 95 years so we could celebrate the centenary of what would by then be a heritage city hall.

But a local government can make decisions in terms of zoning, regulation, permits, and so on that shift the financial focus of the city. For example, by encouraging or allowing big-box store developments on the periphery of town, you shift the economic focus.

Banks traditionally located in what used to be the city core now find they have fewer and fewer business and individual customers to support their banking activities that take place in bricks-and-mortar operations, which are considerably more expensive to operate than a small operation in a suburban shopping centre.

So there aren't any simple answers. I suspect regulation is probably not the way to go. I don't think you can make people conform. I think there is a way of encouraging them to, and there must be a balance. And I guess if I were to strike a balance, I would say it should be more on the side of incentive.

• 1025

But I feel the federal government can play a role, even though there are other players involved, by at least setting an example for the other levels of government by coming up with some innovative and effective incentives for the preservation and restoration of heritage buildings of all categories and by encouraging, where those buildings are surplus to the requirements of the owner, such as a financial institution, new uses and new users.

Mrs. Karen Redman: I would just like to touch on this. I certainly have been to lots of lighthouses. I don't have any in my riding because it's pretty well landlocked, except for the Grand River. But I've also heard from small craft boaters and pleasure craft people that they do rely on them. A lot of them don't have the expensive high-tech equipment that you referenced, and they say we do need to protect that kind of heritage. So even though it's not in my riding, I have a great deal of support for these kinds of issues as well.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Mr. Plamondon, please.

Mr. Louis Plamondon: No, that's fine.

The Vice-Chair (Mr. Nick Discepola): Okay.

[English]

Mr. Anthony, aren't most heritage buildings already protected through either municipal or provincial legislation? I look at some in my municipality, for example; any building that's over a certain age has been declared un site du patrimoine. I don't know how you say that in English, but it's not “historical site”.

Is that sufficient protection, or are you saying that maybe we should look at the age of some buildings or their architectural value and then ask the banks to voluntarily protect those sites they're going to close? What are you suggesting?

Mr. Brian Anthony: I'm glad, Mr. Chairman, you asked the question about protective mechanisms. I think the general perception is that if a building has a plaque on it, either federal, provincial, or municipal, then there is some magical force field that protects it from demolition or desecration.

In fact, that's not true. We really have no effective legal means of protecting heritage buildings in this country, at least none we can be really proud of. We have a certain degree of moral suasion, but a determined owner of a building with a federal, provincial, or municipal plaque on it can go through a certain process, if he or she has deep enough pockets and a strong enough will, and bring in the wrecker's ball, and down that building will go.

I've been with this organization for just over three years, and I would say—Douglas can support this—that at least once a month a building that has been designated by the federal government or provincial government has, over the protests of the local heritage community, been demolished. One of the things we argued for at all levels of government is a strengthening of those protective mechanisms so that the kind of protection that everyone imagines to be there can be there in reality.

The Vice-Chair (Mr. Nick Discepola): Mrs. Redman, please.

Mrs. Karen Redman: Perhaps I can just ask one additional question if we have a little bit of time.

Heritage Kitchener is a new formation that used to be called LACAC, the Local Architectural Conservation Advisory Committee. I'm sure more large urban areas, if not most cities, do have them. We also have a really creative and adaptive reuse policy that had some financial.... There was no bonusing in any way, because that's not something the municipality can do, but there was a very creative approach to using heritage buildings, whether or not they had been designated.

My understanding is that you can stave off the wrecker's ball for about 200 days at most if you really dig in. We have a former high school that's a local heritage building that we did our best to protect under every part of the legislation we could garner.

Is there an enhanced role that the federal government could play given that, as you already referenced, there are several levels of government and different players who need to be involved, and some of them quite rightly need to happen at the local level? Is there anything, aside from what you already mentioned, the federal government could do to enhance those kinds of structures to ensure that every chance is given to retain those heritage buildings?

Mr. Brian Anthony: Thank you for the question. I'll ask my colleague, Douglas Franklin, to address this too.

But in general terms, let me say that I believe there's an opportunity here for the federal government to work with the other two levels of government, notably the provincial and territorial levels, to create an interlocking grid of national, mutually reinforcing policies in the area of heritage conservation. I also think we can do the same at the community level in our cities and towns, large and small, across the country. Certainly in the field of the use of taxation and regulation, we had a major conference here last year on that subject. We feel there's a great deal that can be done and that the federal government can set the pace and tone of change in that area and be an example to others.

• 1030

But I must say that at the municipal level, there have been some good examples of innovative uses of taxation and regulation across the country that we have been playing back to provincial governments and the federal government as examples of imaginative, creative ways of using existing or new mechanisms.

Doug, did you want to go into that in a little more detail?

Mr. Douglas Franklin (Director, Government and Public Relations, Heritage Canada Foundation): Thank you very much, Brian. I'd be very happy to offer a few thoughts on that as well for Ms. Redman.

One of the reasons why we, as an organization, have been asking for changes in the federal tax policy for many years was to encourage investment in the older buildings. In many cases across the country, we find that private sector individuals and companies are willing to take over some of these buildings, including many banks. What they find is a very daunting problem dealing with the fabric of these structures. In some cases, they require restoration or a great deal of maintenance that has been deferred or neglected.

We believe that if the federal government made changes in tax policy that are perhaps parallel with what we find in other countries, notably in the United States and in other countries as well, that would enable the investor to write off a great deal of the cost of that restoration up front in terms of the investment, then this would be a real incentive for the private sector to put money into these buildings for adaptive reuse and so on. We feel there's a very strong market for this. In fact, with the encouragement that our friends south of the line get in the United States, we find that developers there are advertising to purchase older buildings in many communities, particularly smaller communities, where they can rehabilitate them.

By the way, in the United States, the largest sector to benefit from the adaptive reuse of older buildings across the board is housing. That includes adapting old factory buildings or banks—you name it—for housing.

So we feel there's a great public benefit in this. It isn't merely an antiquarian exercise of protecting a fine old building. That's important in itself—certainly preserving our history is important—but we also feel there's a real grassroots benefit in the community by allowing the private sector to have the maximum advantage and the best tools available to do that.

As Brian Anthony suggested, this offers then a seamless series of measures between what you have at the local, provincial, and federal levels. To me, that would be exemplary cooperative federalism that would really give the right signals to people in the community that this is a problem that could be solved.

Mrs. Karen Redman: I'll just bring it back to the MacKay task force. If you can't answer this question, that's fair.

Say you look in your crystal ball. There's the fact that the four pillars of the financial institutions are collapsing, figuratively as well as literally, because it was always a bricks-and-mortar issue. If we go a hundred years ahead and look back at the kind of legacy and heritage we left, what do you think the next hundred years is going to bring, given the high-tech presence and the fact that we're not looking at bricks and mortar any more to define our financial institutions?

Mr. Brian Anthony: The optimist in me is holding sway over my occasional bouts of pessimism, but I like to think that a hundred years from now—there will have to be a lot of technological developments for me to be here a hundred years from now looking back at this magic moment in history—if we put in place the kinds of mechanisms we need at all levels of government and if we can develop working relationships with owners of heritage buildings, whether they're in the financial services sector or other sectors, we will have shown a kind of enlightened sense of public spirit and public will to have found ways of saving and preserving those buildings that are an important part of our heritage. Indeed, our heritage architecture is probably the most visible and tangible part of our history and heritage. I'd like to think that we will have taken the kinds of steps we need to take in order that the erosionary trend we've witnessed over the last ten, twenty or thirty years will be halted and reversed; that we will be encouraging adaptive reuse of buildings, as you've mentioned and Douglas was speaking to; and that those buildings will live on as very much a part of contemporary society a hundred years hence and will be markers of where we have come as a society.

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That is something I have to believe, because otherwise I wouldn't get through the day as executive director of the Heritage Canada Foundation. But I believe that by working together with the key people in the public sector and in the private sector we can achieve this. It's not beyond our grasp. We have to overcome some attitudinal problems, because we think we're a relatively young society and we have a disposable attitude towards much of the art, artifacts and architecture of our society. Whereas in older societies, Europe for example, it would be unthinkable to destroy a heritage building, here it's seen as almost inevitable, as we have to make way for progress. New is good. Old is bad.

But I like to think that is changing and I like to think that opportunities such as this to discuss matters of concern to my organization will keep that dialogue very much alive and contribute to the kind of future we were referring to.

Thank you.

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

Mr. Forseth, I believe you have a question.

Mr. Paul Forseth: For some time now you've been pushing for significant tax provisions. You have this national objective, and you've talked about ways and means and kinds of steps, the spirit of commitment, the opportunities and so on. But I would give you this opportunity if you can describe again for the committee and put on the record clearly and succinctly—we're not there now—what you want from Revenue Canada and from the Department of Finance, in a technical sense the exact enabling provisions that you want. It seems that we're in a particular window of opportunity now because all of the basic rules of the banks and so on are on the table—the MacKay report or whatever. Now is your chance, maybe the best in years, to get technically what you need.

So can you succinctly describe exactly what it is you're looking for from the Department of Finance and Revenue Canada.

Mr. Brian Anthony: Thank you very much. And thank you, Mr. Chairman, for the opportunity to summarize the three points that we have been bringing to the attention of this committee and to the Minister of Finance in recent years. It also gives me the opportunity to thank you and your committee colleagues, Mr. Chairman, for the support of this committee, because in the past you have supported our recommendations to the Minister of Finance for changes to the tax regime.

Our recommended changes, in summary, are the following.

First of all, we would like clarity and more favourable tax consideration of restoration costs of heritage buildings. At the moment there is a great deal of confusion. Some restoration activities are written off as current—usually those restoration activities that are small and therefore fall underneath some imaginary line—but other restoration activities, however legitimate they may be, may be perceived as too big and so they're forced to be dealt with as capital. Even Revenue Canada admits that you can go from one tax office to another and get completely different interpretations or applications of their interpretation of the law in that regard. We feel that Revenue Canada can shed some light on this by clarifying their interpretation bulletin or revising it, but ultimately it will probably be up to the Department of Finance to change the tax regime because Revenue Canada only interprets what Finance decrees. It would be better to have it dealt with in law rather than in interpretation.

The second thing we would like is more favourable tax treatment of gifts of immovable cultural property as regards the capital gains treatment thereof. If I were, as an individual or as a corporate body, to give to the crown in one of its designated forms environmentally sensitive wetlands, I would not only be given a tax credit for that up front, which I could apply against income, but I would have any capital gains realized during my ownership of that property waived completely, 100%. If I give a work of art or an artifact to a designated institution of the crown, the same applies through the movable cultural property provisions of the Canadian Cultural Property Export Review Board. Not only do I get the tax credit up front, but any capital gains tax I would normally be expected to pay is waived 100%.

