Financial System Review Act – Bill S-5

Mr. James Lunney (Nanaimo—Alberni, CPC):

Mr. Speaker, I would first like to advise you that I will be sharing my time with the hon. member for Palliser. I am pleased to enter the debate today and speak to Bill S-5, the financial system review act.

    Today’s act is important to Canadians because it would ensure the continued strength and stability of our financial system. That is a system that we all depend on every day, whether we are making a deposit at our bank, making at a purchase a store with a credit card or using a mortgage to buy a family home. Specifically today’s act, while largely technical in nature, would reinforce stability in the financial sector. It would fine-tune the consumer protection framework and adjust the regulatory framework to adapt to new developments.

    Bill S-5 would provide for a well-regulated framework that would allow Canadians to rest assured that our country’s financial system will remain the safest and most secure in the world. Indeed, as many Canadians may know, for the fourth year in a row, Canada was recently ranked as having the soundest banks in the world, by the World Economic Forum.

    Most Canadians are aware of this, and are justifiably proud. They are pleased that Canada did not go through the kinds of crises that many other developed democracies in the western G7 countries did, many of which had to nationalize banks and make huge taxpayer investments. Many consumers in other nations went through financial chaos because of a collapse in the financial system.

    We are very fortunate to have the sound regulatory regime we have here in Canada. Before continuing, I would like to provide a bit of background on today’s act and how it came before us today in the House.

    In Canada our financial sector legislation is subject to a full review on a five year cycle. It covers all federally regulated financial institutions, including domestic and foreign banks, trust and loan companies, insurance companies and cooperative credit associations. This five year review practice sets Canada apart from almost every other nation in the world. It ensures that the laws and regulations by which our financial systems are governed remain at the forefront of the global financial system.

    We are especially fortunate in Canada to have a well-regulated financial system, something that has been widely observed in recent years. The world itself has recognized Canada as a leader, as our banking system has been ranked the soundest in the world.
    As the American magazine Newsweek wrote recently:

     Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it’s Canada.

    Similarly, the Brookings Institution, a well-known American think tank, recently declared:
 ….the Canadian banking system has long been regarded by the IMF as a paragon of international best practices. The World Economic Forum recently ranked it the soundest in the world. And it looks better with every passing day….the overall system has remained solvent and solid amid the current global crisis.

    I think this is something most Canadians are justifiably proud of, or at least pleased with. Even though we have gone through our challenges in Canada, we have not faced the crises that other nations have.

    Even the president of the World Bank has noted that our strength is a model for the world, saying:
     Canada’s experience offers lessons to others, especially its strong financial and regulatory environment that is helping it manage the shocks of the downturn, particularly in the banking sector.
    As the past few years have shown, international praise for our system is well founded. While Canada’s financial system was not immune to the impacts of the global financial crisis, Canada’s banks stood firm, bolstered by sound risk management and supported by an effective regulatory and supervisory framework.

    In fact, Canada was the only country in the G7 that did not step in to bail out its major banks in the aftermath of the 2008 financial crisis. This Canadian resilience matters.

    A strong financial sector plays a fundamental role in supporting a strong economy, and not just in times of crisis. As members know, and I think Canadians understand, the focus of our government is jobs and the economy. It is protecting Canada’s prosperity and future employment environment that will maintain the tax base that we depend on to provide the services that Canadians look to us for.

    Workers, retirees and pensioners count on a strong financial sector for the security and the growth of their deposits and investments and to maintain the standard of living that they worked so hard to build. Financial consumers rely upon it for competitive financial products to keep their mortgages or other household financing affordable. Business, large and small, also depend upon it for access to competitive financing to help them to invest and to grow.

    The financial crisis highlighted the importance of evaluating the overall size of financial institutions, the intricacy of global linkages, and the impact those factors have on stability and the best interests of our financial system. The crisis also led to extensive changes in the regulatory framework, ensuring that Canada’s financial sector remains the soundest in the world.
    The financial system review act will build on these reforms and fine-tune the efficiency and effectiveness of the framework. It will improve the ability of regulators to share information efficiently with their international counterparts. This will help fulfill our G20 commitments at a time when financial institutions increasingly operate on a global scale. It would ensure effective supervision and regulation across borders.

    Today’s act also proposes to better protect consumers, chiefly by enhancing the supervisory powers of the Financial Consumer Agency of Canada, FCAC. The agency is mandated to ensure that federally regulated financial institutions adhere to the consumer provisions of the legislation governing financial institutions and their public commitments. It is also the government’s lead agency on financial education and literacy. It has advanced an array of excellent initiatives in recent years.

    I think, in terms of financial literacy, Canadians are starting to pay attention to something they more or less took for granted for many years. I think we have all had a wake-up call as to how important it is that our institutions are on a solid basis and that they are managed in a very secure way.

    It has developed innovative tools to help Canadians, such as a mortgage calculator that quickly determines mortgage payments and the potential savings resulting from early payments.
    I know that our government is concerned about the consumer debt in Canada, as well as in the U.S. We are advising Canadians to get a handle on debt and live within their means. Sound financial management is as important for our families as it is for our institutions. The innovative tools developed by the Financial Consumer Agency of Canada, such as a mortgage calculator, help Canadians accomplish those objectives.

