Thank you, Mr. Speaker. For a moment I thought that the bill was so clear and so convincing that hon. Members would be prepared to pass it without going through the usual formalities; but in the circumstances perhaps I might make a few remarks. When I moved the resolution on this bill I made a brief statement on the background considerations involved and on the more important changes that are being proposed. As is customary, I would now like to make a more complete explanation of the bill.
We have all been assisted in the preparation and consideration of this revision of the Bank Act by the report of the Royal Commission on Banking and Finance, which was published in April of last year. Our proposed legislation on the Bank Act and the Bank of Canada Act, as well as legislation already enacted in regard to insurance, trust and loan companies, all contain provisions based upon the recommendation of the Commission. The bill before us contains many such provisions, as will be noted in Committee.
The general principle advocated by the Commission was to make no radical changes in our financial structure or the institutions comprising it, which the Commission felt were generally functioning well, but to make a number of changes in legislation to permit or encourage increased competition between institutions of the same type and those of different types. With this general direction of approach the Government is in broad agreement.
In regard to the banking legislation specifically, the Commission proposed that its scope be broadened very greatly to include in principle all institutions accepting deposits or issuing claims on themselves maturing or redeemable at a fixed price within 100 days, or which are transferable immediately or on short notice by cheques or on customers' orders. From this broad class it would exclude existing provincial agencies and local credit
DEBATES May 18, 1965
unions, but not their centrals. It would also exclude certain institutions that issue short term paper in the money market or which borrow from small groups, as well as stockbrokers and securities dealers. The banking legislation would apply to the rest, including trust and loan companies, whether federally or provincially incorporated, the Quebec savings banks and the centrals of credit unions and caisses populaires. All of these would be required to hold cash reserves with the central bank and participate in a unified clearing system, in which cheques would be cleared without charge.
The Government considers that such a comprehensive extension of our banking legislation is neither necessary nor desirable at this time. In the first place, Parliament cannot itself decide that an arbitrary limit of 100 days to maturity for deposits or liabilities is the proper definition of what constitutes "banking". We must have regard to what the courts will determine in law to be the meaning of "banking", for that defines our exclusive jurisdiction under head 15 of section 91 of the British North America Act. There have been many judicial decisions in this field in the past, and in essence they have taken the view that "banking" is the acceptance of deposits transferable on demand by cheques. We have to be guided by this in assessing the scope of our jurisdiction, unless and until the Supreme Court of Canada may otherwise decide. Pending any such decision, it is not certain that our jurisdiction extends quite as far as that suggested by the Commission.
Moreover, we do not believe that this proposed comprehensive scope for our banking legislation is necessary either to carry out monetary policies effectively or to safeguard the public who deposit or invest money in these institutions which the Commission proposed be brought within the scope of the banking laws. The chartered banks are many times larger, in their total assets or liabilities, than the other institutions that might be regarded as partly engaged in banking, and the Commission has explained in its report how monetary policy exerted through the banks transmits its effects to the other institutions even though they are not required to hold reserves with the central bank. In regard to inspection and control, all these other institutions are already subject either to federal or provincial law and inspection, and if this is not adequate in some areas, it is the responsibility of those concerned to strengthen it.
May 18, 1965
Our chartered banks are not only large in comparison with the other institutions that are partly engaged in banking. We have a very concentrated banking system in Canada as compared with most other countries and the absolute size, power and influence of our banks is such that there is a responsibility of government to see that this power and influence is exercised in the best interests of the Canadian public as a whole-not just in the best interests of the shareholders of the banks. This is a responsibility which must be taken into consideration in deciding the powers given to the banks under the Bank Act. The traditional view in Canada has been that while the banks should be encouraged and assisted to expand in their own fields, they should not be able to expand into fields not covered by the Bank Act. The Government subscribes to this view.
[DOT] (8:30 pun.)