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I believe that if we can treat environmentally sensitive lands, and art and artifacts comprising movable cultural property, in that way, we can also provide for immovable cultural property in exactly the same way. Indeed, the Canadian Cultural Property Export Review Board has already certified six buildings, which are not normally thought of as movable cultural property, unless you take the view that you could move anything if you applied enough force. They've already certified six buildings, which have been donated, and for which capital gains tax has been completed waived. So if they've done this in that instance, it's not too much of a leap, I don't think, to extend that further to donations of real property, or immovable cultural property across the board. I feel that our discussions with the Department of Finance are promising in that regard, slow but promising.

So those are the two principal things we would like. We've also been discussing, as you may be aware, what is called the terminal loss provision, which provides for the writing off of a percentage of the undepreciated value of a building upon demolition. Finance doesn't take the view that this is a significant form of attracting or encouraging the demolition of heritage buildings. We have been polling our members to find if there are any examples in which this came into play, and have found, I'm forced to admit, no examples. While we have been asking for amendment or complete abolition of the terminal loss provision, we may have to concede the point to Finance that it does not have the appeal that people understandably imagine to have given its name.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Anthony. You've brought to light to this committee a new dimension that we may have overlooked, actually.

When I look back to my childhood, to the grain elevators in the prairies where I used to climb up to the top and dive into the grain, it was a tremendous experience for me. So was the locomotive engine or the community railway station, the churches, the local post offices and even the banks. And these are not only symbols, but they're part of our culture, our history, that all deserve protection.

So I think you have a favourable ear of this committee, as you said before. Again, on behalf of my colleagues, I'd like to thank you for bringing it to our attention. Thank you for being here.

Colleagues, we'll adjourn until the arrival of our next guests, which I anticipate in about ten minutes.

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• 1105

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

This morning we would like to welcome, from the aboriginal banking sector, Mr. Ron Jamieson, senior vice-president, aboriginal and remote community banking, Bank of Montreal; from Heraclitus Corporation, Mr. Howard Greenspan, president; from Sharwood and Company, Mr. Gordon Sharwood, president; and from the Association of International Automobile Manufacturers of Canada, Mr. Adrian Bradford as well as Mr. Gino Cozza.

I presume you are familiar with our format. I've asked each one of you to present for roughly five to ten minutes and then I'd like to leave ample time for my colleagues, the members of Parliament, to ask you questions and engage in a dialogue.

On behalf of my colleagues, welcome. I'll ask Mr. Jamieson to begin the presentation, please.

Mr. Ron Jamieson (Senior Vice-President, Aboriginal and Remote Community Banking, Personal and Commercial Financial Services, Bank of Montreal): Thank you, Mr. Chairman.

Good morning, ladies and gentlemen, honourable members. Let me say at the outset that my remarks have not been translated into French as I just completed them this morning. However, they will be provided as soon as possible in French as well.

Let me thank you for the opportunity to appear before your committee and speak to you about one of my favourite topics: aboriginal banking in Canada and the programs and initiatives undertaken in this field by Bank of Montreal.

Our bank established its aboriginal banking program in 1992. Until that time there had been very little in the way of such services provided by any major Canadian financial institution. In 1992 Bank of Montreal was the first bank to realize that it simply wasn't good business to ignore a market segment of more than 1.2 million people. Because we didn't have any real experience in serving such a unique market segment, we knew there would be many challenges along the way. We also knew that if we worked long enough and hard enough we could overcome those challenges and establish ourselves as the leader in our field, the pre-eminent provider of financial services to aboriginal people of Canada.

In 1998, six years after we began, Bank of Montreal operates 16 aboriginal banking centres across Canada, including some of the most remote communities in the country. From Nain, Labrador, to Wemindji, Quebec, on the eastern shore of James Bay to Inuvik in the Northwest Territories, we have set up modern banking facilities for people who have never had access to them before.

Earlier this year, in cooperation with our partner, Canada Post, we announced a plan to expand our service to remote and aboriginal communities even further. Under that plan, 20 remote communities in northern B.C., Alberta, Saskatchewan, Manitoba, Ontario, Quebec and the Atlantic provinces as well as Nunavut and the Northwest Territories will gain access to banking services for the very first time. With the cooperation of Canada Post, it is our intention to continue to develop even more new locations in northern communities.

Let me cite just a couple of examples to illustrate the positive impact our program has had on the lives of aboriginal Canadians.

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Before Bank of Montreal set up shop in Nain, Labrador, it took more than a week for residents to make simple deposits or withdrawals, and they had to do it through financial institutions based in Goose Bay, hundreds of miles away. Today they can open accounts and make deposits, withdrawals, transfers and bill payments in their own home town and receive personal service in either English or Inuktituk, including retirement planning and investment advice.

In 1997, we announced an agreement with Garden River First Nation to provide the members of that community with millions of dollars in housing loans. The program is unique in that it provides housing loans for members of the first nation on the reserve without the involvement of the federal government or the Canada Mortgage and Housing Corporation.

This is the fifth community to be part of this program, and what's so encouraging to us is that 19 other communities have expressed a real desire to work with us. It also served as a powerful enabler for home ownership among first nations people. Prior to this initiative, mortgage loans were impossible to negotiate on reserve without sufficient collateral.

After signing the agreement, Garden River Chief, Dennis Jones, offered this perspective:

This initiative is a key to accelerate our housing development. It is the creation of an opportunity to become a self-reliant and self-supporting first nation.

Bank of Montreal is proud of our leadership role in aboriginal banking and of our ability to help aboriginal people manage their financial affairs. We are also proud of the expanded coverage we will soon be providing—coverage that no other Canadian financial institution even approaches.

Effectively serving such a unique market segment is not as simple as opening a branch in the community. If you simply set up a branch on a reserve, it doesn't necessarily follow that the residents are going to rush through the front door. The clientele we are serving have special needs that require a customized approach. To effectively meet those needs, our aboriginal banking team needed to know more about these remote communities and their needs for financial services. Quite frankly, we had to establish a greater degree of trust for financial institutions than had ever existed.

In both cases we had a head start. Our original Bank of Montreal team included more than 100 employees who are members of Canada's aboriginal people. I'm very pleased and proud to tell you this morning we now employ almost 500 throughout the organization, including senior management positions.

I am a Mohawk of the Six Nations of the Grand River and make my home on the reserve at Osweken, near Brantford, Ontario. I am also currently the chairman of the executive committee and national co-chairman of the Canadian Council for Aboriginal Business, as well as the former chairman of the Royal Commission on Economic Matters Affecting Aboriginal People in Canada.

We believe our team, right from the beginning, had the right credentials and the right knowledge to communicate effectively with the members of the aboriginal communities we planned to serve. After extensive consultation with the members of these communities, we developed a suite of relevant and appropriate banking products and services.

We also designed and conducted a series of financial education courses in each community. These were aimed at increasing the financial literacy of our new customers and were developed and delivered with full cooperation and valued input from the members of each community.

This consultative relationship-building approach has enabled Bank of Montreal to develop a growing franchise with members of Canada's aboriginal people and to establish our leadership in this field. But as we continue to grow, we know our relationship with these clients must always be based on mutual trust and thorough knowledge of customer needs. Since 1992 we have made tremendous strides in developing a program that meets the special needs of a special customer segment.

I would like to add in closing a personal note on recent events. In my opinion, the MacKay task force and the report yesterday representing the views of some Liberal caucus members pay scant attention to the needs of aboriginal people in Canada. When you combine both reports, there are approximately two pages dedicated to the needs of 1.2 million Canadians. That's sad and, unfortunately, all too familiar to me and to my people's story. Of course it's maybe two pages more than would have been the case some years ago, but I do not believe this adequately represents the aspirations of first nations people throughout this country.

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I am further surprised that in the caucus report, recommendation 29 calls for Canada Post to play a stronger role in providing financial services to rural Canadians. As I mentioned at the top of my remarks, Bank of Montreal has been working in partnership with Canada Post for two years to provide this service, and I am disappointed and frustrated that this is not well known to the caucus.

I would also like to touch briefly on the proposed merger with the Royal Bank of Canada. Bank of Montreal and the Royal Bank have committed to aboriginal banking. We also have compatible histories; that is, we both have long traditions of being frontier banks. Together we believe we can do more to serve the needs of the thousands of Canadians in remote and rural parts of the country—Canadians I speak to and work with every day of the week.

Thank you very much.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Jamieson.

I'd now like to call upon Mr. Greenspan to make his presentation. Welcome.

Mr. Howard Greenspan (President, Heraclitus Corp.): Thank you. Ladies and gentlemen, mesdames et messieurs, I have a prepared statement for this committee.

I appeared yesterday at the Senate Standing Committee on Banking, Trade and Commerce in Toronto at approximately 4.30 p.m. Before I spoke, they asked if they could have the prepared statement so they could make copies to circulate. I, of course, gave it to them. They read the prepared statement, came back and told me it was unsuitable. This prepared statement will be made available on the World Wide Web, or the Internet as it known. If there's anything objectionable in this statement, there is a procedure for dealing with that.

The Vice-Chair (Mr. Nick Discepola): Are you referring to another committee?

Mr. Howard Greenspan: I'm referring to another committee.

The Vice-Chair (Mr. Nick Discepola): You're welcome to make your presentation. You're also welcome to give us a copy for the clerk. You're free to proceed, sir. There's no censorship imposed, so go ahead and speak.

Mr. Howard Greenspan: I realize this committee is not that committee, and I don't hold this committee accountable for that committee's actions, but it is one government. My first recommendation to this committee is—

The Vice-Chair (Mr. Nick Discepola): To abolish the Senate?

Mr. Howard Greenspan: Quite seriously, what happened yesterday in front of six senators is directly germane to what I have to say. As far as I understand it, the Senate was established as an oversight body to ensure that freedoms and liberties enshrined in the Constitution are not done away with by the legislative sector in this country. Yesterday, two staff members whom I won't name—their names aren't presently relevant—read my prepared statement, told me it was unsuitable and offered to censor parts...I'd like to finish this.

The Vice-Chair (Mr. Nick Discepola): I think it's appropriate for you to continue making your presentation. You're in front of the House of Commons finance committee and—

Mr. Howard Greenspan: I'm suggesting the House of Commons abolish the Senate on the basis that six senators—

The Vice-Chair (Mr. Nick Discepola): It's not part of our mandate, sir.

Mr. Howard Greenspan: I'm suggesting it should be.

