STANDING COMMITTEE ON INDUSTRY
COMITÉ PERMANENT DE L'INDUSTRIE
[Recorded by Electronic Apparatus]
Tuesday, May 5, 1998
The Chair (Ms. Susan Whelan (Essex, Lib.)): I call
the meeting to order, pursuant to Standing Order
108(2), study of small business access to capital
and bank loans.
We're very pleased today to have before us the
Canadian Community Reinvestment Coalition,
represented by Duff Conacher, the chair of the CCRC and
the coordinator of Democracy Watch, and Luc Lapointe,
I believe you have some opening comments for the
committee. If you'd like to begin, we'll have questions
Everyone should have in front of them the reports done
by the witnesses.
Mr. Conacher and Mr. Lapointe, go right ahead.
Mr. Duff Conacher (Chair, Canadian Community
Reinvestment Coalition): Thank you very much for
inviting us to testify today on the issue of bank
You should also have in front of you a copy of the
analysis we have prepared for today's presentation,
along with summaries of each of the position papers
that the Canadian Community Reinvestment Coalition
released throughout the fall. We're just going to
briefly take you through each of these pieces.
By way of further introduction, the Canadian Community
Reinvestment Coalition is a project of Democracy Watch,
a group that I coordinate here in Ottawa, which is a
citizen advocacy group working on government and
corporate accountability. We now have 80 small
business, consumer, labour, community economic
development, anti-poverty, and social justice groups in
the coalition from every province and the Northwest
Territories, representing over three million Canadians.
We are particularly interested in banks' performance
in lending, investment, and overall service to
customers. Initially, four years ago now, as Democracy
Watch, we released this report entitled, “The Capital
Idea: The Case for Accountability Mechanisms and
Reinvestment Requirements for Financial Institutions in
Canada”. As Democracy Watch, we have been pushing on
this issue for a number of years in order to have more
detailed disclosure on business lending and also
detailed disclosure on the investment in service that
is provided by financial institutions, and most
particularly by banks.
As you know—when some of you were in attendance—the
government, through 1994 and 1995, negotiated a
disclosure system with the banks that is voluntary and
involves quarterly reports. In the analysis before
you, we've analysed the period from September 30, 1995,
which was the time of the first full report that broke
out lending by size of loan for the big seven banks,
through to the most recently available report, which is
the statistics as at September 30, 1997.
It's clear of course that small business.... The
statistics are only becoming more numerous in showing
how important the small business sector is—this is
moving into the medium-sized business sector—in terms
of job creation and simple employment in Canada, which
we summarized in the first section of our analysis.
What has also become clear, especially when compared
to surveys in the U.S., is that surveys of small
businesses have shown that access to capital is an
ongoing problem. It has ranked over the past 10 years
as a top-ten concern for small businesses in every
single annual survey.
By comparison, in the U.S., the same survey done by
the National Federation of Independent Business
found that access to capital has never ranked higher
than 43rd as a concern for small businesses in the U.S.
It's currently ranked in the 60s. This is a stark
difference that we think is in large part due to a
system they have in the U.S. of detailed disclosure and
also a review of a bank's performance in lending,
investment, and overall service.
As we will detail, we see that flaws exist in the
negotiated system of disclosure. One of the major flaws
that we see is that the banks are not required to track
the demand for loans. In the U.S., which has been
under the U.S. disclosure system for more than 20
years, the 9,000 banks in the U.S. have been tracking
the demand for loans, and then the number approved and
As you'll see in section II of the analysis we
prepared, the banks have been doing a survey
commissioned by the Canadian Bankers Association
that was conducted by Thompson Lightstone.
There have been two surveys completed to
Unfortunately, the surveys are inadequate and flawed.
They are simply inadequate to close this gap and track
demand and the turn-down or rejection rate.
I'll just go through briefly a few of the flaws we
have found. The results of the surveys are based on
responses from mostly larger businesses with more than
50 employees. That goes far past the notion of
small business lending. So essentially, they may be
surveying some medium-sized businesses, but they're
not surveying small businesses.
At most, 200 start-up businesses have been surveyed.
Again, that's simply inadequate. There are 760,000
business credit customers of the banks currently in
Canada, so to survey only 200 businesses that were
trying to start up and get initial start-up financing
is statistically an invalid group to be sampling and
this results in an invalid response rate.
Essentially, the banks are surveying large existing
businesses with these surveys, and it's not surprising
that large existing businesses would not have much
trouble getting their loans approved, because they
exist, they have inventory, they're a going
concern, and they have a track record. They are not
at all surveying people who are trying to start a
business to create jobs in the country.
These flaws make it clear that such a CBA-commissioned
survey is inadequate and an invalid means of tracking
small business demand for capital and whether banks are
meeting that demand.
In the U.S., as I mentioned, there has been systematic
disclosure by the banks of demand, rejection, and
approval rates for over 20 years. Some 9,000 banks have
been able to do this quite successfully in the U.S.
There's no reason why our big seven banks, and other
financial institutions as well, should not be able to
do the same here in Canada.
Turning to the analysis of the statistics, look
at page 2 of the analysis we prepared. It shows
quite clearly that between September 30, 1995 and
the most recently available statistics, which are as of
September 30, 1997, the support for small business by
the big seven banks decreased.
This is according to
their own numbers. As you'll see in the bullet points,
there are credit authorizations of under
$250,000. The share of credit decreased from 7.17% of
the total in September 1995 to 6.47% of the total in
September 1997. The same occurred for credit
authorizations between $250,000 and $1 million, a
similar decrease of about 0.5%. In both categories,
small business customers and medium-sized business
customers, there was stagnation in terms of the
percentage of bank customers who were small or medium-sized
Despite the banks' claims, it shows
that small business, which creates over 35% of Canada's
gross domestic product and over 80% of the jobs in
Canada over the past ten years, is receiving at most
6.5% of the total business credit extended by the
banks. This shows a persistent unwillingness to
support the job-creating small business sector,
especially when you compare it to big business lending.
Several people say, well, small businesses have
alternatives and will be able to find other places for
financing from other sources. As this chart that we
have prepared shows, based on statistics that were available
up to the end of 1997, the banks are responsible for 80%
of business financing in Canada. That is a total, at
that time, of $456 billion in financing. Just to give some
comparison, the total provincial and territorial
expenditures—the second column—in 1997
were $150 billion.
So the banks were three times the
size of total provincial and territorial expenditures
in terms of their lending. They were more than
three times the size of total federal government
expenditures, which were $116 billion in 1997.
four boxes show trust companies, financial
cooperatives, including credit unions and caisses
populaires, venture capital, and the total federal
government current business financing programs through
the regional economic diversification programs, such as
the Atlantic Canada Opportunities Agency.
Those supposed alternatives to the banks only add up to
20% of total business financing in Canada.
If you are not doing something about what the banks
are doing in terms of performing and serving small
businesses, then these businesses simply have nowhere
else to turn. There is not the competition that the
banks claim; they dominate the market. And, unfortunately,
most of their money is going to big business. Between
September 1995 and September 1997 there was a $99.8
billion increase in the total business credit that was
authorized. However, $81 billion of that $99
billion—in other words, 81% of the total—was loaned out in loans
in excess of $5 million. Those are not small business
loans; they're not medium-sized business loans.
There was also a decrease in customers having loans
in excess of $5 million during that time period—a
drop of 13%. So through a two-year period, where there
was a 13% drop in the number of big business customers,
at the same time the banks extended more money to fewer
customers, and, as shown already, decreasing, during that
same period, the proportion of credit extended to small
and medium-sized businesses.
Of particular importance is
the comparison between the amount authorized and the
amount outstanding. When a bank authorizes a loan of
$100,000, the business does not necessarily use the full
$100,000 as an operating line of credit. For small
businesses it usually runs at about 70%, so they would
use $70,000 of a $100,000 loan. For big business with
loans of over $5 million, the utilization rate runs at
the most at 29% through that two-year period.
In essence, no new money was made available to
small and medium-sized businesses over this two-year
period. There was a stagnation in the number of
customers. There was a decrease in the proportion, and
yet at the same time, the number of customers for big
business dropped, but the banks extended more money to
big business—big businesses that need the money the
least, because they usually use less than one-third of
the total amount authorized to them.
Again, of almost a $100 billion increase in the total
business credit over this period, $81 billion went to
the largest businesses in the country, and—not that
we've tracked this in detail—it's certainly fairly
clear from the newspaper headlines that a lot of those
loans were going for mergers and takeovers of other
businesses. That's why you see the reduction in the
number of big businesses with bank loans through that
period, and that has led to job loss. The banks are
throwing money at job loss while reducing the amount of
money to the job-creating business sector.