For the various reasons I have mentioned, Mr. Speaker, it is not our intention now to extend our banking legislation to cover such institutions as trust and loan companies, credit unions, caisses populaires, provincial treasury branches, or others who may engage to some degree in banking as the Commission defined it. We have given careful study to the Commission's suggestions about the clearing system. The present clearing system is operated by the banks under the authority of the Act incorporating the Canadian Bankers Association. Cheques on other institutions are cleared through the system by the banks, who make a charge for this service.
The establishment and regulation of a cheque clearing system is a matter of exclusive federal jurisdiction. We intend to give further consideration to possible changes in the clearing system, including those suggested by the Commission, and to the extent the changes are considered desirable we will bring forward legislation to implement them. The changes proposed by the Commission would have important implications which we shall have to take carefully into account.
The changes proposed in the Bank Act and the Quebec Savings Banks Act, together with those already made by Parliament during the past year in the legislation relating to the insurance, trust and loan companies, constitute a major program of improvement in our laws relating to financial institutions, the largest ever undertaken in a single year by any Parliament, let alone one that has
had the vast array of other legislation before it that this one has had. We shall plan to proceed in future with other improvements, taking into account the conclusions and recommendations of the Porter Commission.
I should like to turn now, Mr. Speaker, to the specific matters on which the Government is proposing revisions to the Bank Act. I shall not attempt to cover the many technical changes which are involved but I should like to describe briefly the more important proposals.
It is proposed, as recommended by the Royal Commission, to allow the banks to make conventional mortgage loans. Until now the banks have been generally barred from making loans on the security of real and immovable property, with the exception of N.H.A. mortgages. The effect of this prohibition has not to any large extent interfered with the financing of corporate borrowers who are able to issue bonds and debentures on the security of their fixed assets, but this prohibition has tended to make it more difficult for unincorporated or personal borrowers to obtain credit on the security of their fixed assets.
In order to increase the extent to which the banks will be able to compete in the mortgage lending field they will be permitted to charge the going rate of interest on conventional mortgage loans that meet certain specified requirements. In order to protect other lenders against a sudden major invasion of their principal lending function and to ensure that banks will be able to take care of the needs of other borrowers, it is proposed that the holdings by the banks of such mortgages on which the interest rate exceeds 6 per cent will be subject to a gradually increasing limit in relation to their deposit liabilities. These proposals affecting the banks' role as mortgage lenders will provide more competition in this important area of the capital market and pave the way for a reduction in the average cost of mortgage borrowing, particularly by smaller borrowers.
It is also proposed to provide explicitly that the banks may receive the same rate of interest on N.H.A. mortgages as is fixed by the Government for other authorized lending institutions, including the banks operating under the Quebec Savings Banks Act. When the level of interest rates in the market has made it appropriate for the N.H.A. rate to be above 6 per cent, the effect has been that the Government, through C.M.H.C., has done a considerable amount of direct N.H.A.
May 18, 1965
lending and has had to borrow substantial sums of money to do so.
It is hoped that the step which is now being taken will encourage the banks to resume N.H.A. lending and increase the supply of mortgage funds available. This was contemplated in 1954, when the Bank Act was revised to permit banks to acquire N.H.A. mortgages. It is also expected that the participation of the banks in these fields of lending will help to increase the flow of N.H.A. mortgage money in the smaller communities across Canada.
There is another area in which the chartered banks have already contributed to a substantial lowering of credit costs to Canadian borrowers. I refer to small personal loan plans. The amount of unsecured personal loans has increased from $611 million to $1,865 million over the last six years. In this area the banks have been making service charges in addition to interest, but the total cost of credit to borrowers has been considerably less than that from alternative sources. In this kind of lending the banks have been competing vigorously with each other and with other financial institutions. The Canadian public has benefited from this competition.