The Vice-Chair (Mr. Nick Discepola): I think you may find one or two members who agree with you.

Mr. Howard Greenspan: I'm here to talk about the mandate of this commission.

The Vice-Chair (Mr. Nick Discepola): Do you mean the House of Commons finance committee?

Mr. Howard Greenspan: I'm here to talk about the MacKay commission being reviewed.

The Vice-Chair (Mr. Nick Discepola): Then go ahead and make your presentation. Just like the others, we are giving you five to ten minutes. You've already taken up two of them.

Mr. Howard Greenspan: You are welcome to cut me off or rule me out of order at any time.

The Vice-Chair (Mr. Nick Discepola): I'm not ruling you out of order, Mr. Greenspan.

Mr. Howard Greenspan: I'm just telling you you're welcome to do that.

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The Vice-Chair (Mr. Nick Discepola): I'm asking you if you would cooperate with us—

Mr. Howard Greenspan: Then allow me to continue, please.

The Vice-Chair (Mr. Nick Discepola): —and make your presentation.

Mr. Howard Greenspan: I'm making my presentation. My presentation has changed in light of the fact that I couldn't read a prepared statement that is now part of the presentation. It's directly relevant.

The Vice-Chair (Mr. Nick Discepola): Well, would you read your presentation.

Mr. Howard Greenspan: No, I will not read the presentation. The presentation will be made available on the World Wide Web. There are other ways besides—

I'm going to talk to the committee about this commission and this procedure. If I was stopped from talking yesterday, for any reason whatsoever, then I'd like to know how many people have been stopped from presenting views to this committee or to the MacKay commission.

Now, I spoke to the MacKay commission, and that's directly relevant to this committee. The MacKay commission met behind closed doors. When I walked in, they shut the door. I asked Mr. MacKay why that door was closed. Mr. MacKay said it was closed.

I asked the committee what five times 200 billion was, and they said it was a large number. I said quite distinctly to the committee that this was what was being talked about in that room, and that door should be open.

Yesterday I heard people, representatives of the financial industry, say—whether it was posturing or not—that they were concerned about the bank's reaction to what they had to say, and that they've seen repercussions. I don't know if that is true or not, because I'm not them. But I will make the factual statement that if anything I had to say I was told I could not say to the committee...if it happened to one person, then I don't know how many other people it happened to.

I am very serious. This process is sufficiently flawed that I suggest it cannot proceed. This commission has to start over again. This commission has to hear from people.

The Vice-Chair (Mr. Nick Discepola): For the record, when you refer to “this” commission, are you referring to the finance committee or the MacKay task force?

Mr. Howard Greenspan: I'm referring first to the MacKay task force. The recommendation I made to the MacKay task force was that there be a commission of inquiry to proceed in parallel with the MacKay commission. It was my viewpoint that the Canadian financial sector, as business people, would be putting on pressure to have these legislative changes, whatever they may be, made quickly. I suggested to the MacKay task force that under such pressure it would not be possible to have full review and public input. I suggested that in parallel with the MacKay commission there proceed a fact-finding investigation with the ability to take testimony, under oath, and that be the due diligence.

The banks have asked for changes, substantive changes. If the banks were asked to make those types of changes, they would undertake due diligence on a customer or client. I suggested that the MacKay commission undertake due diligence in parallel with the task force doing general oversight.

That recommendation was not followed. I think these committees are now forced to work very quickly, facing a shotgun, and you just don't know if you can rely on what the banks are telling you.

But that's not what I was going to say yesterday. What concerned me was that if I was told not to talk, quite honestly, how do you know how many people have been told not to talk? Who are you hearing from? If there was something objectionable in what I said, that was not for a staff member to decide.

I can sum this up very simply, and then move on to the next point:

[Translation]

we are not children and you are not the bosses.

[English]

I really believe that the problem in this country has very little to do with the issues that have been dealt with publicly. It has a lot to do with a sense of control that seems to rest on four towers at the corner of King and Bay.

I think that the problems in the west, the problems in the middle of the country, and the problems in Quebec all relate to a similar problem: who are you listening to, and who are you hearing from?

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Insofar as I've been able to see it, this report, just released yesterday, seems to address some of the issues. But I make the formal recommendation that the MacKay commission recommendations be invalidated because they were not proper public hearings.

I also say that insofar as one person has been told that his remarks must be vetted and he cannot say something, the present public hearing process, the committee review process, the public procedure for review, is invalid. The process is going to have to be redone in a proper way. This is so you can assure yourselves that people who do have things to say, whether in favour or in opposition, whether personal or general, have the opportunity to talk.

Yesterday my report dealt with remedies. The MacKay task force has proposed essentially three types of remedies. The MacKay task force has said they propose to give the banks substantial new powers. That's fine. They recognize in their report that some of these powers are potentially coercive and abusive. They then go on to recommend three prime ways of keeping the banks in balance.

The first thing they suggest is regulation, essentially consisting of self-regulation. The second thing they suggest is an ombudsman. The third thing they suggest is civil litigation with the ability to invoke punitive damages.

Regulation has not been effective. In the proposal and prepared statement I had yesterday, I point out specifically that federal laws have not been enforced against the banks. That's with a minister for comment, and there's been a lengthy interchange of correspondence with the minister. These are not remarks lightly made.

The second proposal of a remedy is for an ombudsman. The ombudsman effectively has no power.

The third proposal is for civil litigation. As the prepared statement shows, civil litigation against a Canadian financial institution is not practically realistic. The prepared statement gave specifics instead of generalities, and I think that is what the Senate committee objected to.

Telling somebody that they can take a bank to court after a bank, any bank, has been given powers that are recognized as potentially coercive or abusive is like telling somebody that he can stay at the Ritz Hotel. Anybody, a British jurist once said, can stay at the Ritz Hotel. It is a right that is equally open to all. That's about the right to take a bank to court. Those remedies are effectively useless.

I can read the prepared statement, or I can just post it on the Internet.

The Vice-Chair (Mr. Nick Discepola): I offered you a third alternative, sir, which was to give it to the committee. We will give it its due consideration, just like we've given everyone.

Mr. Howard Greenspan: I beg your pardon?

The Vice-Chair (Mr. Nick Discepola): I offered you a third alternative at the beginning. That was to deposit your brief with the clerk of the committee, and we will give it its due consideration, sir. You have that alternative also.

Are you finished with your presentation? You can have another minute or two, if you wish.

Mr. Howard Greenspan: Yes. Unless you have any questions, yes.

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

I would now like to proceed with Mr. Gordon Sharwood from Sharwood and Company. Welcome, sir.

Mr. Gordon Sharwood (President, Sharwood and Company): Thank you very much, Mr. Chairman. I have brought 30 copies of my brief that I will refer to from time to time with regard to various pages.

I also brought 10 copies en français. Unfortunately, the Chateau stapled it back to front—

An hon. member: Welcome to the real world.

Mr. Gordon Sharwood: —and by the time I discovered this, my presentation would begin, and my addenda were at the front.

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If those of you who are looking at the French version will bear with me, we will find our way through this thing.

In response to Mr. Greenspan's comment that markets matter, I can't resist saying that markets matter, and that is the best way of summarizing the MacKay task force report. I'm going to demonstrate that.

On the first page of my presentation to the task force you will see a little background on me. I was with the Canadian Imperial Bank of Commerce for 13 years. I was the youngest chief general manager in Canadian banking history. I had a kind of celebrated argument with the then chairman, Neil McKinnon.

I then became chairman of Traders Group and merged Traders into Guaranty Trust, because I could see that the banks were going to take over the car loan business, which was a substantial part of Traders' business.

Then basically since 1976, I have been a limited market dealer. I'm in the business of intermediation in mid-market companies. That's also described on the same page.

If you turn to page 2, you will see the distribution of Canadian dollar deposits. In one of the supplementary reports from the MacKay task force you will find that the four big banks are much higher than this. In fact, if you total their investments of deposits in residential mortgages and their investment in credit cards and personal loans, which have a rate of 12%, you will find that for the four merging banks, it's 77% of Canadian dollar deposits.

So far as residential mortgages are concerned, this is the easiest and most profitable business in the banking system. You have your house appraised, you make a loan, make a five-year agreement, and a little electron travels along and debits your account every month. Provided that little electron does not get turned back, it's carefree. It's the most profitable part of banking.

Of course, there is discussion in both the annual report and the MacKay task force about the lovely charges that are on credit cards, the interest rates. That is another highly profitable part of the banking business and personal loans again.

So if you look at the large banks—because, as I say in my note, the Laurentian Bank and National Bank are much smaller in residential mortgages—you will see that they only have 23% of their Canadian dollar deposits.

By the time they've looked after Alcan, Abitibi and other large companies, I kid Mr. Cleghorn that he has no money left over for the mid-market. And the mid-market is the tenor of what my presentation is all about.

The presentations have been trapped by the bankers, by their definition of SME. The definition of SME is not defined in this report until finally you get to a little thing that says that SMEs are those companies with loans of not more than $1 million. Well, a company with a loan of $1 million probably has $5 million in sales. Is that a mid-sized company? Not in my game it isn't.

So that's just ridiculous, and for people to talk about market share of SMEs is absolute nonsense.

Now, to the credit of the MacKay task force, they say that the statistical basis for the finding is just over $5 million. Well, over $5 million means loans to a software company that is growing rapidly from $10 million to $20 million to $30 million in sales, and loans to a sawmill. As I say, it also includes Domtar, MacMillan Bloedel, Alcan, and so forth.

So how do you know who is doing what? That's the question I really addressed to the MacKay task force. They addressed it by saying, “We do not have statistics”.

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So the banks have everybody trapped into this SME definition. In an economist's report from Tim O'Neill of the Bank of Montreal, he shows the market share of the Bank of Montreal going up in this little, tiny sector of SMEs.

Let me go through some of the things I've said. I concur with the main thrust of the report. First of all, I think it's a great idea to be able to start new banks. I'd like to start one. I know Mr. Palmer is a little worried about the regulatory environment because we've had a few bad cases of trust companies and banks going broke, but that's the market. As somebody said the other day, I'm a Schumpeterian; I believe in creative destruction. If Bell Canada can start a bank now, and Domtar can start a bank, that's terrific. Let's do it.

I also commend the encouragement of foreign financial institutions to enter Canada, the recommended abolition of the 55% withholding tax on term loans, and other liberalizing provisions.

But there's one thing I did miss. They skipped over this whole area of leasing. In my presentation you will find that the leasing volume in the U.S. is $188 billion a year. It's nowhere near that in Canada; it's about one-tenth here. As is actually well explained in Tony Ianno's report, the reason is that you can't write the capital cost allowance off against other loans. It depends on whether you're doing a capital lease or a non-capital lease. I was surprised that they didn't deal with this issue in the MacKay task force report, because I recommended that this be done.