I will now turn it over to Luc Lapointe, the
coordinator of the Canadian Community Reinvestment
Coalition, to take you through three pages of charts
where we break out the statistics in a bit more detail.
Mr. Luc Lapointe (Coordinator, Canadian Community
Reinvestment Coalition): If you look at the last three pages of
the document you have been given, you will see that, in the first
section, we provide the categories where you will find the
majority of the banks' customers. You will see quickly that, for
the first three categories, 85.4 per cent of the customers,
including small businesses, find themselves in the category of
lower loans, of $250,000. In the last category, corresponding to
loans of $1 million or more, we find only 4.7 per cent of the
In the other table, you can see that there is a
disproportion as to the number of loans granted to those clients.
Most of the investments, as you can see, are aimed at big
corporations. The category of authorized loans of more than
$1 million represents 86.42 per cent of the total loans granted
by the banks, whereas the first five categories receive very
little from the banks.
You can also see how unequal are the loans granted. Most of
the customers are small- and medium-sized businesses but they
receive only a small portion of the total amount loaned by the
banks. The major clients, making up 4.7 per cent of the
customers, receive 86 per cent of the loans granted by banks.
You will find more detailed information on the next page
where we look at each bank. All of them claim to be very close to
small- and medium-sized companies and they claim that they grant
a higher percentage of their loans to that category each year. On
average, the proportion of loans of less than $250,000 granted to
businesses is about 6.47 per cent. The range is from a maximum of
9.02 per cent to a minimum of 3.98 per cent.
For larger businesses, authorized loans range from $250,000
to $1 million and they represent 13.57 per cent of the total
amount loaned to companies.
Once again, most of the amounts granted are given to large
companies and not to small businesses, whereas these remain the
economic engine of Canada.
On the third page of the document, we provide even more
detailed information about the regions for which the banks gave
us the data. Out of the eight regions mentioned, five have seen a
decrease as to the proportion of amounts invested by the banks.
Only three had seen an increase.
A bit further down the page, you see that, as far as
percentages are concerned, Metro Toronto receives 40 per cent or
more of the loans granted by the banks, and that most of those
loans are granted to big business, not to small- and medium-sized
businesses. The banks provide less and less information that
would allow us to measure their performance in the regions.
Thirdly, the Coalition believes that it would be necessary
to have more detailed information about each community, and that
the banks are able to provide this detailed information, so that
we could measure their level of service to consumers and to
small- and medium-sized businesses in a given community.
It is rather difficult to measure the performance of a bank
when you have to look at eight large regions rather than at
individual communities. That is why we are asking for better
disclosure of regional data.
Mr. Duff Conacher: To take you quickly through, if
you look at the one- to two-page summaries we've
provided of each of our five position papers, if you
look at the third position paper, “Disclosure by Banks
of Business Lending Statistics: How to Correct the
Flaws in the Current System”, you will see the
background, and on the back of the page the
recommendations. I'll just take you through very
briefly, and then we'll open it up to questions.
The disclosure system and the initial round of
hearings, now four years ago, in April 1994, was based
largely on one statistic that was available at that
time. That statistic showed that between 1989 and
1993, the lending of banks in loans under $200,000
decreased from about $21 billion down to just under $18
billion—a $3 billion to $4 billion drop.
What were the small businesses saying through that
period? They were saying there's a credit crunch. The
banks were saying “No, no. Demand dropped. That's the
reason for the $4 billion drop in lending. The number of
customers, small businesses demanding loans of less
than $200,000, dropped.”
Now we have had about three years of disclosure by the
banks. If the amount loaned out goes down again, or,
as we've seen in some of the regions, the proportion to
the region in small business lending has dropped, when
the banks appear here on Thursday and you ask them
about whether it has been a credit crunch in these
regions or demand dropping, they can say to you, “Oh,
demand dropped”, and you do not have any statistics to
challenge them on, because they are not required to
track demand. They are not required to track the number
of applications, and they are not required to track
whether they're meeting that demand in terms of the
number of approvals and number of rejections.
That is our first recommendation. As in the U.S., as
U.S. banks have been doing, 9,000 of them for 20 years,
have them track the number of applications, the number of
approvals and rejections, categorized by the size of
loan as they currently are, and we also think by the size
of business in terms of numbers of employees or sales,
and also the location of the business and the gender of
the business owner.
As you can see from our final chart, the breakout is
only regional; it's not even province by province
currently. In particular, when you have the finance
minister today expressing concern about the impact of
bank mergers on small communities across the country,
if you are not tracking what banks are doing community
by community, you have no idea what their service
levels are now. If you are not measuring their service
levels now, then you will have no idea whether that
service will improve or decrease as a result of the
merger of any financial institution.
Banks should also be required to disclose reasons for
rejections, loan defaults, loan losses, and the number
of called loans. That will allow you to track the risk
of lending to different sectors, different sizes of
business and different communities, and, by tracking
the number of called loans, will allow you to track
whether the banks are simply arbitrarily starting to
pull out support from a particular industry or region
or sector, or at least be able to track the rate.
As in the U.S., we think the statistics should be
analysed by Statistics Canada, as opposed to receiving
these volumes from the bank, which they carefully spin
in their direction and try to present in the most
favourable light. They should also be available
electronically, because this is very unwieldy for
Industry Canada staff to try to crunch the numbers and
determine what the actual patterns are. It's taken us
a lot of time, because they are only available in this
hard copy form.
They should also be reported branch by branch, by
federal riding, so each member of Parliament would
receive a report for each bank that has branches in
their area and would know how they're performing in
their riding, and as well, by province and nationally,
so we can track provincial and national trends.
In addition, other deposit financial institutions,
including the crown financial institutions, should be
part of this whole disclosure system.
That's just a brief summary of why we are making
recommendations to close the gaps and correct the flaws
in the system. We will now be happy to take any
questions you have about both the U.S. system and the
recommendations we are making. Thank you very much.
The Chair: Thank you very much, Mr. Conacher and
We're going to begin with Mr. Schmidt.
Mr. Werner Schmidt (Kelowna, Ref.): Thank you,
Madam Chair, and thank you for appearing before the
I would like to start with your central point about
measuring demand. How do you define demand?
Mr. Duff Conacher: The way we define demand is the
government would sit down with small business groups,
the financial institutions, and consumer groups, as they
have in the U.S. for over 20 years, and draw a line.
When you cross this line you have applied for a loan,
and the banks will count every person who crosses the
line. It's worked very well. It's been time tested
and there are no complaints from banks in the U.S.
We've talked with several of them who are here in
Canada and they have no problem with the system in the
U.S. They've been able to track demand for over 20
It's done by simply drawing a line and defining an
application as a certain action. For example, if
someone just calls up to their loans manager and asks
for $1,000, you could say that's not an application.
But if they filled out the form, that could be the line
you draw. Once the form is filled out, it's an
application. It's counted as demand. Then you track
the approval and rejection rate.
In the U.S. 9,000 banks, many of them much smaller
than our banks in Canada, have been able to figure out
how to do this for 20 years, and there's no reason why
our big seven can't do it here.
Mr. Werner Schmidt: My question isn't about
whether it can be done; my question is whether we can
find a measure that will be considered valid and
reliable and an accurate reflection of what an
application is. You have just said filling out a form
is evidence. Is that your recommendation?
Mr. Duff Conacher: We would like to sit down with
groups such as the Canadian Federation of Independent
Business and other small business groups in the country
who hear from their members about problems of access to
capital, negotiate it, and determine what is a
reasonable line to draw, and anyone who crosses that
line will be counted. It's done in the U.S.
Mr. Werner Schmidt: All right. So you do this. Is
that number any more reliable than what we have now?
Mr. Duff Conacher: It's certainly much more
reliable than these surveys. If you accept these
surveys at face value, you're accepting the banks
pulling the wool over your eyes.
Mr. Werner Schmidt: I'm not talking about the
Mr. Duff Conacher: That's all we have, and it's
not surveying start-ups. It's not surveying people who
are trying to get loans who do not have businesses yet.
We don't have anything now, so that's why we need
Mr. Werner Schmidt: The point I'm trying to press
home is that unless and until there's common agreement
that there is such a thing as a measure for demand, the
results of any numbers that are generated will be
disputed forever and they become meaningless. It's
really important that you and others, whoever is going
to do this, clearly define what is demand and how it
will be measured. Because unless there is common
agreement and a common definition, not only by you, the
Canadian Bankers Association, the caisse populaires, or
whatever else, these numbers will not be comparable; in
fact, these numbers will be meaningless numbers.
It's really incumbent upon you to come up with not
some vague notion that we should measure this thing,
but specifically what it is you are measuring, because
these numbers can become absolutely misleading, far
worse than what we have now.