    The FCAC has also created innovative online information to help consumers shop for the most suitable credit card and banking package for their needs. There is a competitive marketplace out there. We hear a lot of talk from our colleagues opposite about the government telling the banks what fees to charge for services. However, there is competition between the institutions. This is a tool developed to help Canadians determine where they would get the services that fit their own needs best.

    The financial system review act proposes to improve consumer protection by increasing the maximum fine that could be levied by the FCAC for violations of a consumer provision of the act. It would increase the maximum penalty to $500,000, from $200,000.

    Finally, the financial system review act would build on the government’s ongoing actions to cut red tape by reducing the administrative burden on financial institutions and adding regulatory flexibility. This would include scrapping duplicative disclosure requirements.

    These measures will support a well-functioning financial system, meeting the needs of Canadians and supporting our future economic prosperity.

    Today’s legislation is extremely important because it concerns one of the key foundations of the global economy. Canadian’s financial sector plays a pivotal role in fostering financial stability, safeguarding the savings of Canadians and fuelling the economic growth that is essential to our standard of living.

    Mr. Speaker, I appreciate the opportunity to speak to this important piece of legislation. I hope all members will support it.

Mr. Sylvain Chicoine (Châteauguay—Saint-Constant, NDP):  
    Mr. Speaker, I listened very carefully to the speech given by the hon. member across the floor, and I congratulate him on at least having recognized the importance of providing a good legislative and regulatory framework for banks. It is precisely because our banks are so well regulated that, here in Canada, we fared better than most countries when the global banking crisis occurred.
    So, yes, it is important to properly legislate and regulate our banks, but a lot more products have become available in recent years, some of them somewhat toxic, poorly defined and poorly regulated, such as commercial paper.
    Is the member not worried about the lack of regulation regarding commercial paper and that kind of products, which have increased in number recently?

Mr. James Lunney:
    Mr. Speaker, I must have missed something in that member’s question. I am not sure how it relates to the banking bill that we are discussing today, Bill S-5. We know that this particular piece of legislation covers a whole range of issues that are important to our financial regulation. It would respond to changes to the financial sector and a rapidly changing global market, it would ensure access to banking, it would level the playing field and promote co-operation, it would enhance the supervisory powers of the Financial Consumer Agency of Canada and it would improve efficiency.
    So I am not sure where the member opposite was coming from with that particular question.

Hon. John McCallum (Markham—Unionville, Lib.):
    Mr. Speaker, as a former banker, I can certainly agree with the hon. member that our banks are in good shape, although I may take a bit of exception to his somewhat triumphalist tone.
     However, my main point is to suggest that to the extent our banks are in good shape it has everything to do with previous Liberal governments and nothing at all to do with the Conservative Party. For one thing, it was the Liberal government that resisted the trend to bank deregulation which was evident in the U.S. and the U.K. It was the Liberal government that said no to bank merges which the Conservatives favoured. And it was the Conservatives who introduced zero down payment, 40 year mortgages in 2006.
    Would the member agree that while our banks are in good shape, it really has nothing to do with his party, which has been more a cause of the problem than a solution?

Mr. James Lunney:
Mr. Speaker, the member for Markham—Unionville also has a selective memory. We do appreciate things that were done properly in banking regulation. What Canadians have not forgotten is the whole range of things that the government did not do well that got us into a lot of problems.
    For example, when we went through a financial crisis under the previous administration, it managed to balance the books and was credited for doing so. However, it did so by cutting transfers to the provinces for health care and education. The Liberals promised to get rid of the GST, an unpopular tax, and somehow they forgot about that. Those are things that Canadians have not forgotten about.

Mr. Pierre Poilievre (Parliamentary Secretary to the Minister of Transport, Infrastructure and Communities and for the Federal Economic Development Agency for Southern Ontario, CPC):
    Mr. Speaker, despite the opposition commentary today, the U.S. financial and mortgage crisis was caused by massive government intervention in the mortgage and banking business. According to a 2010 World Bank report on the U.S. financial crisis, Freddie Mac and Fannie Mae, both government-sponsored enterprises, bought an estimated 47% of the toxic mortgages that ultimately led to the collapse between 1980 and 2007, and backed debt that went from $200 million to $4 trillion. If I could quote that World Bank report, it states:
     In the mid-1990s, the government changed the way the Community Reinvestment Act was enforced and effectively compelled banks to initiate risky mortgages.
    So it is important for us to remember when we are debating banking regulation that it was massive government intervention that led to the problems that occurred in the U.S. system.

Mr. James Lunney:
    Mr. Speaker, I thank the parliamentary secretary for that important reminder. Of course, he has been a point man in addressing many of these concerns. He rightly points out the excesses that happened in the United States, of government intervention, that contributed to the failure of institutions that people relied on and made unstable commitments to mortgages that were not sustainable and were not backed by real assets.
    The changes that are being introduced in Bill S-5 are ones that would improve our system. They would make a very good system better.

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