In my submission, you'll find an exchange of letters I had with David Dodge. In the committee, I described his replies as being like sticking a butterfly on something and watching it flap its wings while it slowly dies. This was the last flap of the Deputy Minister of Finance.

If you look at my letter to Konrad von Finckenstein, I am encouraged by the spread of technology. The main issue I have, though, is the issue of access to capital. I have a chart in appendix 6 that is a description of the investment requirements and sources of finance for different types of firms at different stages of development. At the bottom, you'll see “Lifestyle firms”. It is my opinion that the banks, in their eager-to-please brown-nosing at this particular time, are encouraging loans to lifestyle firms. For us to become a nation of barbershops and Wendy's restaurants is not really a productive way of using scarce capital resources. I disagree with some of the thrust of the Ianno report in that respect.

Where we have the biggest problem is in mid-market companies. They rather dismiss it and say that this is not a problem. But the fact of the matter is that, as I say, going back to my opening remarks, we haven't placed as a limited market intermediary, and it's interesting that the intermediation question for mid-sized companies is not addressed in any of the works except in the McKinsey study done for the task force.

There are seventy venture capital funds in Toronto today. If an entrepreneur wants to find his way around for venture capital, he's going to have to knock on a lot of doors. How do they know about those in Sarnia, Lethbridge or Moose Jaw? They know them through intermediaries such as me. We have not used one of the big five Canadian banks to do a deal for eighteen months. We basically deal with GE Capital, Congress, ABN AMRO. So that is the area.

• 1140

In a speech in Calgary, Matthew Barrett talked about setting up a bank aimed at small and medium-sized businesses. I was happy to see that he did include mid-sized businesses as slightly larger than a $1-million line of credit.

If we're going to have growing companies that reduce our unemployment rate, we have to have companies that grow rapidly. In here, you'll find statistics about companies with over twenty employees. That certainly doesn't include companies with lines of credit of $1 million. In those kinds of companies, the salary levels go up and they also have benefit plans. The quality of life is better, as is their whole objective.

The reason this country's unemployment rate is so high—and the reason we are held back as a country—is that entrepreneurs are held back from growing because of the lack of mid-market expertise. There have to be more mid-market intermediaries like me, but this is not addressed enough in any of the material that I've seen.

Every mid-market company that comes into my office complains about the turnover of bank managers. You can do loans under $1 million on a scoring system. It's easy. But when you have a company with $20 million in sales and it's a toy company that has to sell all its inventory before Christmas, you have to have a good banker who knows what he's doing. This is something that really is not properly addressed—how to grow companies and how to finance growth companies. And I always and continually make the separation between lifestyle businesses and growth companies.

Mr. Chairman, I conclude my remarks.

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

To conclude this series of presentations, I'd like to now call upon Mr. Cozza and Mr. Bradford. Welcome.

Mr. Gino Cozza (Chair, Financial Services Committee, Association of International Automobile Manufacturers of Canada): Thank you.

Good morning, Mr. Chairman and members of the committee. My name is Gino Cozza, and I'm representing the Association of International Automobile Manufacturers of Canada. With me is Adrian Bradford, who is the associate executive director of the AIAMC.

The AIAMC is made up of seventeen vehicle manufacturers based in Europe, Japan and Korea, selling and servicing cars and small trucks in the Canadian market. Three of our members, either directly or through affiliates, are manufacturing vehicles in Canada for export to the United States and other markets. The association's work is done through eleven committees, and I'm speaking on behalf of the financial services committee, whose members provide credit and leasing services to each manufacturer's dealers and their retail customers. These services have become an integral part of the customer-focused strategy of each AIAMC member.

Mr. Chairman, credit affiliates are a relatively recent development among international vehicle manufacturers, all of which have been established since the beginning of the 1990s. Credit affiliates work directly with their distributors to finance dealers' inventories and equipment; and to provide mortgage and loans for working capital, wholesale lease financing and leasing services, to the dealer's customers. The relationship is a long-term one intended to ensure that customers can receive sales and service in their community during both good and poor economic times. It is a relationship that would be significantly curtailed if recommendation 21 of the report of the McKay Task Force on the Future of the Canadian Financial Services were to be implemented, thus permitting federally regulated deposit-taking institutions and life insurance companies to lease light-duty vehicles.

Our view, which is shared both by the dealers located throughout this country and all automobile manufacturers, is that the McKay report failed to recognize the significant impact the changes in financial services policy would have on other segments of the Canadian economy. If banks are allowed to enter into this market, we believe there will be a long-term reduction in competition, a lessening of consumer choice, an increase in leasing costs, adverse impacts for auto dealers operating in virtually every community across Canada, and disruption for the automotive industry as a whole. There are five reasons underlying this.

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Firstly, unlike lending, leasing requires the lessor to own the vehicle and be responsible for the residual risk and liability risk management. To address these things requires a continuing commitment to the automotive business. This requirement, which banks simply do not have, must be there in good times and bad.

Banks would be able to use their legislated cost-of-funds advantage to drive competitors out of the market. This is an advantage peculiar to the Canadian market, where it is too costly for other players to get into the banking business. Also, under the MacKay scenario, banks would not be required to undertake leasing through arm's-length subsidiaries, which is the case for automobile-leasing banks outside of North America.

Because of their dominant position in the financial services industry, banks have a history of capturing market share and driving out competitors in new markets through the use of loss leaders. In this context, it is important to restate a quotation from James O'Donnell, senior vice-president of the Bank of Nova Scotia, who said in 1994 that:

we did find car loans were a great loss leader for other products that we offer in the Canadian branches, things like mortgages, deposits, investment products, credit and debit cards...

If banks can use this strategy to drive out competition and dominate the vehicle leasing business in the same way as they dominate the loan business, affiliate finance companies would not be able to sustain their current services to dealers. If banks are allowed to lease directly to retail customers, Canadian dealers will be forced to compete with the same deposit-taking institutions that provide them with a majority of their operating credit. This would be a conflict of interest, especially during poor economic times, when banks might be hesitant to loan credit to many small automobile dealers in financial need.

Vehicle leasing developed during the early 1990s, when a depreciation of the Canadian dollar raised the price of imported vehicles, and when customers hurt by the recession found they could lease vehicles more affordably than they could purchase them. This has allowed dealerships to get through what would have otherwise been a severe decline in vehicle sales, while creating new jobs in their sales and service departments.

Ladies and gentlemen, the MacKay report notes the fact that there are some 1,300 dealers involved in vehicle leasing, as well as 20 affiliated finance firms and other non-bank financial services institutions involved in vehicle leasing. This is indeed a very competitive market already. While many of these dealer lease companies are small, the 25 to 30 lease transactions they undertake per year account for a significant share of the dealer's sales and net income.

Mr. Chairman, these lease transactions could make or break some small dealers, often in areas where automobile suppliers are few and far between. The competition for consumer business is so strong in the automobile finance market that it has prompted one large non-bank financial services institution to withdraw its services to automotive dealers in western Canada within the last month.

At a time when the banks are seeking to expand globally, it is unfortunate that they have chosen to target foreign finance companies operating in Canada, whether they be foreign banks or vehicle companies' lease affiliates. International vehicle manufacturers have become an integral part of the Canadian economy, employing 2,500 Canadians through company administration and distribution, and another 6,200 in vehicle manufacturing facilities. This is employment that will grow as vehicle sales continue the increases that we have seen since 1996. The finance affiliates of the AIAMC members continue to invest in this growing market. Rather than spirit oversized profits back to foreign-based companies, as the chartered banks would have you believe, international vehicle manufacturers will develop their markets in Canada—including their lease products—if current restrictions on banks' powers are maintained.

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During 1997, all AIAMC lease affiliates implemented a full-disclosure lease that puts up front to customers the conditions of which they should be aware before entering into the lease transaction. We are continuing our efforts to ensure that dealer salespeople are aware of their responsibility to place this information before the customer so that the customer has the opportunity to carefully review the conditions and understand the lessor's and lessee's obligations.

Thank you for this opportunity to appear before you this morning. We look forward to answering any of your questions.

[Translation]

Mr. Adrian Bradford (Associate Executive Director, Association of International Automobile Manufacturers of Canada): The text of Mr. Cozza's presentation will be available in French this afternoon.

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

[English]

Thank you, Mr. Cozza.

I'd like to now turn immediately now to—

Mr. Ron Jamieson: May I just have one moment, Mr. Chairman?

The Vice-Chair (Mr. Nick Discepola): Yes, sir, if you please.

Mr. Ron Jamieson: I want to mention the Senate committee. I realize this is not the Senate committee, but Mr. Greenspan brought up a point about it earlier, and I would like very much to get something on the record regarding a statement made yesterday by Senator Kenny, who said the banks were lying about job losses.

Mr. Chairman and ladies and gentlemen, as a senior vice-president of the Bank of Montreal who has some responsibility in this area, and as an employee of that bank, I can tell you that I am deeply offended by that comment. We do not lie on these issues. I want that on the record, and I would like very much to speak to this gentleman. But since Mr. Greenspan brought up the Senate committee, I wanted to get that in.

Thank you.

The Vice-Chair (Mr. Nick Discepola): We are here in front of the House of Commons Standing Committee on Finance. I will not permit any more questions about the operations of another committee. When members of another committee don't have the chance to defend their points of view, I think it's unfair to that other committee. I want to state for the record that the House of Commons finance committee has accepted and will continue to accept any briefs and any testimony that any Canadian from coast to coast to coast wishes to present. I'll leave it at that.

[Translation]

Go ahead, Mr. Forseth. Mr. Desrochers, you will soon have the floor and then you will be able to ask the witnesses questions.

[English]

Mr. Forseth, sir.

Mr. Paul Forseth: Thank you very much for coming today.

One of the provisions, of course, is that when people come before a parliamentary committee, they should assume that they are under oath. There are certain privileges that come with giving testimony to a parliamentary committee, and they should not be abused by, for example, slandering someone else or using the committee for other purposes when there may be court proceedings or when there are other things that may be contemplated in the future. The committee does not want to be manipulated. We want to stay focused on our task, because the committee has to make some recommendations. We have a job to do here, and we don't want to be hijacked by another's agenda.

I want to specifically address the automobile manufacturing people on the specific issue of competition related to automobile leasing. It is my view that the consumers—and Canadians in general—who are going to buy cars would be better off if we can better facilitate and improve competition. Perhaps you can address what the current competitive climate is, and what would happen to this area of competition if banks were allowed to get into it.