Mr. Luc Lapointe: With the recommendation the
coalition is making, we're using a model that exists
already. Our banks are using that system. The Bank of
Montreal with Harris BankCorp Inc. in Chicago, TD
Banks in New York, and these 9,000 other banks in the
U.S. are using a measuring system.
We don't think we have the solution to all the
problems, but we want to sit down with the bankers,
small businesses, and consumers and actually establish
an application, so there will be no argument as to
what is an application and what is not an application.
Mr. Duff Conacher: This is not something we as a
coalition and a non-governmental organization can do.
It is up to the government to strike an advisory
committee, as has been done in many instances—I won't
go through and cite them all because it would be such a
long list as to be overwhelming—and have
representatives from the various sectors come up with
the line that has to be crossed. Paul Martin said
quite clearly in 1995 we will be working with the banks
to establish benchmarks against which their performance
with small business will be measured.
This is a benchmark that should be established.
If it isn't, there is no accountability on this issue.
Whenever the amount loaned out goes down, the banks
will tell you demand dropped and the government will
not be able to say one thing because it will have no
evidence of whether demands remained constant, went up,
or dropped. The banks have the figures and they should
be tracking them and disclosing them. They already
claim demand dropped, so they must be tracking it in
some way already. Let's find out how they're
tracking it and work from there.
The Chair: Last question.
Mr. Werner Schmidt: We'll leave that point. I
just got started here.
I think you want a much finer breakdown by gender and
almost by address. What would you use as a criterion
that would protect the privacy of individual businesses
or individuals? If we go as specifically as you have
suggested here, the danger is you could invade privacy.
How do you prevent the intrusion into the private
affairs of an individual or a business?
Mr. Duff Conacher: There is no danger at all. If
the banks on Thursday appear before you and state
there is such a danger, they are making a false claim.
There is no danger.
Mr. Werner Schmidt: I'm not defending the banks.
I want to know what you want.
Mr. Duff Conacher: The Competition Bureau is
currently reviewing the proposed mergers. It will look
at competition using Statistics Canada data and
information from the banks in terms of the products and
services they provide. Branch by branch, the banks
will provide this to the Competition Bureau for 6,000
defined markets. The markets are defined by census
track subdivisions of Statistics Canada, of which there
are 6,000 in Canada.
If the Competition Bureau can do this without invading
anyone's privacy, in terms of the products and services
and the market share the banks have, then the
banks can certainly provide this information for the
purpose of these statistics.
What is the standard the Competition Bureau will be
using? The Competition Bureau will use the same
standard Statistics Canada uses, which is why we
recommend these statistics, as opposed to receiving
these spin-doctored reports from the banks each
Statistics Canada should be analysing the data for you
and presenting reports, breaking it down by census
track. That means if there is a grouping of less than
13, you do not break it out into any subgroups. That
is Statistics Canada's census data collection policy to
protect the privacy of anyone they are collecting data
on. So any grouping of less than 13 would not be
broken out into the smaller subcategories.
As long as you have 13 loans in a grouping, there is
no possibility, according to Statistics Canada, that
anyone's privacy will be invaded. So when the banks
say this is not possible, it is possible. You simply
follow Statistics Canada guidelines. That's why we
recommend having Statistics Canada break down the data,
because it will be able to follow its own guidelines,
Mr. Werner Schmidt: Nobody's arguing it's not
possible. I don't think the banks argue that either.
Mr. Duff Conacher: Yes, the banks are. I'm sorry,
they've made the claim several times that they would—
Mr. Werner Schmidt: That they can't track?
Mr. Duff Conacher: No, they say it will
uncontrollably invade people's privacy if you do this.
Mr. Werner Schmidt: If you go to
Mr. Walt Lastewka (St. Catharines, Lib.): When
both of you start talking at the same time, I'm not
sure what the question is or what the answer is.
I think your questioning is good, but let's not interrupt.
The Chair: The researcher has just clarified to me
that they do
now apply Statistics Canada's rules when they're doing
this. They did have problems in the past, but the banks'
statistics do now have Statistics Canada's rules
applied to them.
Mr. Werner Schmidt: Yes, exactly.
I'd like to pursue this
one step further in terms of a technicality, and that is
with regard to the tracking system that Statistics
Canada uses. Are you telling us that the tracking
Statistics Canada uses today would be in terms of loans
in groups of 13 or not less than 13? Does Statistics
Canada do that now?
Mr. Duff Conacher: No, they don't break out by census
track. Nobody does. That's why we're recommending—
Mr. Werner Schmidt: Including Statistics Canada;
Mr. Duff Conacher: The banks don't provide
them with the data to do so.
Mr. Werner Schmidt: But they could.
Mr. Duff Conacher: They could, definitely.
Mr. Werner Schmidt: Of course, they can. The issue
is if they did, what would happen to a group of 13
businesses that would all be in the $25,000 or less
Mr. Duff Conacher: You wouldn't break it out less
Mr. Werner Schmidt: Do you want to break it out
by province? Do you want to break it out by—
Mr. Duff Conacher: By census track, as they do in
Mr. Werner Schmidt: Which one takes precedence
here now? In other parts of your organization
you want it on the basis of geographic area. The
census track may not be sufficient in a census area or
a geographic area. Do you now combine them? Is that
what you're suggesting?
Mr. Duff Conacher: It would then go to the next
largest category that we would like the statistics
broken out by, and that is by federal riding. If a census
track had less than 13 people in a particular category,
you would have to put “cannot disclose” for that
Mr. Werner Schmidt: That would be acceptable to
Mr. Duff Conacher: Yes. It would then be grouped
into the riding. It would be able to be shown through
the whole riding. Maybe not; maybe some ridings are so
sparsely populated in terms of bank lending—which
would be an interesting thing for any member of
Parliament to learn, that their riding is sparsely
populated in terms of bank loans—that it would only be
able to be broken out on a provincial level in some
If that's the case, then maybe it's the result of the
small number of customers, but since you'll be tracking
demand as well, you'll know that maybe there are a lot
of people in that province who are trying to get loans
and the banks are turning them away at a much higher
level than any other province.
In any case, the breakdown with
more detail will allow you to track by community, which
is essential in terms of determining whether a merger
is a good idea or not.
The Chair: Thank you very much, Mr. Conacher.
Thank you, Mr. Schmidt.
Mr. Lastewka, please.
Mr. Walt Lastewka: Thank you, Madam Chair. I
have a number of questions. Have you met with the
Canadian Bankers Association on your presentation?
Mr. Duff Conacher: Of this particular
Mr. Walt Lastewka: Yes.
Mr. Duff Conacher: No.
Mr. Walt Lastewka: Are you intending to?
Mr. Duff Conacher: Yes, we send all of our
materials to the Canadian Bankers Association.
Mr. Walt Lastewka: But are you intending to
meet with them and discuss what you've presented here?
Mr. Duff Conacher: If they will meet with us.
Mr. Walt Lastewka: Have they refused to meet with
Mr. Duff Conacher: No, to date they have not
refused to meet with us. They have certainly
considered all of our recommendations, and we're waiting
to hear back from them on a number of our
Mr. Walt Lastewka: So you've requested to meet
with them and you're waiting for them to get back to
Mr. Duff Conacher: No. We spoke with them about
one of our issues in particular, position paper number
4, on the creation of a financial consumer
organization in Canada, which is summarized here as
well. That was the specific reason for the meeting,
but we did pass on copies of all of our position papers
and the summaries and we requested that they also
review those recommendations and get back in touch with
Mr. Walt Lastewka: I'm not sure whether you've
answered my question. Have you requested to meet with
them, to dialogue, yes or no?
Mr. Luc Lapointe: No. What we've done, first of
all, is make sure we develop our position paper
and do the proper research, so when we do
meet with them.... As you know,
December 1997 is our last position paper. We've done
some more research, and we're certainly going to be
meeting with them. We've not requested a specific
meeting for them on the whole proposal, such as a
Community Reinvestment Act.
We've met with them through other sources, at the
National Council of Welfare when they talked about
access to basic banking services. We've met with all
the banks about the banking ombudsman. We've met with
them about the financial consumer organization, but we
will be meeting or making a formal request to them to
meet and talk to them about the Community Reinvestment
Mr. Walt Lastewka: On Thursday I'm going to ask
the CBA and the bankers if they have responded to your
request to meet with them.
Mr. Luc Lapointe: Since there haven't been any requests
other, than the one I've mentioned, they will say
no, because we haven't met with them on a—
Mr. Tony Ianno (Trinity—Spadina, Lib.): So ask
Mr. Luc Lapointe: We will, and that's why I was
explaining to you that we did, first of all, develop our
position paper. When we meet with
the banks we will have all the research. We're
actually looking at some of their activities in the
U.S. as well. They are using the same arguments, that
they cannot do this in Canada.