The same degree of competition has not prevailed within the more traditional areas of activity of the chartered banks-commercial loans, fully secured personal loans, in fact the whole area coming under the 6 per cent ceiling on interest rates. Agreements between banks have heretofore not been prohibited by law and have in fact been standard practice both with respect to deposit rates and with respect to interest rates on the types of loans I have just mentioned. The Royal Commission expressed the view that the presence of these agreements has made for an inflexibility in rates and a reluctance to introduce innovations. In their view-that is, in the view of the Commission-these agreements have been, and I quote, "bad for the banks and for their customers and should be prohibited". That quotation can be found at page 370 of the Royal Commission's report. The Government agrees with this conclusion. Accordingly it is proposed that in the legislation before the House agreements between banks with respect either to loan or deposit rates in Canada be prohibited except those specifically exempted.
As I said in speaking to the resolution, Mr. Speaker, it is not proposed at this time to adopt the other main recommendation of the Royal Commission in this area-that is, the abolition of the 6 per cent ceiling on interest
rates chargeable by the chartered banks. The exception to the ceiling being proposed with respect to mortgages, the fairly recent incursion of the banks into areas new to most of them, such as small personal loan plans, and the proposed prohibition on restrictive agreements between the banks themselves, all should encourage a greater degree of competition amongst financial institutions in Canada and provide room for more flexible practices with respect to loan and deposit rates.
[DOT] (8:40 p.m.)
We cannot yet foresee the full effects upon interest rates of the measures being taken in this bill and I do not feel we can rely on them without the ceiling, until we have seen their effects. The Government wishes to keep interest rates in Canada as low as possible, having regard to the monetary policy requirements of the domestic economic situation and the level of interest rates in the United States and across the Atlantic. I believe that if the ceiling were removed at the present time there would be increased interest rates charged on many of the smaller loans made by the banks to businesses in Canada.
The minimum cash reserve requirement of the chartered banks is to be reduced from 8 per cent to 7 per cent of Canadian deposits over a period of months. The development of the short term money market over the past ten years makes it unnecessary for banks to hold quite as much cash reserve as seemed desirable in 1954 when the present requirement was set. However, in order to ensure predictable results when cash reserves are changed by the central bank, it is necessary that the cash reserve requirements should continue to be somewhat above the level which banks might wish to keep on a voluntary basis.
Members of the House will realize of course that the reduction in the cash reserve from 8 per cent to 7 per cent need have no effect on the total money supply and total chartered bank assets, as these are determined in the final analysis by the central bank, taking the required cash ratio into consideration. I hope my friends in the southeast corner of this chamber will take that remark to heart.
It is also proposed to reduce the averaging period-
Topic: DECENNIAL REVISION AND EXTENSION OF CHARTERS
I did not quite catch the significance of the interjection that was made,
May 18, 1965
but perhaps we can leave it until my hon. friend participates in this debate.
It is also proposed to reduce the averaging period over which cash reserve requirements are computed, from one month to one half month. This is a technical change which should lead the banks to respond more rapidly and more predictably to changes in cash reserves brought about by the central bank. In the United States the larger banks are required to work to a weekly averaging basis while in the United Kingdom banks are expected to keep quite close to their cash ratio objective at all times.
The way in which the chartered banks' minimum Canadian cash reserve requirement is to be reduced differs from the technique suggested by the Royal Commission, which recommended a cash reserve system in which there would be three categories of Canadian deposit liabilities based on their original term to maturity, with different ratios of cash reserves being required against these various categories of deposits. This proposal was of course tied in with the thought that the Bank Act would be broadened to cover institutions other than the chartered banks. The nature of the deposit liabilities of some of the nearbank institutions which perform banking functions are sufficiently different from those of banks that a lower level of required cash reserves might be warranted, as is the case for the Quebec savings banks. But there does not seem to be enough difference in this regard between the individual chartered banks to make it necessary or desirable to have as complicated a cash reserve formula for these banks as that proposed by the Commission. It has been decided, therefore, not to set up at this time more than one class of deposit liabilities for the purpose of determining the amount of required cash reserves.
The Government has come to the conclusion that it is desirable to have legislation which permits the central bank to restrict or release a portion of chartered banks' liquid assets to deal with special situations that may arise from time to time. Such power now exists in the authority of the Bank of Canada to vary the cash reserve ratio between 8 per cent and 12 per cent. This power, however, has never been used.