Some would say bank entry would actually improve competition, and they cite your newly developed full-disclosure lease. That was done in 1997. Yet leasing has been around for a long time. Those same people would therefore say you hear the hoofbeats of competition coming down the road and are finally getting your act together in view of what you foresee. Perhaps the prospect of banks is increasing the competition, then, and this would be cause for a better product. So you hear both sides of the argument.

I would like to hear why the banks getting into automobile leasing would be a bad thing that would perhaps reduce competition. Perhaps you can explain how we can get to the land of greater competition, because Canadians are certainly going to be better served by that kind of a market.

Mr. Gino Cozza: Currently you can see that there's tremendous competition when you open any newspaper and find very aggressive rates offered by the various manufacturers. And the banks are already competing with us indirectly. What would happen if they were allowed to enter the arena, as the MacKay report suggests, is they would be competing directly with a lot of the very dealers who they're currently financing on wholesale lines.

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Let me give you a very specific example. We have dealers today who are borrowing money from the various banks at prime plus a half or prime plus one, and they in turn have to lend money out on a lease and try to make a profit. How can they do that when the banks are offering rates already lower than what they can borrow at? Virtually, it would eliminate the small dealer who has a lease line from competing in the marketplace.

Mr. Paul Forseth: I assume the dealers are not really doing that. They're contracting those services out to other people who provide the financial background to both Ford and GM and all others. It's not the individual dealer who's in a circumstance like that.

Mr. Gino Cozza: There's that aspect, and then there are the dealers who also have their lease lines.

Mr. Adrian Bradford: There are dealers who have their own leasing companies. These are the 1,300 dealers Mr. Cozza described in his remarks. They will often be very small companies that may do only 30 leases a year. But it happens to be a very lucrative area for them, so it's an area they will continue to develop.

Mr. Paul Forseth: Okay, so your proposition is that banks entering the field are going to reduce the field of competition in terms of available rates, and costs to the consumer would go up.

Mr. Adrian Bradford: Because the banks have a cost-of-funds advantage, they would be able to use this in order to target particular markets at various times. And because the smaller dealers don't have the capital lines that would allow them to stay in business, to wait out the competition, they would be forced out of business, and you would see these smaller lease companies disappear.

Mr. Gino Cozza: You would see the field narrowed from what it is today. You'd see a lot of people disappear from the business. So in the short term, it might be beneficial to the consumer, but in the long term, certainly rates would go up. I think that was cited by Mr. Sharwood, how he had to get out of the business because the banks virtually took over the retail business.

Mr. Paul Forseth: So the implication is that sometimes automobile dealerships are somewhat tenuous, and if you remove that one additional aspect of their business where they have revenue, then perhaps the viability of a lot of dealerships goes under.

Mr. Adrian Bradford: They're as tenuous as any small business is tenuous. They ride up and down with the economic storms. When times get bad, they're more likely to have their financing pulled by the banks. When they do, then they have to turn to someone else in order to continue their financing, and it has been the manufacturers' leasing affiliates that have provided that financing in those bad times.

The Vice-Chair (Mr. Nick Discepola): I'll give you some extra time. I just wanted to get an example. The banks are taking deposits, paying returns on those deposits at 3%, 4%, 5% at the most. The prime rate today is roughly 7%, so again they're making the spread on that. Then for your cost of funds, you'd have to pay 7% plus a half percent or one percent more.

Mr. Gino Cozza: Generally speaking, that's right. It would range, depending on the strength of the dealer, anywhere from prime to prime plus one.

The Vice-Chair (Mr. Nick Discepola): But then Mr. Forseth's point is that if the banks are allowed to get into leasing, would they not offer rates significantly lower than what you are able to offer? Their cost of funds are much—

Mr. Adrian Bradford: Their source of funds is less expensive.

The Vice-Chair (Mr. Nick Discepola): Exactly. But isn't that good for consumers? I'm being the devil's advocate here.

Mr. Adrian Bradford: You can see it as good for consumers in the short term, because they would be able to get into that market. However, banks have had a history of going into markets by cutting rates, and then finding out over time that they're not making the money they thought they were. This is a very specialized business that requires prediction of residual values in the future. If you miscalculate on those, you then find you have to pull back three years down the road. As a bank, you could find you have to get out of the industry again. When you do that, you could leave those retail customers high and dry.

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The Vice-Chair (Mr. Nick Discepola): Do you have any information on leasing rates in other jurisdictions, for example, in North America? You said that other jurisdictions do permit banks to lease. What are the rates compared to Canada, and what would happen to the car once it came off lease if a bank were to own it? Can you predict that the banks would get into the used car market then?

Mr. Gino Cozza: That is the problem. We're focusing on rates, but rate is just one aspect of the lease transaction. Probably the more critical is exactly what you said, the residual, what happens to cars when they come back and how do the banks dispose of these cars. First of all, they have no experience in setting residuals; and secondly, they have no ability to dispose of these vehicles when they do come off lease. So it's not solely a rate issue.

The Vice-Chair (Mr. Nick Discepola): Okay.

Continue, Mr. Forseth. I apologize, but mine was a similar type of question.

Mr. Paul Forseth: That's fine.

I wanted to address some questions to the Bank of Montreal. I was impressed by some of the things that were said as you patted yourself on the back about having a special consultative approach and developing mutual trust and specific knowledge to meet the needs of specialized customers, and you were putting all of that into the aboriginal context. I would have thought those are things you would have offered to anyone and that's the required business for any bank for any type of consumer.

I specifically want to hear from you about how you get involved in home loans when there's a problem of title and there is no market. The bank can't hold a mortgage where the person who's borrowing the money doesn't own the property. Either the federal government owns the land and the building that is on a reserve, or it may be held in common by the band, and there is no operative market. I would assume a lot of these loans for houses are treated much like an automobile loan, where it's a loan for a consumable that just depreciates and then is eventually consumed and gone, and it's based purely on the ability of the earner to pay, rather than on any increasing value of the asset itself.

So I want you to explain specifically the problem of title and, getting into maybe a bit of word semantics around here, of loans for houses.

Mr. Ron Jamieson: Thank you very much.

First of all, let me dispel one of the myths you stated, that there's no internal market in a reserve community. In fact, there exists an active and growing market within many reserves in Canada, though not in all. In my own community of Six Nations, which I obviously am quite familiar with, there are about 800 people on a waiting list for housing loans. So that would speak to the market issue.

Also, on many reserves in Canada the residents receive something called a certificate of possession, which is very similar to a title. The difference is that this title can only be transferred to another member of that community, so there's no external market pressure. What happens in our housing loan program is that the relationship exists between the housing authority and the bank or between the band council and the bank.

Thankfully, there are more people on reserves who are now employed and who do qualify for housing loans. During the period that a housing loan is outstanding, the resident agrees to transfer that certificate of possession in respect of their home over to a third party, who then will police, if you will, the activity to make sure that the housing loan is repaid.

Mr. Paul Forseth: The parallel I immediately think of is a farmer's milk quota or a licence to fish. This is a certificate to possess a house.

Mr. Ron Jamieson: Correct.

Mr. Paul Forseth: There seems to be some parallel there. The value is not in the item itself but in the piece of paper allowing access to the item.

Mr. Ron Jamieson: That's correct. The system, I would tell you, is working very well. We're pretty encouraged by it.

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Mr. Paul Forseth: All right.

Then what is the driver to make one want to possess the house with that certificate? Is it because of all the other status and tax advantages that come with it? Of course, a band controls who is a member of the band, so that really controls who the market is.

Mr. Ron Jamieson: The special tax status issue keeps coming up. Of course, I've faced it for years. Let me clarify this point.

The only people who have, as you say, a special tax status are those people who live and work on a reserve and who are entitled to live there. In other words, they're members. Those are the only people who have a special tax status. That's great, except there aren't any jobs on the reserve. Of the 1.2 million people of aboriginal descent in Canada, only a relative handful have active employment on the reserve. I take this opportunity to deal with that issue, because it's grossly misunderstood.

Mr. Paul Forseth: I'm certainly impressed by some of the information in your presentation and documentation about trying to provide specialized financial services taking into account aboriginal sensitivities, such as the design of the building, the location of the building, local hiring and training, and all the rest of it. I think it's just wonderful. But we have to ask what's in it for you. There's nothing comparable in history, so I need you to explain to me what's in it for you besides goodwill.

Mr. Ron Jamieson: That's a good point, and I'm pleased you're asking me that.

At the outset we looked at aboriginal banking and the various initiatives I've attempted to describe here not as money-makers, because, frankly, they weren't. We looked at it rather as an investment in the future. We saw that there were over 1 million Canadians who weren't being served, and we said if we can make the outreach and if we can design unique lending programs that meet those specific needs, at some point in the future we will be rewarded by the business. Although some of them are beginning to show some profitability, they're not wildly profitable, that I can tell you. But we hope that in the future our efforts will be rewarded. It's really that simple.

Mr. Paul Forseth: Okay.

I'm certainly impressed with the idea of providing financial services in remote locations, but one of them is located in one of the larger shopping malls in western Canada, and that is in west Vancouver. Because it's located there, those services would then be available to anyone in the region. What's so special about having that particular facility there, where the services could be provided by someone else 50 feet down the mall?

Mr. Ron Jamieson: Let me explain.

That facility, as you point out, is in a mall, and in the 1960s the branch was put there. I can't give you the exact date, although I do have it. Then, as a result of a successful land claim by the Squamish Nation, we found out that our branch was now on Squamish Nation land. The Squamish people, I would tell you, are very important and major customers of the Bank of Montreal and of my group specifically. But, as you rightly point out, as with all of our branches, all people are welcome to do banking there.

In fact, many communities in much more remote areas in the north are not 100% aboriginal. Nain, for example, with what's proposed to be happening in Voisey's Bay, has a lot of customers who are non-aboriginal. So it just happens that the bank in west Vancouver got there as a result of a successful Squamish Nation land claim settlement.

Mr. Paul Forseth: Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Jamieson. Thank you, Mr. Forseth.

Mr. Szabo, please.

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): The rules are changing every day, aren't they?

The Vice-Chair (Mr. Nick Discepola): No.

Mr. Odina Desrochers: You are conducting meetings as you see fit.

The Vice-Chair (Mr. Nick Discepola): The rules that we adopted provide for us to alternate, and that is what I have been doing since this morning.

Mr. Odina Desrochers: I'm teasing you, Mr. Chairman.

[English]

The Vice-Chair (Mr. Nick Discepola): Mr. Szabo, do you want to forgo your spot and let the Bloc Québécois continue?