Mr. Walt Lastewka: My second question is, have you
taken an example of a business that didn't get a loan
and backed it up to find out what happened and why
they didn't get a loan and so forth? Have you examples
Mr. Duff Conacher: Yes, we do from our ombudsman
paper, and it is posted on our website, as all our
position papers are.
There's a summary there of 20 complaints to businesses
where they did not receive an adequate response either
through the ombudsman system or from the bank branch
themselves. We have investigated some of those.
Essentially, we do not have the resources, which is why
we are advocating the creation of a financial consumer
organization that would have the resources to take
people's complaints and help them work through
with the banks. We are not a service organization.
Mr. Walt Lastewka: No, but you made claims that a
business couldn't get a loan, so I'm asking
if you have taken a business and backed it up to
be able to say here's a business that had a business
plan, that went to the bank to get a loan and they were
turned down, and for what reason they were turned down,
and did the bank help them go to the next step? Have
you done that as a group?
Mr. Duff Conacher: No, we're not a service
organization, so we don't provide that service to people
in terms of helping them. We certainly do have
documentation from people, but that is their side of the
story, and then there's the bank's side of the story.
That's what the ombudsman is supposed to work on.
We hear from a number of people, one in particular,
currently, who has been waiting since August 1996 for
the industry ombudsman to deal with his complaint. He
seems to have a very well-documented case of abuse of
his business service by
the bank. But we're not a
service organization, and that's why we need a financial
consumer organization, which we could talk about in more
detail if you like in terms of how it would be created and would
it be able to take calls from people and be able to help
them work through....
That's why we recommend that the banks, as in the
U.S., be permitted to give a reason, which again would be
that you would have a list of industry
sectors, as they do. You could have a list of 20 reasons that they
could slot into a database and it would give a reason for
rejections. That would help the government. If, for
example, the number one reason for rejections was lack
of a good business plan, and you saw that in particular
provinces that was a real concern, it would help the
government and the Business Development Bank of
Canada design educational programs and be able to
target them where they're needed most.
The Chair: Last question, please.
Mr. Walt Lastewka: I'm not one to start
adding another structure or
another step in place. Mine is to reduce it and to
make sure the business people are getting loans.
I do back up every business case that
I get a complaint on in the office and have been very
successful, but I find out more often than not that
it's the businessman not providing at all enough
information in doing what he or she should have done to
make sure there's a loan.
In fact, I'm at the point of thinking—and I'd like your
response—that we should stop all the surveys and all
the statistics and all that and have the banks work
more at the local level in understanding businesses,
spend some money there so they could exchange and
facilitate the businesses to get loans.
Mr. Luc Lapointe: That's what our banks have done
in the U.S. When the Bank of Montreal went and bought
the Harris Bank, they sat down with community groups, they
sat down with small business and they said, what can we
do for you? How can we help you? This is what we want
to hear our banks say: what can we do for you?
We notice the survey from the Canadian Federation of
Independent Business shows that there's a problem with
access to capital. There's all kinds of anecdotal
evidence about people complaining about the banks and
the banks saying, maybe this is a legitimate loan,
maybe it's not. I think what we're trying to say is if
we don't have the numbers...and it's impossible; it's
only anecdotal evidence that we're getting all the
time. Let's get the numbers. The banks are coming out
and saying yes, we are doing a good job with small
So let's get the numbers and let's put an end to this.
I'm sure they're doing a good job, or they might be
doing a good job, and if they're doing such a
good job, why not post it?
Why not show it that they're actually starting
small business here in Canada and they're
answering the demands for loans?
The Chair: Thank you, Mr. Lastewka.
Madame Lalonde, s'il vous plaît.
Ms. Francine Lalonde (Mercier, BQ): Thank you very much for
your presentation. Had I known what you were going to speak
about, I would have brought a survey carried out by a company
whose name I have forgotten. I had other types of questions to
ask you. I have stated several times that I am absolutely
surprised by the poor results that we are given as to rejections.
As far as I know, that does not correspond to what I have seen in
Now, this is a survey. To answer a survey, your business has
to be in existence. We're not talking about a longitudinal
survey, which means that they cannot measure the level of service
among a sufficient number of companies.
If, in a given case, the role played by the bank has
contributed to the bankruptcy of the business, we will never know
that because that business will not be there anymore to answer
those questions. It will have disappeared.
Your recommendation is very interesting and we will look at
it closely. What you want is that the small- and medium-sized
companies have access to capital. We know how important that
sector is for job creation.
Therefore, I find your recommendation extremely interesting.
I understand Mr. Schmidt's question but it seems to me that it
would be possible to resolve the matter by discussing it, as you
That being said, have you looked at other causes linked to
loans? I talked to some bank managers in my riding and they
mentioned some problems related to the SBLA and to the fact that
the guarantees that are being asked are excessive. They hold
people by the neck, if I can use that expression. Or by some
other body parts, if you want to translate.
Mr. Antoine Dubé (Lévis, BQ): Hard to translate.
Ms. Francine Lalonde: Indeed. Local managers told us that
their problem is the risk of bankruptcy. Since they have a quota
to achieve and that their main bank wants them to achieve a given
level of profit, whenever a new business goes bankrupt, that
comes out of the results. Because of that, they are being
extremely careful and very conservative. We know that young
entrepreneurs who want to start a business do not always have the
same level of support as a well-established company, with a
business plan and with the possibility of obtaining routine
Since our concern is job creation, we know that jobs are
created when the first loan is given to a businessman to create a
business and, later on, to expand it. This being so, have you
looked at the link between bankruptcies and the fact that loans
are given or not to small- and medium-sized businesses?
Mr. Luc Lapointe: Yes, we looked at the data provided by the
banks on their losses for various categories of loans. Our
analysis proves that the losses are not any bigger in the case of
small companies than in the case of big business. Of course,
there are fewer bankruptcies in big business, but the losses are
much larger. There are more bankruptcies in the small business
sector, but the losses are much lower. As far as proportions are
concerned, there are actually more losses in the big business
sector than in the small business sector.
Ms. Francine Lalonde: That is interesting. If you have
specific data about that, I would like to get it.
Small- and medium-sized businesses apply to small bank
branches, whereas big business deals with regional or central
Mr. Luc Lapointe: With the various mergers proposed, we run
the risk of not having any small banks left for small business.
We hope that will not be so but, in any case, Mr. Lastewka and
yourself have raised another issue, that is the fact that people
do not have the required information and do not know how to
establish a business plan.
One always refers to the U.S. example where, after twenty
years' experience, banks said: "We have many loan requests coming
from businesswomen but we don't know how to work with those
groups". So, they have established partnerships with their own
community groups, telling them: "Now, we can help you work with
businesswomen or with ethnic groups in order to help them prepare
business plans that will be acceptable to the banks". So, there
is progress and partnerships are indeed established. They do not
say anymore: "We are the bank, you are the community. If you do
not meet our criteria, too bad. Get lost."
Ms. Francine Lalonde: I had mentioned the problems that
businesswomen face in obtaining loans, because the surveys told
us that there was no difference between women and men on that
issue. However, this did not agree with my own experience as an
M.P. nor with the survey carried out by the Canadian Federation
of Independent Business. The survey stated there was no such
problem but you do not agree with that either.
Mr. Luc Lapointe: Indeed. If we could get the data, we could
start establishing programs through municipalities. We met with
the Canadian Federation of Municipalities. Do not forget that
municipalities deal with banks also. We know that most of the
loans are granted to the three levels of government: municipal,
federal and provincial. Municipalities say that, if they were to
get data on what happens in their community, they could establish
better programs in order to help new businesses to get
established. At the present time, it is very difficult to start a
Ms. Francine Lalonde: As far as the mergers are concerned,
you wonder what will happen about the role that banks should play
in the communities, with small- and medium-sized businesses. You
say that something should be done, that we should help people
prepare business plans, that partnerships should be created and
that capital should be made available but, if smaller banks
disappear, it will be even more difficult than before.
Mr. Luc Lapointe: Absolutely. Banks refer more and more to
other options, such as co-ops and deposit companies, but that
represents a very small amount. I do not believe that those other
institutions will be able to satisfy the demand. They have
different requirements as far as reserves are concerned, and they
have different systems. Banks are very well established in our
communities, they are very close to the people and they know how
to work with business persons. They have resources and expertise.
That being so, why not work with them?
The Chair: Thank you, Madame Lalonde.
Mr. Ianno, please.
Mr. Tony Ianno: Thank you, Madam Chair.
Back to the census tracks. You talk about 13 loans.
Is that all sizes?