The legislation before the House proposes to substitute for the present authority of the Bank of Canada, to vary the cash reserve, a stand-by power to impose a secondary reserve requirement initially not exceeding 6 per cent, which the bank subsequently may
vary gradually up to 12 per cent. This will give the Bank of Canada the ability to cope with any special situations that may arise and without the implications for bank earnings that would have been involved in the use of the present authorization to vary the cash reserve. A secondary cash reserve formula is not new since for some years there has been an agreement between the banks and the Bank of Canada under which banks have kept a secondary reserve of at least 7 per cent of their Canadian deposits in the form of treasury bills and day loans.
I announced in the House on September 22, 1964 that basically the same proposals regarding non-resident holdings of bank shares would be included in this Bill as have been made for insurance, trust and loan companies. These limits are 10 per cent of a bank's shares for any one non-resident investor and 25 per cent for non-residents as a group. The reasons for this proposal have already been given in connection with the other legislation. On February 16 last I announced that in the case of banks, it would also be proposed that no shares may in future be acquired in the name of any Government and that the same 10 per cent limit on an individual shareholding would be applied to residents as well as non-residents.
On February 16, and on a later occasion in the House, I explained the reasons for prohibiting governments being shareholders in our banks. As a shareholder the government concerned might acquire a position of special influence over the bank concerned. Such a situation might well lead to differences of opinion between this Government and another Government in regard to matters regulated by the Bank Act or powers given the Government or Inspector General thereunder.
I hesitate to interrupt this dissertation, Mr. Speaker, but I see my hon. friend across the way, who is a great supporter of the Government of British Columbia and interested in this matter, and this has always been a peculiar combination which has puzzled me. Every time my hon. friend propounds it, I become more and more puzzled. It never oc-cured to me that he, with his understanding of central banking and the whole banking system, would find himself allied with the Social Credit theorists on this particular matter. But that is what he has done and that is what he persists in doing, and believe me he will not be allowed to forget it.
May 18, 1965
[DOT] (8:50 p.m.)
If I may get back to this matter, Mr. Speaker, there are not at present any significant holdings of chartered bank shares by governments and it seems appropriate to ensure that this situation will continue. If, after study, the Banking and Commerce Committee were to recommend that specific provision should be made in the Act to permit government pension funds and perhaps other similar funds to make modest investments in bank shares, possibly on a non-voting basis, the Government would be prepared to consider such an amendment sympathetically.
So far as the 10 per cent limit on the holding of bank shares by any one resident investor is concerned, it has been traditional for the share ownership of our banks by residents of Canada to be widely spread among many holders, rather than for large blocks of shares to be held by a few special interests which might dominate the management and policies of the banks. The Government believes that it is in the long run best interests of the public that share ownership of our banks continue to be widely diversified. It is provided, therefore, that no one shareholder and his associates, if any, can hold more than 10 per cent of a bank's capital stock. If there are any individual holdings already in excess of 10 per cent, they will be permitted to continue. New banks will be expected to conform to this requirement in due course, but Treasury Board will have discretionary power to grant exemptions for resident shareholdings to permit small new banks to get under way.
To ensure that no bank dominated by any special group can become a major factor in our banking system and to give banks an incentive to broaden the basis of their share ownership, it is proposed that a bank with more than 25 per cent of its shares held by one shareholder cannot have total resources in excess of 20 times the amount of its authorized capital.
It is not the intention that these new measures affecting both resident and non-resident shareholdings in the banks should interfere to any important extent in normal market transactions in bank shares. The typical holder of bank shares is a small investor. Last year over 93 per cent of registered holders of bank shares held less than 500 shares. Total turnover of bank shares on Canadian stock exchanges last year exceeded two million shares. The bill to revise the Bank Act contains various qualifying provisions to make it
feasible for normal small transactions in bank shares, which are obviously not related to matters of control, to take place with a minimum of interference or delay so far as the investor is concerned.