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[Translation]

Mr. Paul Szabo: I will yield my time to my colleague Odina.

The Vice-Chair (Mr. Nick Discepola): Go ahead, Mr. Desrochers, you have the floor.

Mr. Odina Desrochers: No, thank you.

The Vice-Chair (Mr. Nick Discepola): No? That's fine.

[English]

Mr. Paul Szabo: I want to thank the witnesses for their interventions. I think we've had a range of issues and among my colleagues I think we're going to cover all of them.

Mr. Sharwood, I did want to speak with you. Having been at Price Waterhouse and having been on the audit of Traders for many years—and Canadian General and Toronto General—I know a little bit about your history and I know that you have a wealth of knowledge of the history of the financial services sector. I really am glad you're here and I want to have your opinion about the future of the financial services sector.

From your report I see some specific points about how, historically and currently, there are some areas that you could cite, particularly with regard to the mid-market issue. And I think it's very important we have that.

But the MacKay task force report was meant to put something on the table so that we could start talking about tomorrow's financial services sector. Competition was a big issue, public interest was a very big issue, as was retention or protection of the safety and security that we've enjoyed on a relative basis. And so I'd really like to hear a little bit of your view on the financial services sector and whether it is moving in a way in which it will be responsive to tomorrow's consumer needs.

Mr. Gordon Sharwood: My description of the MacKay task force report is let a hundred flowers bloom, and I think that's the way we have to go. I heard this presentation and I really wept for General Motors Acceptance Corporation; I felt really sad for them. The fact of the matter is that the funds come from GMAC, which raises money on the money market at very close rates to the banks. So the argument falls immediately. It will put some dealers who run their own leasing business from the banks supplying the money at risk, but so what?

This is a world of creative destruction, and I don't buy the argument about job loss for the banks. That's Luddism. That's like keeping the fishermen in the outports. We can't do that; we have to move ahead. And so if job losses take place as the financial markets shift, that's good. They'll find some other jobs, as they do, and they'll probably be in the telephone area.

What I saw when Harold's report came out was an opening up, and as I said in my reports, why can't Bell Canada start a bank? They're ideally suited to do it; they have all the wires in place and they can install ATMs anywhere they want. And that's what I see as the exciting thing, the vision I see of a diversity of financial sources. The trick, and the part that bothers me, which I see developing right now, is how does the business—and I'm talking about the mid-size business that requires a skilled banker in Lethbridge to learn that there is a Finova in Toronto that will finance his needs or her needs....

In terms of the access to capital situation, as you will see in my discussion, I have conceived with Messrs. Manley and Martin something called the Canadian community investment plan, which is really designed to access capital. And we've created something called the community growth accelerator network, which is to accelerate growth in the CCIP communities and other communities.

If you look at the U.S. for instance, at the start-up rate—and we don't keep any statistics on start-ups, which is absolutely outrageous; Ivan Fellegi should be flayed for this—the second-largest start-up rate in the U.S. per capita was Boise, Idaho, and the third was Anchorage, Alaska. Why?

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And if you look at those American communities, you see they have 2% unemployment rates because they are having lots of start-ups and lots of gazelles, as I call them. This new institution that we're going to call the community growth accelerator network has the slogan name Gazelles Unlimited. I want to have more gazelles in Canada and I want to have ways of financing them. And the problem is how do we deliver those diverse financial products to the gazelles in Saskatoon and so forth? The banks will develop some high-asset lending.

I'll deal with one issue you talked about, control, and it's a discussion I've had with John Palmer. One of the things that happens with a high-asset lender is...if Congress gives you 85% of receivables and 65% of your inventory at 3% over prime, which means that you don't have to raise the remainder from equity, which makes it much cheaper, they give you a disk. That disk ties into your general ledger and every day they know, at the central banking office of Congress, what was shipped in, what was shipped out, what was paid in and what was paid out. If John Palmer can't use that mechanism to plug into the quality of the loans on the books of various financial institutions, then he is living in the Dark Ages.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Sharwood. I believe Mr. Cozza will accept your Kleenex, but I'd like to give Mr. Bradford the occasion to respond.

Mr. Adrian Bradford: If we wanted to shed some tears for General Motors as well, we could do so easily because they're not one of our members.

But I think the central point we were trying to make is that as auto manufacturers, we're not interested in getting into the banking business, notwithstanding a vision of the future that anyone's going to be able to jump in and jump out of the business as they need to. The capital costs of getting set up in the banking business are just too much, and moreover, it's not a core business to you if you are a vehicle manufacturer.

Mr. Paul Szabo: Mr. Sharwood, from what I understand in the brief time I've had to look at your stuff, you see that some opportunities have been on tap because the risk in venture capital hasn't been serviced to the extent it is possible and that, domestically, we can still do a lot better. Of the profits of banks, 45% come from international transactions offshore.

We heard from the president and CEO of SNC-Lavalin here yesterday, and I would suspect that if Bombardier and Northern Telecom were before us we'd hear much the same thing: that there is a tremendous untapped marketplace for Canadian business abroad and it would be enhanced substantially if we had support from the Canadian banking system at a higher level, which had infrastructure and operations abroad, which knew the culture, knew how to do business there and was able to support international business out of Canada. The result of this would be more jobs in Canada as well. Does that resonate with you? In addition to the domestic opportunities, do the international opportunities also have to be embraced?

Mr. Gordon Sharwood: Absolutely. We're fairly adventurous. I'm financing a company now that's putting up a paging system by satellite and pay television in Tanzania, Ghana, Kenya, outer Mongolia and Pakistan; and it's all in a day's work. I think that's really the point I'm making; there has not been a recognition on the part of the government about the role of the intermediary. The big companies all go to Wood Gundy, but how does somebody arrange the financing for somebody to go into Ghana? They have to come to some big people like me and there are not enough of us around across the country. That's one of the big things that are touched on in some of the reports, but it's really not dealt with in detail.

Mr. Paul Szabo: Thank you, Mr. Chairman.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Szabo.

Dr. Bennett.

Ms. Carolyn Bennett: Mr. Chairman, my question is for Mr. Jamieson. I think those of us who had the privilege of being in Nunavut this summer felt we had to help in some way, and in regard to a lot of the long-distance services, particularly on the Internet, and from the libraries to the financial institutions to the health units to the RCMP, if the only server is in Iqaluit then even if they're there people have huge long-distance charges to actually go on-line. I would like to know if you think the banks could help us with that.

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Mr. Ron Jamieson: It's an interesting question. As you know, many of these things in the high north now are being done by satellite link. That is a way you can transmit data more cost-effectively.

As we see further expansion in the north—we are, for example, talking to people now in Cape Dorset and Pangnirtung about financial service delivery—this is the type of service we would use to try to accomplish that. With greater and greater utilization of satellite link and computer system orientation, you will see those costs come down, as they traditionally have in everything from cell phones to colour TVs. I think you'll see that cost become a bit more palatable.

Many of the people in these remote communities—and let me qualify this by saying it varies dramatically—don't have the same comfort level with technology as many people in the south. This is why, when we teamed up with Canada Post to deliver financial services and trained their people to deliver them, it was important. We had the technology there, we had the computer link and the 1-800 phone lines, etc., but when they went in to get advice or make a transaction, they were talking to a person. Now 15 or 20 years from now that will probably change and people will be doing all sorts of transactions, banking included, by satellite link and all sorts of innovative technology.

Your point is well taken. It is very much a challenge there.

Ms. Carolyn Bennett: Whether it's what MacKay says about community investment or those kinds of things, obviously providing these sorts of platforms in the kind of way that.... If the banks just make sure it happens in these remote communities, everybody gets to be helpful. You're right, lots of people have trouble with the technology.

I practised in Armstrong, Ontario, which has a big non-status aboriginal population. The RCMP spent most of every day going around telling people they had to put their money in a bank and not keep it in shoe boxes under their beds. People weren't comfortable with actually giving it up and not knowing where it was. I think a lot of community outreach still needs to be done.

Mr. Ron Jamieson: The patience and investment parts I mentioned earlier are so important, because when you go to some of these communities they literally have their money in their mattresses. It takes a great deal of patience, instruction and classroom effort to get people to understand what can happen.

One lady came to our branch and asked in Cree if she could see the safe where the money was kept. We said certainly and showed it to her. She wanted to see where the money was growing because she understood money grew if you put it in the bank. She wanted to see just exactly how that happened.

Mr. Gordon Sharwood: What did you tell her?

Mr. Ron Jamieson: Fortunately, Gordon, I was not the guy at the bank that day.

These are the kinds of issues. They range from that level of sophistication to very sophisticated. It's a full range of issues that we're dealing with, not the least of which is the remoteness, where you're a very expensive one-hour plane ride away from a bank.

The Vice-Chair (Mr. Nick Discepola): Thank you, Dr. Bennett.

Mrs. Redman, there are only two minutes. I can go to the Bloc and come back to you and give you your full time.

[Translation]

Mr. Desrochers, welcome.

Mr. Odina Desrochers: Thank you, Mr. Chairman. I would like to make a comment as a member of the Finance Committee, which has been carrying out its review of the MacKay Report for two months. Yesterday we were disappointed to hear another committee express its opinion, while we are considering this very sensitive and important subject.

• 1225

As you know, the issue has been the subject of many comments and remarks. The publication of a headline such as: "Bank mergers, no. Highlights of the report on bank mergers", discredits the work our committee is doing.

I don't understand why those people, who could be expected to have an idea of the importance and sensitivity of all the questions that we are discussing here, are doing this. In the past two months we have heard a vast number of people on this subject. I simply cannot accept that such a message be published.

The Bloc Québécois members even requested that the period of consultation be extended for greater in-depth study. Moreover, we discussed this at great length in Montreal, Mr. Chairman. On behalf of the Bloc Québécois and personally, I object to this report yesterday. I hope that this morning's articles and comments will not discredit the serious and professional work that we are doing here in this room, and that we have been doing across the country for the past two months.

Allow me to ask Mr. Jamieson whether he shares the rather ridiculous conclusions of this Senate report published yesterday.

[English]

The Vice-Chair (Mr. Nick Discepola): Just for the record, the report that was published yesterday was not a senatorial report. It was a report of a group of Liberal MPs that convened because of their concerns about the financial services sector in November, well before the banks pre-empted not only that committee but the MacKay task force committee, with their announcement. So in the proper context, we're referring to the report of the Liberal caucus task force committee, which has nothing to do with the work of the all-party committee this committee comprises, and in no way pre-empts the work of this committee.

Mr. Ron Jamieson: I understand. Thank you.