Mr. Duff Conacher: That would be if you were
breaking it out, for example, by a location
or by a size. If it would be a grouping of less than 13,
then you would not break it down to that level.
Mr. Tony Ianno: In other words, if it takes
six tracks to do a $500,000 loan, then to find 13
of them it would take six tracks. So that's the minimum
you would do it on.
Mr. Duff Conacher: That's right. That would be
at a census subdivision level, essentially,
which is the size of a small town or municipality.
So the Competition Bureau is using the 6,000
subdivisions. They're not going right down to
census tracked, which is about a ten-block square.
Mr. Tony Ianno: Okay.
On the privacy issue, if it's a region that has,
I guess, a lot of land but very few businesses,
and you add up to the total of 13, and if it's
a competitor that's looking at the number
of large- or medium-sized businesses, could
they not determine what kind of debt level they have
and then determine whether a buyout or acquisition is
something they should look at?
Mr. Duff Conacher: No, because it would be
a grouping of 13 businesses through an area.
Mr. Tony Ianno: If you go to northern Ontario
you can have maybe four or five ridings that would meet
that 13. You're saying at that point, if there are 13 different
businesses all in northern Ontario and all in six ridings,
one competitor cannot determine that in effect they might be
Mr. Duff Conacher: If it was one type of business?
Mr. Tony Ianno: No, any of the 13. The point is,
if it's a competitor looking to buy one potential
competitor, and if it happens to be in northern Ontario
and takes six ridings, they assume that might be the one.
Is that possible?
Mr. Duff Conacher: I think the most specific you'd
get would be a regional and industry-sector breakdown,
a cross-reference of those two. You may not be able
to do it for a lot of categories—restaurants
in northern Ontario, for example. You may not be able
to break that out. You might have to just break it out
provincially, because you would get two groupings.
All I can tell you is that Statistics Canada is
very concerned about protecting people's privacy.
Whenever they do reports by census track, you will
see “not applicable” or “can't be filled out”.
Mr. Tony Ianno: As you may be aware, when we did
our committee report on small business in 1994-95,
Dennis Mills actually suggested the possibility
of even postal codes. Part of the difficulty was
not to in any way hurt some of the businesses
that were borrowing money.
I guess a fine line has to be found to achieve
what we still want, which is, by area, where they're
lending money versus not, but still keeping the privacy.
I don't know via the census track how you're doing it,
but with a little bit more development on that,
it might be an avenue that could be looked at to satisfy
all of the concerns.
Mr. Duff Conacher: What you would get, if Stats Can
was crunching the numbers, was a blank for any category
where it would have gone below the grouping of 13.
That's what the Competition Bureau was doing.
Mr. Tony Ianno: When you take Stats Canada into
account as compared with the banks, how does that go in
terms of cost?
Mr. Duff Conacher: In terms of cost? I'm not sure.
I think the Competition Bureau's process currently will
give some sense.
Mr. Tony Ianno: But that's I guess a special case,
because what they're looking at is—
Mr. Duff Conacher: Market share.
Mr. Tony Ianno: —yes, market share—and the merger
question, which is not an ongoing situation.
As well, you referred to the Competition Bureau.
I don't know if their information is going to be public.
I don't know if it has to be public, because
it's to deal with a sensitive issue.
Mr. Duff Conacher: Yes.
Mr. Tony Ianno: So I don't think we can take that
example and then extrapolate and say, “Therefore...”.
We have to be realistic in our approach to some of
Mr. Duff Conacher: We have not checked with
Statistics Canada as to a cost of producing these
reports, but I guess when we look at the whole
cost-benefit analysis, we also take into account the
benefit of having this information. The government is
spending tonnes of money through the economic
diversification regional agencies, through the Business
Development Bank of Canada.
Mr. Tony Ianno: What's your point there?
Mr. Duff Conacher: If you have broken down by
community, or at least regions, as we have for Ontario—we
have the three regions of Ontario—the government will
be able to target spending. It is one of the
three central purposes for the disclosure regime in the U.S.
Mr. Tony Ianno: Somehow, with your Ontario analogy
and with the three regions, does that produce spending
by the federal government?
Mr. Duff Conacher: No, but if you had the breakdown
of demand and the reasons for rejections, for example,
and you found that there was a high rejection rate there
but it was because people didn't know how to do business plans,
then the Business Development Bank of Canada could
go in and do a special training program, knowing
there was a need there rather than just trying
to figure it out through people who call them.
Not everyone knows they're there.
They'd be able to target the government spending.
That's one of the three main purposes,
actually stated in the disclosure act in the
U.S., for the disclosure they have there.
Government will be able to subsidize private
institutions' activities in areas in which none of them
are going. They'll know where they aren't performing,
where they're not serving anybody, and they'll be able
to ensure that those people are served.
Mr. Tony Ianno: I see with our discussion
you're still using the authorization versus
outstanding. Is there a reason for that?
Mr. Duff Conacher: We point out in one
section the difference between “authorized” and
“outstanding”. It's simply because we had done a
comparison before using “authorized”, and it is the
total amount of money that is out there by the banks.
That is the reason why we use that.
the difference, though, as you have pointed out with
your analysis. When you have a 70% utilization
rate for small business of the amount that's authorized
and only a 29% utilization rate by big business of the
amount that's authorized, when you look at the
amount outstanding, the percentages of the amount of
money that small businesses are using bank by bank will
increase because they use a larger percentage of
whatever is authorized.
But we are very much in agreement with the point
you've made that with the authorized amounts—and
that's why we say the banks can easily.... Even though
that $99 billion increase in total business credit has
been out there over the past two years, that can be an
increase in the authorized amounts—not needed,
because small businesses on average only use 70% of
what's authorized. So if the small business has a
$100,000 loan, the bank can easily extend it to $110,000
and say “We've increased credit to that
business.” But if that business is still only using
$70,000 on a daily basis, they haven't really
extended credit. It's not going to help create jobs
because that business is at a certain size.
We think both need to be looked at, and this is our take
on this subject.
Mr. Tony Ianno: Last question. We
talked about you supplying us with some information about
what it is the Canadian banks have offered to do or
are obliged to do in the States that they're not
willing to do here. If you could supply us with that
information, I think it would be very helpful.
Mr. Duff Conacher: Yes, and there is more detail
of what is required in the
U.S. compared to Canada in our full position paper, but
we can provide you with a much
more detailed breakdown of this.
Mr. Luc Lapointe: The Harris Bank, the Bank of
went through a CRA review in Chicago, so they did have
full disclosure of their activities.
Mr. Duff Conacher: We can give you that
as an example. What's good for the subsidiary is good
for the parent. That's what we believe.
The Chair: Thank you.
Mr. John Solomon (Regina—Lumsden—Lake Centre, NDP):
Thank you, Madam Chair.
Thank you very much for your presentation. The
Canadian Community Reinvestment Coalition has put
forward some suggestions that I think have merit, in
particular when you look at the birthplace of
capitalism and free enterprise in the world: the
U.S.A. has more open regulations and more
strict requirements for divulging information by large
institutions like banks and other businesses than
So I'm wondering what you think about a couple of
things in that light. For example, I come
from Saskatchewan and I always get
these bank reports about the outstanding loans from
“Manitoba/Saskatchewan”. I'm personally insulted, and
I find those statistics from the banks meaningless.
I guess the question my Reform colleague
and Mr. Ianno asked with respect to the baseline
information you're looking for.... For me, as a
person from Saskatchewan, I can't tell what's happening
with respect to bank loans now because they don't
provide that information. So how in the world would
our committee or the Government of Canada or some other
authority, after bank mergers occur, be
able to judge whether service to small business, in
Saskatchewan, for example, or in Manitoba, for example,
is better or worse as a result of these mergers?
Mr. Duff Conacher: Well, it is very important.
You have the summary and our fifth
position paper, which sets out the system. They also have
more detailed disclosure in the U.S. of
investment and service, but they also use the
disclosure in the U.S. and the statistics that are
provided by the banks to judge the banks' performance
in serving not only small business but also customers
on a community by community basis. They also break
down their lending by gender, race, and income level, for
mortgage lending. All of this is taken into account
when they are reviewing any expansion of a financial
institution in the U.S., whether it's a merger or a
takeover or the bank wants to move from one
state to another.
For example, Harris Bank in Chicago, which is
owned by the Bank of Montreal,
wanted to take over another bank in 1992. Its
performance was reviewed and the statistics showed that
it was arbitrarily turning away certain customers
in certain parts of Chicago.
They had to
take corrective action over a five-year period and set out
a plan. It involved reinvesting more than $320 million in
the Chicago area and providing technical assistance to
borrowers and to others who were trying to help people
who were trying to start up businesses.