Before leaving the matter of ownership and control of banking, I should like to point out that there would be very serious implications for Canada if foreign owned banks or their agencies were free to do any substantial volume of banking in this country. Canada is in a rather special position in this regard. First, a large number of Canadian corporations are controlled from abroad and would be inclined to do their banking business with the same bank as their parent corporation if that bank could offer facilities in Canada. Second, a great many Canadians, particularly exporters and importers, because of the nature of their business can choose whether to borrow or maintain deposit accounts in Canadian dollars or in a foreign currency. They are more likely to choose the foreign currency if foreign banking facilities are readily at hand. Any serious tendency in this direction would have unfortunate implications for the effectiveness of our future monetary policies. For these reasons no provision is being made in this bill to permit the establishment in Canada of agencies of foreign banks, whose presence in Canada's special situation would tend to have much the same implications for our financial and monetary independence as would the presence of banks owned and controlled abroad.
In this connection I should like to mention that the increasing tendency in recent years for our own banks to do foreign currency banking business with Canadians has somewhat the same implications as those to which I have just referred. I would very much hope that our banks, as part of an increasing competition for Canadian dollar business, would offer at least as favourable terms on loans and deposits in Canadian dollars as they would offer on a foreign currency basis. If the amount of foreign currency banking in Canada by Canadians continued to become more and more important in relation to Canadian dollar banking, specific legislative measures might have to be considered to provide for the regulation of this type of banking.
It is desirable to guard against the possibility that banks might acquire too much control over corporations engaged in other lines of business. The Government has accepted the view expressed by the Royal Commission that it is undesirable for banks to
May 18, 1965
have close ties with other Canadian corporations by way of share ownership or interlocking directorates. The basic position is that the Bank Act sets forth the powers of the banks and prohibits them engaging in other activities. It is anomalous if this prohibition can be avoided by operating through control of affiliated corporations. It is proposed, therefore, to limit a bank's holdings of voting shares in other Canadian corporations to not more than 10 per cent and to restrict the number of its directors serving on the board of directors of any other Canadian corporation to not more than 20 per cent of that board, with an exception for the bank's own realty company. Incidentally, the definition of this exception as set out in the bill may need to be tightened. We did not think it practical or desirable for Treasury Board to exercise power to grant special exemptions for investments in other corporations, as has been suggested by the Commission. It is proposed, therefore, that banks divest themselves of existing affiliations over a period of five years to the extent that such connections would not be permitted under the revised Act.
I mentioned earlier that as compared with most other countries Canada has a high degree of concentration in banking. It is to be hoped, therefore, that part of the future growth in our banking system will take place on the basis of a larger number of banks as well as growth of existing banks. The revisions which have already been mentioned should encourage the formation of new banks.
There is, however, another difficulty in the way of new banks and that is the necessity of obtaining a charter by special Act of Parliament. The Bank Act prescribes in very considerable detail the requirements which must be met by a new bank. It seems unnecessary, therefore, that Parliament should be asked to decide if a particular application for a charter should be approved. We have seen this past year the difficulties to which these applications for charters can give rise both in this House and in the other place.
[DOT] (9:00 p.m.)
We are dealing in this revision of the Bank Act with certain questions of policy which previously might have been thought to need the attention of Parliament on particular applications. Mr. Speaker, I submit it is not a proper use of Parliament's time, however, in the second half of the 20th century to debate the merits of particular applications.
This does not occur in other countries with which comparisons might be appropriate, such as the United States or United Kingdom. It is proposed therefore that new banks may be incorporated by letters patent, which would become effective if the House of Commons does not annul them within a stated period of time.
As recommended by the Royal Commission, provision is being made to increase the amount of information given each year with respect to banks' earnings, expenses, losses and reserves on loans and investments. For banks as a group, Schedule "Q" has been expanded to include the amount of each year's loss experience, and the amount of reserves on loans and investments at the end of the year. Individual banks will now be required to publish information concerning their earnings and expenses in the form of a new Schedule "O" which gives the same classification of earnings and expenses as Schedule "Q", and also shows the amounts transferred to and from reserves.