In fairness, I didn't even see this until 8 a.m., so I have not had a chance to look at it. But I can tell you that as soon as it went into my hands I looked for references to the aboriginal area, which is my specialization and frankly why I'm here, and is actually why the Minister of Indian Affairs asked me to appear here.

As I alluded to in my comments, I am very disappointed in one recommendation that has not even a paragraph of explanation around it about what the federal government should do. There are two lines. We're talking about over a million Canadians here. I don't think it's appropriate.

The Vice-Chair (Mr. Nick Discepola): Mr. Desrochers.

[Translation]

Mr. Odina Desrochers: Thank you. Now let's get down to serious business and forget about this report. Nevertheless, I wanted to clarify the issue. According to a serious study carried out by Option consommateurs, 600,000 Canadians are unable to open an account or have difficulty in accessing credit. Do you have statistics concerning the access to credit of the people that you serve, namely the aboriginal population? Are there unfortunately a certain number of aboriginals among the 600,000 Canadians identified by Option consommateurs?

[English]

Mr. Ron Jamieson: It's a very good question, because the CBA at this point does not track the amount of aboriginal business that's out there. The way I have tracked it internally is to say there are approximately 1,000 aboriginal communities in Canada, there are about 600 reserves, there are Métis settlements, then there are Inuit, Inuvialuit in the western Arctic. When you add these all up, you have about a thousand communities. So I personally track internally the Bank of Montreal's market share by determining how many of these communities we have a primary banking relationship with.

• 1230

I think, though, that very soon the Canadian Bankers Association and perhaps others will begin to track the level of business activity by banks in these communities. I would certainly welcome that, and I would like to play a role in assisting that to happen, because we need to have more information.

My friend Gordon Sharwood said earlier that there's a lot of statistics out there, but it's the gathering and measuring of those that becomes crucially important as you're planning a going-forward strategy, as we are in aboriginal banking.

[Translation]

Mr. Odina Desrochers: Mr. Jamieson, you are not able to tell me whether or not those people have difficulty gaining access to credit. You do not presently have such figures at hand.

I will ask you another question. Will the bank merger project that your bank is advocating improve the access to credit and services that you are presently offering your clients?

[English]

Mr. Ron Jamieson: Yes, it will. As I mentioned in my remarks, we have 16 existing branches. In concert with Canada Post, I announced in June that we would do 20 more. I think that if we had the resources of both banks put together, I might be able to come back to you a year from now and say that we're planning 100 more.

It's the access to the resources. These things are not cheap. The investment in the beginning is high, and the patience required is high. If I had the resources of the combined Bank of Montreal and Royal Bank, certainly I would be in there slugging to come back. I would tell you that we have 100 branches in remote communities that have never been served by any financial institution before.

[Translation]

Mr. Odina Desrochers: Thank you, Mr. Chairman. Thank you, Mr. Jamieson, for your answers.

The Vice-Chair (Mr. Nick Discepola): You still have two or three minutes.

Mr. Odina Desrochers: I will give them to my colleagues, if they wish.

The Vice-Chair (Mr. Nick Discepola): Ms. Redman.

[English]

Mrs. Karen Redman: Thank you. I'll take his two or three minutes, Mr. Chair. I'd like to hit all the topics that have been covered, if I have time.

Mr. Sharwood, basically your take-home message is that the MacKay task force has a lot of good things in the recommendations. That's what I'm taking from your presentation.

Mr. Gordon Sharwood: I'm sorry...?

Mrs. Karen Redman: In your opinion, MacKay's recommendations have a lot of good topics. They achieve some kind of balance as we look to collapsing the four pillars of financial institutions and being entrepreneurial.

Do you see the recommendations being dealt with in their entirety, or could we go ahead with some recommendations and hold back on others?

Mr. Gordon Sharwood: Well, there are lots of recommendations in there, as you well know. I think there are some that will take time.

I'm with Mr. Jamieson about the technology. I don't see any reason that in 15 or 20 years' time I can't set up in Inuvik, phone up somewhere by satellite and say, you know, I'd like to change my mutual funds from this to that, and my RRSP needs this. But there are people.... We're in a generation gap, and we have to go at that relatively slowly. It will take time, so you can't instantly produce.... Listen, my kids all know how to work computers a lot better than I do. When they grow up, they'll have no hesitation in using the ATMs and those sorts of things.

But I don't see any reason why we shouldn't move quickly on the recommendations with regard to changing the entry provisions for new banks to be formed. I don't why we shouldn't move very quickly on permitting the credit unions to turn themselves into banks.

This is a big issue: if we could train the credit union officers to be good credit people.... They aren't at the moment; they really know how to make mortgage loans, and that's about it.

One of the advantages of the credit unions over the banks is that the credit union manager is usually there forever. He's not promoted from Minden to Peterborough after two years. So there they form a community base, and generally the credit union manager knows everyone in the community. So you get that question of integrity, which I deal with all the time.

In my business, if somebody comes into my office from Guelph and presents something, I have to get on the phone to somebody in Guelph and say, “Who is this person, and are they reliable?” So all that gives them an advantage in the lending area.

• 1235

So there's quite a lot of things in there.... I can't go down one by one and say do this, do that.

Mrs. Karen Redman: I won't ask you to do thumbs up or thumbs down on the whole 124. But basically I'm hearing you say that in your estimation, moving forward on the things you've identified as increasing competition and perhaps international banking regulations is something you would see as happening sooner rather than later.

Mr. Gordon Sharwood: Absolutely. I think that Canadian banks are perfectly capable of withstanding the competition from Finova, ABN AMRO and Bank of America, and let's get on with it.

Mrs. Karen Redman: You make a point about not being a Luddite and about having some kind of vision for the future. I think that's a continuing task of this committee, to keep our eye on the future. Then you talk about the changes in the sector.

I would like to move to Mr. Jamieson. You've dealt with the Royal Bank. In highlighting the aboriginal banking services, you are dealing with something I hear about all the time from constituents.

Specifically, they look at the changing financial institutions and what if we were to say okay to bank mergers as a business plan for the banking industry. Somehow they think that would lead to a hollowing-out of rural Canada, certainly in the remote areas you've gone into.

Why did the Bank of Montreal go there? Was it a good business decision? Is that why you've gone, to capture a market that's not being served?

Mr. Ron Jamieson: Well, there are a couple of reasons. If you do it right, it is a decent business. The idea would be that if you provide financial services, and people in a 1,000-member community become more used to dealing with the bank and find out about the broad level of service they can access, including loans, then economic activity begins to happen. Ultimately that location, that outlet, can grow in profitability.

So it kind of goes against the norm of corporate thinking in much of Canada, where your neck is on the line for the next quarter's results. We had to take a lot more vision in aboriginal banking. We had to say, look, we're going to spend some money here, we're going to make an outreach effort. Maybe five or ten years down the road we'll begin to see a good return on that investment.

I can tell you that the Bank of Montreal stood very squarely with me on this issue, and so far we've been reasonably successful.

Mrs. Karen Redman: What is the proper balance, then, between the entrepreneurial spirit Mr. Sharwood is talking about...? I would tell you that I think consumers and Canadians are demanding that in their financial institutions. What is the proper balance between that and banking decisions that X is good for the people who hold stock in our bank, and this is a good business decision. Where is the role of government in saying, you know what, somebody needs to service these remote areas. Is there legislation, or how do we achieve the balance? I think it's the role of government to protect all Canadians, the ones in rural Canada, the ones in the remote parts of Canada. Where's the balance for the government? What's the perfect answer?

Mr. Ron Jamieson: Let me just say for the record that we support increased competition. I was very interested to hear the comments of Mr. Sharwood when he mentioned that the banks had 70% of the business. He also said that there were 70 venture capital firms in downtown Toronto alone. So these guys must be doing something.

I personally would welcome all the institutions that Gordon alluded to, and others, to come in and compete with us. But at the same time, I think the question of our merging with the Royal Bank would provide us with the strength to compete in markets other than this one—but including this one. It would help keep those jobs through that increased level of employment in this country and not somewhere else.

Mrs. Karen Redman: Isn't the appropriate role of government to demand that those kinds of services be in place from whomever?

Mr. Ron Jamieson: In my role, the appropriate role of government is to assist that to happen. So “demand” is not a word that sits quite well with me.

Mrs. Karen Redman: All right. How is “safeguard?” Is that better?

Mr. Sharwood, did you want to add something?

• 1240

Mr. Gordon Sharwood: Well, I really think Mr. Jamieson's word “facilitate” is good, because I think out there it will be a profitable business because the costs will come down as a result of automation.

I wanted to make another point. Some of you may or may not have seen a study that was done by Professor Don Daly of the Schulich School of Business, talking about the manufacturing productivity gap. Mr. Chrétien talks about that all the time. This paper shows what has happened since the free trade agreement is that the big companies, whether American owned or Canadian owned, have moved their productivity gap and closed whatever productivity gap there was before free trade. What has happened is that the Canadian-owned companies have actually declined in their productivity and the American-owned small companies—I'm talking about the Canadian-owned and the American-owned small companies—have not improved, but they've not declined either.

We're beginning the investigation of this. Mr. Martin asked me to send him a copy of this when I met him the other day, and I haven't done that yet. But one of the reasons was whether or not you could buy numerically controlled machines—whether they can afford to, whether the financing is available for the small Canadian-owned manufacturing companies. It might be more available for the American-owned ones because they might have an American parent.

So these are the issues that really matter, and it's a very important fact that the productivity figures in here are dismaying. That's the reason every now and again Paul Martin and Jean Chrétien say our productivity levels aren't up to what they should be. It's because of the lack of proper financial engineering for the entrepreneurs.

What we see out there is what Don Eastwood, who runs the CCIP for Kitchener-Waterloo-Cambridge, says is the “geek factor”. That means that the fellow has all the knowledge of turning out the fantastic invention, but he knows nothing about marketing, finance, management, or human resources. So there is a huge demand for mentoring in these mid-sized companies.

Lifestyle doesn't matter. If you open a grocery store, that's fine. If you open a beauty shop, that's fine. These are the issues that are not being addressed by the banks and they're not being addressed very much by the governments.

Mrs. Karen Redman: I appreciate that, and if I could, I'd like to ask a question of Mr. Cozza and Mr. Bradford.

According to the statistics I've heard through the MacKay task force, 47% of new car acquisitions are leased and not purchased. So obviously it's certainly gaining in popularity, and it is big business.

There are two sides to the equation if I go to lease a vehicle. One is the price, and one is the ability to finance and how competitive the rate is. I have in front of me an ad; I don't think it's from one of your member companies. It says I can get 2.9% financing. Is the fear of auto leasing really being dealt with at bank branches by banks, the fact that they may be more efficient at doing it and may thus put dealers at peril?