That delayed their takeover of the other bank for two
years. That was delayed until they corrected their
So by having that disclosure, you can
determine how they're serving people now because it's
measured in great detail. Then you can determine
whether service improves or decreases as a result of
In particular in the U.S., the government denies
applications to expand—they have done so in several
cases—if the financial institution is not serving all
of their customers fairly and well. We should have the
same system in place here for at least a couple of
years before we even consider looking at mergers in
Mr. John Solomon: With regard to that particular
takeover of the Harris Bank of Chicago by the
Bank of Montreal, I believe the figure was somewhere
around $450 million to $500 million Canadian that the
Bank of Montreal had to invest in the Chicago district.
Mr. Duff Conacher: That's right.
Mr. John Solomon: Do you have any idea what
criteria were used to establish by the regulatory
authorities for the Bank of Montreal to approve the
sale? What kind of criteria did they use with respect
to achieving the number? Where was the money
Mr. Luc Lapointe: There are two ways they can go
about it through the CRA. They can actually
sit down and go through the three tests: the lending
test, the service test, and the community development
test. They can also actually sit down with community
groups and small businesses and municipalities once
they have defined the geographical areas they will be
serving. They'll sit down with these groups and ask
what they can do for them.
They provide a detailed plan of action that they will
be using for actually reinvesting—we always use the
term “reinvesting”, but it's actually investing—in
the communities from which they take deposits. I guess
it's the same situation.
So there are two ways to go with the Community
Reinvestment Act. Either the bank sits down
with the group in the community, asks what it can do
for them, and actually comes up with an agreement, or
it'll say it won't do it until the end of the year. Go
through the actual CRA test and you'll find out if
they're doing well or badly.
There's another example that I use all the time. Last
year I met with Fred Buhler, the past
president of the Bank of America Canada,
which is based here in Toronto. I actually said that
most bankers say they don't like the Community
Reinvestment Act, and I'm sure there was an appeal in the
U.S. not to go through this. He said they actually
didn't like the CRA. They never thought that investing
in some communities or actually making these
partnerships would be profitable.
He said that after making more disclosure or getting
more detail on the people they were serving or not
serving, they realized they were profitable. He said
you can look at them: they're a good bank, they're
making money, and their communities are doing extremely
well. He said look at their economy; small
businesses are thriving in America. He said for
that reason they're getting good disclosure. They
know what their communities want. They know what they
can do for their communities, and he said they're doing
it. He said look at the Bank of America; it's a
successful operation in the U.S., and they've done
Mr. John Solomon: This sort of process of
information is almost like an industrial policy of the
Mr. Duff Conacher: They don't set a quota in terms
of setting benchmarks. It's not a quota that a bank
has to lend this amount of money back into each
community. Because they are tracking demand for loans
and tracking the approval and rejection rate for
mortgage loans by, for example, race, gender, income
level, and neighbourhood, they're able to track whether
someone who is black with a certain income who is
buying a house of a certain size is rejected more often
than someone who is white. By tracking that, they are
able to track patterns of lending as well as the banks'
practices overall. They're able to determine which
neighbourhoods are being underserved. The community
groups also present their cases and they're able to
figure out what corrective action is needed.
This is not in terms of setting a quota; it's
in terms of simply meeting the demand that's there. If
there's no demand in the neighbourhood, then the bank
doesn't have to go out and find people to lend money
to. If there's no demand, then they don't have to
serve, but if there is demand and they're arbitrarily
turning people away, then they have to take corrective
The Chair: This is your last question.
Mr. John Solomon: I have a comment,
if I might, and then a question. As a former
corporate planner, I think baseline information is
extremely important when you're measuring progress one
way or the other.
As a former small business person, I
think this kind of information you're putting
forward as a request is something we should
consider very seriously, because the people I speak to
in small business, the CFIB representations,
reflect clearly that one of the top ten issues of their
clients and their members, and of the people that I
relate to and meet with, is access to capital. I'm
very concerned about this in the context of the
upcoming mergers of the banks.
In that light, Madam Chair, I would move that the
industry committee immediately convene a series of
public meetings into the impact of the proposed bank
mergers on small business, consumers, and rural Canada,
and that the witnesses include among others,
representatives of the chartered banks, the Canadian
Federation of Independent Business, the Canadian
Chamber of Commerce, the Credit Union Central of
Canada, the Consumers' Association of Canada,
academics who specialize in small business finance, the
Saskatchewan Association of Rural Municipalities,
and the Canadian Federation of Agriculture. I give
notice that this be debated or discussed at the next
meeting, on Thursday, in light of this presentation
today and in light of all of the representations that
have been made to me and fellow members of Parliament
with respect to the bank merger.
The Chair: We have a slight problem, Mr. Solomon.
We don't have a quorum to accept a motion. We're going
to have to get some rulings on this.
Ms. Francine Lalonde: If nobody asks for the quorum, it is
supposed to exist.
A voice: If not, it will be another time.
Mr. John Solomon: I'll table it for Thursday.
There will be a quorum on Thursday, I presume.
The Chair: This is notice for Thursday, okay?
Great. Thank you.
Have you finished, then, Mr. Solomon?
Mr. John Solomon: No, for the record, this is a
tabling motion. It is not a motion to be debated. I
was informed that I could do that today, to give 48
hours' notice for Thursday discussion of this motion.
So it is duly tabled, then. Is that agreed?
The Chair: That's what we're determining.
Mr. John Solomon: Okay. Thank you.
With respect to this issue, I think it's extremely
important that we have an all-party parliamentary
committee, and the industry committee might be the venue
for this at this point. I know there's a Liberal
committee going around the country, and that's all very
well and good, and I think it's an important exercise
that they conduct themselves in.
But with respect to the bank mergers, I think it's
really important that we have all parties, with the
quasi-judicial authority of a standing committee, and have
witnesses appear to take testimony and information so
that the information under oath is accurate and
Secondly, I think for a Liberal committee to be
touring around the country that may not have—
The Chair: If you have questions for the
witnesses, that's fine, but your time is up.
Mr. John Solomon: Okay. My—
The Chair: No, we're not debating the motion.
Mr. John Solomon: My question to the
representatives, Mr. Conacher and Mr. Lapointe, is
whether they believe a public review of the bank merger
with respect to small businesses and its impact is in
order or not.
Mr. Duff Conacher: A public review? Yes, we think
so very much.
There is the Liberal caucus committee, which we
appeared at about a month and a half ago. As well, we
have been meeting with the task force on the future of
the Canadian financial services sector that has toured
the country. Although those meetings weren't strictly
out in the open and public, we very much hope and
expect that when their report is released, there will
be a full review by parliamentary committee of all of
their recommendations, not simply the recommendations
with regard to mergers.
We also hope and expect that the competition bureau,
although it is rare, will conduct full consultations,
that there will be public consultations as well, as
opposed to meetings behind closed doors with interested
parties, as they are also a key player in terms of the
review of the mergers.
We hope all of those
reviews will continue and there will be many more open
The Chair: Thank you very much.
Mr. Alex Shepherd (Durham, Lib.): Thank you very
You constantly mention the U.S. this, the U.S. that,
Do you really think the U.S. civil problems with inner
city degradation and race problems are applicable to
Mr. Luc Lapointe: I'll just make a quick comment
on that point. It was the basis of the CRA back in
1975, when they started with the Home
Mortgage Disclosure Act, to get more data, because they felt
community groups, small groups, and ethnic groups were
not getting access to capital. This is not the reason
for our recommendation to the industry committee, that
we have civil, racial, or specific problems here in
We feel banks should be disclosing. Banks do get
capital from communities. It's not as though an actual
shareholder is looking for money. They do take capital
from communities, and they should be investing in those
There's a lot of anecdotal evidence at this stage that
says we are not getting the evidence. What the
industry committee has already done by getting more
data from the banks has resulted in banks having to
appear and explain why they're not investing. We need
more data, and that's the reason for—
Mr. Alex Shepherd: I'm just saying the foundation
of your organization is basically born out of a U.S.
system, and the applications of your recommendations
are those that already exist in the United States.
You've said that yourself.
Mr. Duff Conacher: It is a model. As you will
note, in our recommendations we have not included race
or income level. Also, in the U.S. they started with
disclosure on mortgage lending and have extended it to
business. Based on the surveys and the evidence
available currently, the concern in Canada is business
lending, and maybe it will be extended to other areas
of lending at a later date.
It is completely applicable in Canada to have it by
size of business, type of business, and location of
business, and to have location broken down in much more
detail than the banks currently do, because, as the
finance minister expressed this morning in the Globe
and Mail published interview, if you are concerned
about the impact on communities, then you need data
broken down by community.