It is proposed to amend section 88 of the Bank Act to give priority over the rights of a bank to claims of growers of perishable agricultural products delivered to the manufacturer within the last three months, up to a maximum of $5,000 in any one case. This is an extension of the principle of priority for claims for wages owing for a period up to three months, which is already in section 88 of the act.
It is believed desirable to extend this form of protection to small growers who deliver their produce to processing plants for payment at a later date, and who may have no security for their claims if the processor should become bankrupt. This change is being introduced as a result of consideration given by the Government to the proposals made by the hon. Member for Essex South (Mr. Whelan) in Bill C-5 of the last session. Others of those proposals are under consideration in connection with a revision of the Bankruptcy Act.
The report of the Royal Commission recommended that banks should be able to determine the par value of their shares and the price at which new shares may be issued. It has been decided to give the banks a great deal more flexibility in these matters. It is proposed that a bank may fix the par value of its shares at any multiple of $1 not exceeding $10, and may fix any price on new issues of shares which is not less than the par value of such shares.
May 18. 1965
Following the debate on second reading the intention is to refer this bill to the House Banking and Commerce Committee for thorough and detailed study. I hope this can be completed before the banks' charters expire on July 1, but if this is not feasible we shall bring forward a bill to provide for a temporary extension.
Mr. Colin Cameron (Nanaimo-Co wichan-
The Islands): Mr. Speaker, if there is anything I like to be able to do it is to fascinate my good friend, the Minister of Finance (Mr. Gordon). I thought my days of fascinating anybody were long since past.
Topic: DECENNIAL REVISION AND EXTENSION OF CHARTERS
But I would like to call to his attention that possibly not having really as
exhaustive a knowledge as he has of central banking, however I have a faint, slight knowledge which I have gleaned by patient listening to some of the ideas of Social Credit, and I find no similarity between the proposals of the ebullient premier of my province and the theories of Social Credit, even though he calls himself a Social Crediter. However, I do not intend to debate this issue with the Minister of Finance tonight. We have debated it in public and in private on several occasions.
Except for this, I would call to his attention that I would imagine by the public utterances of the Premiers of British Columbia and Quebec that these two gentlemen are at the present time consulting constitutional lawyers to see whether it is worth their while taking this matter to the Supreme Court of Canada. I am quite sure if they find any possibility of success they will do this, which may leave the Minister of Finance in a rather difficult position for a while until it has been decided.
I was interested in the Minister's statement with regard to the proposed new method of incorporating new banks. I can see his point, and an additional one which I do not think he made, which is that any bank charter that is issued by the provisions of the Bank Act will be precisely the same as any other bank charter. There will be no details of difference to be discussed in the House.
However, there is one point that I have some misgivings about, and this is that no provision whatsoever is made for a group which has applied for letters patent, which has been denied them and feel they have been discriminated against. There is no provision by which they can appeal the decision
of the Governor in Council in this regard. Possibly this difficulty might be overcome if the Government were to spell out its policy with regard to the numbers, if you like within a fairly wide range, of new charters it would consider desirable at the present time.
I must confess also that one incidental of this revision rather appeals to me, in that it eliminates the other place from any consideration of the measure, which I think is highly desirable. I suspect the Minister was hoping no one would notice that little provision, but it struck me immediately and I was very pleased to see it.
Topic: DECENNIAL REVISION AND EXTENSION OF CHARTERS
Yes, on some things. In the provisions with regard to the directors I notice one change. I do not think it is a change of any great substance, and anyway not one I would object to, in that now we shall require three quarters of the directors to be Canadian citizens resident in Canada. Previously I believe the provision specified British subjects resident in Canada, which I suppose went for citizens of Australia, New Zealand, Great Britain and various other members of the Commonwealth.
When we get to the committee stage I would like to ask the Minister with regard to the prohibition of only 10 per cent to one investor, to one person, whether in this instance "person" covers "corporations"? I presume it does.