Mr. Gino Cozza: I don't think that's fear at all. I think in order for the banks to do leasing business, they have to get into the business of buying and selling cars. And are the banks equipped to do that? I would suggest not.

Mrs. Karen Redman: When I lease my car through a bank, who's going to own the car?

Mr. Adrian Bradford: The bank will own the car.

Mrs. Karen Redman: So the banks, by virtue of getting into leasing, will become....

Mr. Gino Cozza: They will become owners and, as such, sellers of cars—and purchasers. They have to purchase that car in order to lease it to you.

Mrs. Karen Redman: Where would they get the car from? That's actually Paul's question, but I'm asking it.

Mr. Gino Cozza: They would have to get it from a dealer.

Mrs. Karen Redman: So in essence, car dealerships would still be selling cars. but they would then be selling them to banks, who in turn would lease them to individuals, as opposed to selling them to individuals who would get their financing either through GMAC or whoever, or through their banker.

Mr. Gino Cozza: I'm sorry, could you just repeat the question? I caught the first part—

Mrs. Karen Redman: Banks will be buying the cars as opposed to individuals, and they will, in turn, turn around and lease them.

Mr. Gino Cozza: Right.

Mr. Adrian Bradford: They will purchase a fleet of cars, for example, and they may try to get a special rate in their purchase so they can lease them at perhaps a lesser rate.

Mrs. Karen Redman: Is that one of the vehicles that's now open to dealerships, when you look at giving...I think somebody mentioned the words “loss leaders” before.

• 1245

Mr. Gino Cozza: You mean dealerships purchasing cars?

Mrs. Karen Redman: Yes.

Mr. Gino Cozza: Dealerships would get cars from the manufacturer at their cost price, and then they would in turn sell the lease.

Mrs. Karen Redman: But if I have a vehicle that's not moving, I can offer a very attractive lease rate and adjust the price of the car to make sure that I've moved it off my lot. That's one of the scenarios open to dealers currently, right?

Mr. Gino Cozza: It's within a very small margin. Many people think there are huge margins in cars between the cost and the retail price, which isn't the case.

The Vice-Chair (Mr. Nick Discepola): Mr. Sharwood would like to make a complementary comment.

Mr. Gordon Sharwood: I would just like to make the point that we have to make up our minds here as to whether we're talking about a capital lease or an operating lease. I don't know whether you understand the difference, but with an operating lease, you own the car, they don't.

It makes a big difference. The reason we moved to capital leases in Canada is because of the capital cost allowance treatment and the tax issues, which are very well dealt with in this particular document of the task force. I also referred to it because in the U.S. you can have enormous leases for aircraft and all kinds of things because you can use the capital cost allowance. It's done by way of leverage leases and operating leases. They're not residual capital leases, where you have to take responsibility for whatever the residual is at the end. The tax system in Canada is in favour of capital leases and against operating leases. If we change the tax laws, we'd have operating leases, and the playing field would be even.

Mr. Gino Cozza: I can't agree with that. Most of our leases are to consumers, and the reason they want a capital lease is because they don't want the risk at the end. In most cases today, because of competition, the cars are not worth some of the residuals that are being put into these cars.

That's totally not the case today at all. The reason there are capital leases is to protect consumers, who in the past were hurt by operating leases. When these came to maturity, they were told the car was worth $1,500 and they owed $1,800, so they owed $3,000. That's not the case today. The reason there are capital leases is for the protection of the customer.

The Vice-Chair (Mr. Nick Discepola): Can I follow up on that, Mr. Sharwood?

Okay. Go ahead, Mrs. Redman.

Mrs. Karen Redman: I just have one final question.

One of your arguments against letting banks into auto leasing is that it will cost jobs, in your estimation. Is that right?

Mr. Adrian Bradford: Yes, it will cost jobs in dealerships.

Mrs. Karen Redman: Thank you.

The Vice-Chair (Mr. Nick Discepola): I want to go back to Mr. Sharwood's comment.

I pointed out before that banks are going to have a tremendous advantage because their cost of borrowing is an awful lot less. Therefore, they should be able to really give consumers a great deal on leasing a new car.

Now you've pointed out the very key issue of the capital cost allowance. So if they take their profits of $5 billion or $6 billion, they will now be able to shield this because they'll have a capital cost allowance on all the vehicles they own. They'll now be able to take that and write it all off over two or three years, which is the life of the car. So they will now have huge profits again based on that one restriction right now, which is that they're not allowed to own a loan.

So we should really expect to get a fantastic deal on lease rates if the banks were able to get into it. Why is it that this is not the case in other jurisdictions? Why is it that their leasing rates in the United States, for example, are just comparable to other lease rates? Wouldn't it logically follow that they should really give us a great deal in Canada?

Mr. Gordon Sharwood: I would ask you back, why has GE Capital become one of the largest financial intermediaries in the world, along with Ford Motor Credit Company, and GMAC?

The Vice-Chair (Mr. Nick Discepola): It's because they just offer the same rates as everybody else.

Mr. Gordon Sharwood: Yes.

The Vice-Chair (Mr. Nick Discepola): But what I'm saying is that if we let the banks in, the corollary would be that—

Mr. Gordon Sharwood: They would just be the same as GMAC, Ford Motor Credit Company, and GE Capital.

The Vice-Chair (Mr. Nick Discepola): So the argument—

Mr. Gino Cozza: I have a comment. You alluded to this earlier in your presentation. When I started in this business 20 years ago, there was tremendous competition in the retail finance business. Today, that business is dominated by the banks. No one competes in the retail loan business for cars, none of the captives.

I suggest that the same thing will happen in leasing in the future. You will have the captives, who are going to remain as players, and then you will have the banks. Your other participants currently today—these are your GEs, AT&Ts, and small dealers—will not be able to compete.

The Vice-Chair (Mr. Nick Discepola): Thank you.

Mr. Forseth has a small question. I hate to say that to a politician, because “small” always drags on.

• 1250

Mr. Paul Forseth: Banks, like other corporations or whatever, disclose their financial picture in annual reports and so on. I just want to ask the representative here from the Bank of Montreal whether the Bank of Montreal has fully disclosed the specific costs and profits of bank machines as a separate item, and if so, where? Is it published? Can you give me some numbers on the profitability of bank machines because they exist as a distinct item, or as a profit centre of your bank?

Mr. Ron Jamieson: I have no doubt that's a very worthy question, but I do not know the answer to it. I can certainly get you the answer.

Mr. Paul Forseth: It is a serious question—

Mr. Ron Jamieson: I'm sure it is.

Mr. Paul Forseth: —and I would like to know, as a cost centre or a profit centre, specifically broken out in your annual statements or whatever, what is the profitability and the financial picture of bank machines of your bank.

The Vice-Chair (Mr. Nick Discepola): Mr. Jamieson has offered to get us the answer to that question. If you'd give it to the clerk in writing, we would make it available to all the committee members.

Are there any other questions? I have just one—I was going to say small—question.

Mr. Jamieson, you said you are surprised about recommendation 29 of the Liberal caucus task force report, and you qualified that by saying you only got the report this morning. You may have just skimmed through the recommendations also, but I'd encourage you to read two paragraphs above recommendation 29. I'll read it for you:

One suggested solution to the erosion of financial services in rural areas has been the development of new ways of delivering financial services, including co-operation between financial service providers. During our hearings, we were provided with a variety of examples of this, including banks and credit unions working in co-operation with supermarkets, post offices....

Mrs. Karen Redman: With all due respect, Chair—

The Vice-Chair (Mr. Nick Discepola): But he said he disagrees—

Ms. Carolyn Bennett: You can't do this from the chair.

[Translation]

Mr. Odina Desrochers: I know that I have...

[English]

Mr. Ron Jamieson: I did not read the Bank of Montreal's name in this report. We're the ones who are doing it. Okay? So I don't see the Bank of Montreal. Plus, I think we all have to take this thing in perspective. This is one of many reports to come. That's the way I look at this.

The Vice-Chair (Mr. Nick Discepola): I agree with you there. But I was under the impression you disagreed with our trying to find alternative sources.

Mr. Ron Jamieson: Not at all.

The Vice-Chair (Mr. Nick Discepola): You said you disagree with recommendation 29.

Mr. Ron Jamieson: No. I said it's disappointing that we're already doing it and have been doing it for two years, and now somebody's coming along and making a recommendation that we should now do this. It's two years old.

The Vice-Chair (Mr. Nick Discepola): Okay, that's your point.

My second point is that you stated it wasn't good business to ignore a market setting of more than one million people, in referring to aboriginal banking. I agree and concur with that totally. Your president has now stated he is going to open up a new bank for small and medium-sized businesses. Are you saying the banking community has inadequately addressed the needs of small and medium-sized businesses, which are over one million businesses?

Mr. Ron Jamieson: I am saying and will readily say we've done a better job—an increasingly better job. But there is much work to be done. Our chairman, Mr. Barrett, is saying he wants to set up a specialized unit to deal specifically with a very important marketplace, as Gordon Sharwood has rightly pointed out.

The Vice-Chair (Mr. Nick Discepola): But it won't be a new bank. It can't be.

Mr. Ron Jamieson: No, it'll be a subsidiary bank.

The Vice-Chair (Mr. Nick Discepola): It'll be a division of the ongoing operations of both general banks.

Mr. Ron Jamieson: Yes.

The Vice-Chair (Mr. Nick Discepola): All right. Thank you.

I'd like to conclude, then, and thank the presenters.

Just for the record, I'd like to straighten out the impression that's left that maybe this committee's work has been pre-empted. As Mr. Jamieson correctly stated, this is one of many in a series of works that are going to be published. Mr. MacKay and his task force took over 18 months to make 124 excellent recommendations that we shall undertake to study, and are studying. The Liberal task force took 11 months, as a group of members of one particular party, to study the impact of the financial services sectors. I'm led to believe the Reform Party has done the same thing. The NDP have done the same thing. If other parties have chosen not to do that, it's up to them.

• 1255

There are still other steps. OSFI has to make a recommendation. There has to be a very crucial recommendation from the Competition Bureau, for example. Our own committee will be reporting on an interim report sometime in December, with a final report hopefully in the new year.

There are an awful lot of opportunities for Canadians to make their viewpoints heard. I believe, as Mr. Jamieson said, all these reports will only enhance the finance minister's position to be able to make the best decision for all Canadians. I believe that's the goal we're striving for—to make sure we have the most globally competitive world-class financial services sector. That's the goal of our report, and we will make our report known without any bias from any other report.

Thank you again to all committee members. We will reconvene at 3.30 p.m.