We also have added in our recommendations that the
lending patterns and practices should be broken down by
gender. That is also because there have been numerous
surveys showing problems and others showing no
problems. What we are saying is let's get past the
anecdotal evidence and have some systematic tracking by
these key factors.
Mr. Alex Shepherd: Okay. We know small and
medium-sized businesses are accessing the banking
system more through the use of credit cards and
consumer credits. Indeed some of our financial
institutions are recognizing that small and
medium-sized business lending is very expensive to do
and that really it's an extension of retail credit.
Do the statistics you've given us include the
retail side of that?
Mr. Duff Conacher: As to credit cards?
Mr. Alex Shepherd: In other words, you've taken
numbers off those statistics that just simply show
lending to small business, but not necessarily the
number of small businesses that accessed consumer
credit. It would show up as consumer loans or retail
Mr. Duff Conacher: The banks do not disclose that.
Mr. Alex Shepherd: Correct. In other words, your
figures could be skewed by the fact that it does not
Mr. Duff Conacher: We agree. We're analysing the
banks' own stats. We're saying they're flawed.
Correct the flaws and everyone will be better off.
They can spin these any way they want right now, the
key one being that if the total amount loaned out to
small business—currently $32.4 billion in loans under
$250,000—drops over the next four years to $28
billion, you can haul them before this committee. CFIB
will say there's a credit crunch, the banks will say,
“No, demand dropped”, and you will not be able to say
one thing to them.
Mr. Alex Shepherd: I didn't see in any of your
dissertations the concerns of depositors. Do you think
the money these banks are lending out belongs to the
banks, or does it belong to the depositors?
Mr. Duff Conacher: Oh, well, very much we believe
that when people put money on deposit in a bank, they
do not give up ownership of that money. If you're
talking about the risk of lending and the concern for
depositors in terms of losing funds, we do not have
information. There's only been one year the banks have
disclosed—fiscal year 1996—their loan loss provisions
by size of loan, which was reported to this committee.
For 1997, for some reason—I'm not sure why—it takes
them six months to produce this figure, so it will not
be produced until July of this year.
So we only have one year. What does that one year
show? It shows that for small business loans under
$250,000, the loss rate is about 1.5%. For loans over
$1 million, the loss rate is about 0.8%. However, you
can lose a lot of $250,000 loans before you make up a
$5 million loan. So in fact, the banks in 1996 lost
more money in big business lending than they lost in
small business lending.
They may say, “Well, yes, but the loss rate is twice
as much for small business”. Yes, but they didn't
lose as much money. So which size of business is
actually riskier to lend to in that case? In our
minds, it's pretty even. You can lose a lot of
$250,000 loans before you make up the loss of one $5
million loan, and the stats show the banks lose money
to big businesses.
According to the bank's own stats, big business,
in terms of money loss, is more risky to lend to.
Depositors should be more concerned, I think, about the
big business lending, especially when you have $99
billion of new lending over a two-year period, and $81
billion of it goes to big business, mostly to take over
other big businesses so that they can shed jobs.
Mr. Alex Shepherd: So what is it, a conspiracy? A
conspiracy of the banking sector against the people?
Mr. Duff Conacher: No.
Mr. Alex Shepherd: Why wouldn't they loan to small
business? It's a lot better to do than to loan to
large business, according to you.
Mr. Duff Conacher: It is. You can make one $2
billion loan, as the banks lined up to do, to lend to
Ted Rogers to take over Maclean Hunter a few
years ago. Many of the banks participated in that $2
billion total lending. What does that do? Ted Rogers
takes over Maclean Hunter and 2,000 jobs are lost,
because it's a merger of two cable companies that were
What if they took that $2 billion and loaned $100,000
each to 20,000 businesses that are trying to start up
or expand? Just to give a conservative estimate, let's
say each of those businesses hires one person. That
would create 20,000 jobs.
For the banks, they make a lot of lawyers' fees for
their legal departments, for their investment banking
departments. They make a lot of interest, and a lot of
fees financing that one loan—and it's just one loan to
Ted Rogers, of $2 billion—as opposed to having 20,000
loan officers having to watch 20,000 small business
loans, a much higher administrative cost, admittedly,
but look at the impact on the economy. On the one
side, 2,000 jobs are lost. On the other side, 20,000
jobs are created, plus let's say half of those, 10,000
of them, are new businesses that could possibly expand
and employ even more people.
In our minds, it's very clear. The banks, if they're
supporting the Canadian economy, should be doing that
lending. Yes, it's going to cost them more
administratively, but they're very profitable. Three
of our big five banks are amongst the top 25
most profitable banks in the world—three of them.
Mr. Alex Shepherd: If it's not as profitable, they
should lend anyway. They should be forced to lend where
it's not profitable—is that what you said?
Mr. Duff Conacher: No, in the U.S. they've shown
that they can still make a profit. Maybe it won't be as
healthy a profit, but our banks are pretty healthy in
terms of their profit.
When we look in terms of the definition of risk, the
definition of creation of wealth in this country, job
creation had better be part of it, or we're all going
to be paying for a social welfare system that we really
shouldn't have to pay for if people who want to start
and expand businesses and create jobs and get the access to
capital to do so.
The Chair: Thank you, Mr. Conacher.
I'm going to move on to Mr. Schmidt.
Mr. Werner Schmidt: Thank you, Madam Chair.
I'm trying to figure out, with all these answers
you've given us, what end result you want. Is it
simply to have more numbers generated by the banks, or
do you actually want to change the economy of Canada
and the way our financial institutions operate? What
is the purpose that you're trying to achieve with the
comments you've made?
Mr. Luc Lapointe: Well, first of all, we're not
trying to change the economy. I think the federal
government has made it clear that small business will
be the engine of the economy here in Canada.
What we're also asking for is not new numbers. The
banks do have the numbers. In the U.S. I said there are
10,000 banks. Here, we have six banks with 10,000
branches. They do capture the data. This is how they
can close the bank branches or keep one open. They can
say, “These are the people we're dealing with. This
is the demand for loans. By making so much money or not
making money, we might as well close it, take the money
and bring it somewhere else.”
We're not asking that banks keep this money in the
community. Maybe there is a demand, maybe there is no
demand. We're not trying to stop the free flow of
capital from one region to the other. This is how
Canada is a great country. I mean, money does flow
from one region to the other.
What we're simply asking, as this
committee has done before, is get more data from the
They do get deposits from consumers here in Canada,
and I'm sure if you would ask consumers, they
would rather see their money invested in small business
where they do live and where their community will
thrive as small businesses do exist.
If this thing is so bad, I don't see why the Bank of
Montreal is doing more activities in the U.S. and
buying banks in Florida. My God, I don't want
to disclose because this is bad; I don't want to go to
the U.S. because they force me to invest in more
racial groups, or ethnic groups, or poor.... They're
saying this is good business in the U.S., and they're
buying more bank branches.
The only thing we're saying is they do have their data
in Canada. The only thing we're asking is that they
disclose these data.
Communities can decide after that, do I want to deal
with the Bank of Montreal, because the Bank of Montreal
prefers to invest somewhere else, or would I rather
deal with a local bank or credit union? There are
alternatives to banks—other financial institutions.
What we're saying is the data are there, and we're just
asking that these data be disclosed to the government.
Mr. Werner Schmidt: With all due respect, you
haven't answered my question at all.
We can collect data from now and forever, for 24 hours
a day, and this committee can sit here and analyse data
forever and ever. We know the data are
there. Ultimately, data are useless unless they do
something meaningful. What is it that you want to
achieve with all this information?
Mr. Duff Conacher: One, with the data you
have now, you cannot determine whether there's a gap
between the bank's rhetoric and the reality for
business customers across the country. That's one
central purpose. If you don't correct and close the
Mr. Werner Schmidt: May I stop you right there?
We know, and you I think have indicated to us this
afternoon, that there has been a decrease in the amount
of money given to small businesses. You have indicated
to us that there have been more customers, though, in
the small business area, and that comes right out of
We also know—and these are the big
conclusions from that information we now
have—there are fewer large business customers who
have borrowed more money, both individually and
collectively. So those are the two big things.
With that information, what do we know? We know
that banks have lent more money to fewer big
businesses, and they've lent less money on more small
customers, but in total, they've lent less over here
than here. Okay, so now we know this.
The purpose for gathering that information originally
was to encourage the banks to lend more money to small
business. It has now been demonstrated that this hasn't
happened, so now we have a very obvious thing that we
can do as a committee. We can say we accept that or
we don't accept it; we like it or we don't like it.
What kind of rhetoric is involved here? It's pretty
Mr. Duff Conacher: No. If the banks say to you,
we are meeting all the demand that is there from small
Mr. Werner Schmidt: They're going to say that.