The provision with regard to revealing expenditures and undivided profits is, I suppose, a step toward giving more publicity to the actual operations of banks, but I am just wondering, from my memories of the last decennial revision, whether this provision will in actual fact reveal precisely the position of the chartered banks, because at that time I remember there were numerous references to what sometimes were called the inner reserves, and sometimes the hidden reserves, which were not disclosed and which the banks did not have to disclose at that time. I do not know if that is the same situation now under this legislation, but it seems to me it probably is.
I do not imagine that the reduction in the cash reserve requirement of chartered banks to 7 per cent is anything more than adjusting to the realities of the day.
[DOT] (9:10 p.m.)
I was pleased to see the provision with regard to placing growers of agricultural
May 18. 1965
products in a preferred position, and I was also pleased to hear the Minister of Finance give a lot of the credit for this to my good friend the hon. Member for Essex South (Mr. Whelan). The hon. Member for Essex South and I fought a persistent battle in the Banking and Commerce Committee trying to obtain this result by way of an amendment to the Bankruptcy Act. That may, perhaps, not have been the best way of doing it. I recall that we suggested then that the provision in respect to wage earners would be extended to cover producers of agricultural products. The particular provision contained here will go a considerable distance to overcoming the conditions about which the hon. Member for Essex South complained then, and about which I have heard complaints both before and since.
I was interested in the provision designed to prevent banks from combining to fix interest rates. It was only a few minutes earlier that the Minister had been telling us about the vigorous competition which existed between banks and it occurred to me that his faith in the competitive nature of their activities was probably not so profound as he would lead us to believe. I am not sure how he proposes to prevent this competition. Does he intend to make it illegal for bank A to charge the same interest as bank B? How does he intend to reply to the perfectly honest statements which I have no doubt will be made to him that "we were bound to arrive at this particular rate by reason of the present condition of the market"? I am at a loss to understand how he will be able to combat such statements.
Topic: DECENNIAL REVISION AND EXTENSION OF CHARTERS
Yes. As my hon. friend suggests, it will be difficult to prevent bank presidents playing golf together or having lunch together. All in all, this provision seems to me to be an empty one. I doubt whether it will stop banks combining or agreeing with regard to interest rates on loans. The same idea occurred to me when the Minister said he did not intend to follow the advice of the Porter Commission and eliminate the 6 per cent interest ceiling. Again I share the minister's feeling that the probability of the banks really competing basically, and not coming to arrangements, is not very high.
I should like to make one comment on the Porter Commission. I do not want to be rude about it. I certainly would not be as 22620-93
rude as Professor Weldon of McGill who had an article on the Porter Commission report in the Queens Quarterly last year under the intriguing title "Women Preachers and the Porter Commission". This puzzled me at first because I could not understand the connection between women preachers and the Commission. Then I saw it was based on a quotation in Dr. Boswell's "Life of Johnson"-"A woman's preaching is like a dog walking on its hinder legs; it is not done well but you are surprised to find it done at all". This summarizes the Professor's attitude toward those who were appointed to the Porter Commission; with the best intentions in the world, according to him, they lack the capacity to fulfil their responsibilities. I must say, though, I think Professor Weldon must, like Dr. Johnson himself, be a bachelor or he would not have made any reflection on a woman's capacity to preach.
I was disappointed in this report, not so much by its contents, though these disappointed me to some extent, as by its make-up which I thought was unsatisfactory. I had great difficulty in finding the supporting arguments in favour of the recommendations. The recommendations were in one spot and I had to hunt through the volume to find the supporting arguments. The presentation was confused. I was relieved to hear that the Minister did not intend to follow the report line by line.