If they say that to me—
Mr. Duff Conacher: That's what they have said for
the past four years. I've been at committee hearings
and watched this committee for four years now.
Mr. Werner Schmidt: But we have never had as
obvious a situation as we have right now, and you
haven't heard what they are going to tell us on
Thursday afternoon. You're assuming they're going
to say something. Maybe they will say this. I'm
not suggesting they won't.
Mr. Duff Conacher: I'm suggesting they'll—
Mr. Werner Schmidt: But I'm not looking at those
statistics; I'm looking at the quarterly review, the
very issues you raise in your report. Those
graphs are based not on that report but on these other
quarterly reports, and that's what I'm talking about.
That's all we're talking about here, and we don't need
any rhetoric to explain to us what the facts are. The
facts speak for themselves. They're right there. So
what is it that we will achieve by adding all this
other information you're suggesting be collected?
Mr. Duff Conacher: You will know the demand for
capital in communities across the country. You'll know
the risk of meeting that demand. You'll know the
banks' record in meeting that demand, bank by bank, and
therefore by having that information—
Mr. Werner Schmidt: So we know this. What will we
do with it?
Mr. Duff Conacher: Then you will be able to know
whether you want to allow a bank to get bigger. If
a bank is not serving people well now, then why would
you want it to be bigger? It will just serve
more people at the same poor level of service.
You will know which banks are doing better than others
and be able to establish, as Paul Martin said in 1995,
There is a practice in the environmental area that is very
well known, the best-of-sector approach, where you look
at a company and establish which has the best
performance by various criteria in terms of the
You will be
able to determine that, not just on the national or
regional level, but on a community basis, and also in
terms of the demand that is out there.
When you say you want the banks to lend more to small
business—and that was the goal of the initial
committee hearings—what is more? Where do you stop?
What's the magic figure? To determine that figure, you
need to track demand.
It could be 30% of the total
amount, but what if the demand from the small business
sector—and it can be determined that it's a legitimate
demand—is for 40% of the total amount the banks lend
out? Why should they be allowed to just lend up to 30%
if you set that as a particular number? Why shouldn't
they meet all the legitimate demand that's out there?
It's the job-creating sector of the economy, and those
businesses should be getting access to capital if we
want to create jobs in this country and solve a chronic
The Chair: Thank you, Mr. Schmidt.
Mr. Ianno, briefly. I'm going to remind members we're
quickly running out of time. The bells are going to
go at 5.30 p.m.
Mr. Tony Ianno: I'm sorry. They went to something
that was close to my heart. I remember Werner
voting against my one-third of corporate commercial
loans being put on the banks.
Mr. Werner Schmidt: You're going to start setting
your quota now?
Mr. Tony Ianno: I have never stopped, Werner.
Mr. Werner Schmidt: Oh, okay.
Mr. Tony Ianno: For the last four years I've been
putting my one-third of corporate commercial loans—
The Chair: You can discuss it later with Mr.
Schmidt. I'd prefer if you asked the witnesses
Mr. Tony Ianno: But without him I wouldn't have
been able to lead into it.
Some hon. members: Oh, oh!
Mr. Werner Schmidt: I'm so glad I helped you.
Mr. Tony Ianno: As you know, I've been gauging,
every quarter, the amount the banks lend to small
business, and there are three banks in the one-third
ratio roughly: the Bank of Montreal, the Royal Bank,
and the National Bank. The other banks are very dismal
in their numbers—in the low 20s.
Unfortunately I haven't seen your organization come
out in support of that. How you gauge this, Mr.
Conacher, is first of all you set a benchmark that is
attainable, and that's the one-third. The Bank of
Montreal was the first to achieve that, and then the
Royal Bank moved towards that, along with the National
Bank. If the other banks come close to the one-third,
that will mean $10 billion more in the hands of small
business. When you take into account the market you're
looking at, which is the $25,000 or thereabouts loan
amount required, that will be hundreds of thousands of
new jobs for Canadians.
So I wonder, is there a reason your organization has
not come out full force in favour of that? It can
always be amended and adapted, because we do get
quarterly reports. It's been four years, as Werner
mentioned, that I've been pursuing this, and some of my
colleagues along with me, and we still haven't achieved
anywhere near any major improvement. But if
organizations such as yours say this is at least one
benchmark that's worthy of support....
Why have you been slow, instead of asking just for
money so there can be a consumer advocate, when you
have avenues available to you that don't require any
money to start moving the agenda forward?
Mr. Duff Conacher: We very much do support an
increase, definitely, in the lending by all the banks,
and as you pointed out earlier, we have looked, bank by
bank, at total authorized. At the authorized level,
none are above 20%, and some are, again, doing better
than others. Some are not even over 10% in terms of
the total amount authorized, so obviously they wouldn't
be close to 30% in terms of the outstanding lending.
The difficulty we see is that when you have the
demand figures, then you will know—
Mr. Tony Ianno: Mr. Conacher, I understand all
that, but you know, we want to get to the other side,
and you're still dinkering with your own vehicle that's
not getting there. Here we have a vehicle that has an
opportunity of at least getting closer, and you're
still going back to your vehicle and talking about the
specific problems within your vehicle.
Mr. Duff Conacher: Our coalition is focused on
accountability, so we very much support that all the
banks.... We agree completely with using the one-third
figure as a benchmark, and it's a benchmark that all of
the banks should be aspiring to, but some of the banks
may be able to show that they only have demand for 20%
of their total credit.
Mr. Tony Ianno: I understand.
Mr. Duff Conacher: So that's why we have focused
on closing that gap. Definitely if all of them have
demand of one-third and they're not meeting that
demand, then we have that as a benchmark that,
especially if the banks refuse to disclose
That gap should be closed
But what we're saying to you is, also ask them for
demand, because you have the power to do so. Amend the
Mr. Tony Ianno: But you see, we have to start with
your support, and then Mr. Schmidt's support, as
compared to just keeping on talking about it. Unless
the committee comes forward and says this is what we
believe should happen—if there's been a transition,
Mr. Schmidt, as of yet—then we have a chance to do it
together. Otherwise it'll just be members of
Parliament that support that, hoping to achieve it
on a gradual basis as compared to full committee
Mr. Duff Conacher: Well, you have to take it as a
one-two step. If you say to the banks, “Why not the
one-third?” and some of them respond that they don't
have the demand for one-third, then you say back,
“That's all we would request. Show us that you don't
have the demand, and then we'll talk.”
The Chair: Thank you. Mr. Dubé wants to ask a
Mr. Dubé, please.
Mr. Antoine Dubé: Everything you have told us is very
interesting but I still have a question. I may not have read all
your documents but I would like you to tell us how many
organizations belong to your Coalition, and how representative it
is of Canada. Mr. Lapointe is probably from Quebec. Could you
tell us what is the status of your Coalition in Quebec?
You have referred several times to what has been happening
in the U.S. during the past twenty years. Do we find the same
level of openness in other countries?
You are appearing in front of a parliamentary committee that
will hear bankers, among others, but the Minister of Finance has
established a working group on financial institutions.
As far as I am concerned, openness means democracy. Would
you want this debate to be held in front of a committee made up
of all the political parties represented in the House? Of course,
the mandate of that committee would be to study this matter in
depth. We have the feeling, at the present time, that there may
be different options. I would like to have your opinion on this.
Mr. Luc Lapointe: At the present time, the Coalition
represents 80 groups from all the provinces and the Northwest
Territories. We have about 3 million members across Canada. In
Quebec, numerous groups have joined the Coalition very recently,
and the CNTU and the QFL are thinking of joining. Several
community groups have also joined, as well as some CWSA. And I
should add there are some other organizations which are also
dealing with the whole matter of reforming the banking system.
Obviously, the work of the working group will be a basic
tool. Mr. Martin has let it be known that it won't be the Bible
for all the future decisions. Other groups will be made up to
study your recommendations and how to implement them.
It would be rather difficult to express an opinion... I
believe we have already said that there should be a parliamentary
committee made up of representatives of all the parties.
Mr. Antoine Dubé: How is it different in other countries?
Mr. Luc Lapointe: At the present time, the European Union is
studying the Community Investment Act. No similar model exists
anywhere else, where banks have to disclose their operations.
However, Australia and the European Union are studying other
systems, as well as South Africa and us.
The Chair: Thank you very much. Thank you, Mr.
I want to thank you, Mr. Conacher and Mr. Lapointe,
for being with us this afternoon, and for your
presentation and your very well-presented,
thoughtful brief. It has been a very interesting
discussion, which I have a feeling could go on for a
lot longer. We're going to adjourn this section of the
meeting now and move in camera.
The meeting is now adjourned.
[Editor's Note: Proceedings continue in camera]