There is not much one can say on second reading of a bill of this kind. There is only one principle involved and it is a principle which has been accepted for many years- that we are to have chartered commercial banks operating in Canada under the authority of Parliament. One could perhaps embark on a discussion of the relative desirability of having a privately owned banking system or a publicly owned banking system. One could perhaps delve into the peculiarities of a banking system one part of which is publicly owned and the other part of which is privately owned. But I do not propose to do that this evening because I have a feeling that before too many years have gone by this development will take place anyway in our economy. I hope to be able to increase my knowledge of banking and of the monetary system as a whole during the hearings of the Banking and Commerce Committee and I hope the Minister's anxiety to get this bill concluded before June 30 will not cause him to curtail the opportunity-I am confident it is a valuable one-of furthering the educa-
May 18, 1965
tion of Members of the House, members of the press and, by that means, the general public with regard to a matter which is usually considered as deadly dull but which affects the lives of every Canadian. The more they can understand the operation of our monetary system, the more they will be able to understand the terms and conditions of their lives in a modern monetary economy. I hope the Minister will bear this in mind and not try to rush us in the committee to meet this deadline. It will surely be possible to do as we did last year and extend the charters temporarily for a short period of time after June 30 if necessary.
With these words I will finish just now. I hope to have a great many questions to ask during the committee hearings and as I say, I hope to add to my knowledge and perhaps I will be able, by drawing out information, to add to the knowledge of others at that time.
[DOT] (9:20 p.m.)
Topic: DECENNIAL REVISION AND EXTENSION OF CHARTERS
Mr. Speaker, I perused most carefully this rather bulky Bill No. C-102, entitled "An Act respecting Banks and Banking", and I found no amendment likely to cure the evil affecting the world and which I would call the monetary evil. This bill has some 20 new sections, including two which I consider of major importance, the one concerning the transfer of shares to foreigners and that allowing banks to make loans on mortgage.
As we all remember, recently a Canadian bank, namely the Mercantile Bank, was taken over by American interests.
As far as the other sections are concerned they are, in my opinion, of minor importance. However, I notice that the Minister of Finance (Mr. Gordon) has decided to keep the bank's rate of interest at 6 per cent. In a speech I delivered recently, I asked that the bank's rate of interest be not increased but rather decreased to 5 per cent for the purpose of eliminating the pernicious inflation affecting our country.
With regard to the monetary power held by chartered banks and enabling them to create credit out of nothing, that is sacred and cannot be interfered with. On the contrary, their power is increased by lowering their reserves from 8 to 7 per cent.
In fact, faced with the need to revise our financial policy, the government is taking a do-nothing attitude.
The ever-increasing momentum of history and modern economics requires a bold and firm policy, one which is adapted to the needs of this day and age. However, the government sticks to the system which was in effect at the time when oxen-drawn carts ran through the streets of Bytown and when my grandfather was a pioneer in this community.
You will admit, Mr. Speaker, that there is in fact nothing sensational in this bill, since it does not take into account the essential elements of economic activity: problems of demography, production and overproduction problems, automation, time factor in production, etc., which should have influenced the Minister of Finance and his advisers in the preparation of Bill No. C-102.
The wealth potential of our country could easily provide a decent living for 150 million people. But, in a population which has not yet reached 20 million people, 4 million people live in great poverty.
The famous French economist, Henri Guit-ton, in his book entitled Economic politique, volume II, page 78, very rightly wrote this:
One would say that scrip money has initiated a sort of long war between private banks and the government. Of this war, the banks have won the first battle.
That is the shocking truth: chartered banks impose their will, and I would even say, their dictature, upon the federal government.
We have got into the era of credit money about 75 years ago and the federal government has not yet understood from this development that to use its regalian prerogatives only on money plants makes no sense because the greater mass of money in circulation is credit created by commercial banks.
That is why I say that the monetary power is now being wielded by the banks, which in fact enjoy regal rights that should be reserved to the federal government. As long as that primary function of the state which is to regulate production, to constantly inventorize the quantity and quality potential of available manpower so as to appraise the financing possibilities is not carried on by the federal government, we shall go on living in an economy of poverty.
Bill No. C-102 gives us an opportunity to take back that authority over the chartered banks so that credit money be issued only by the Bank of Canada, according to the requirements of the economy and under the supervision of monetary engineers selected
May 18, 1965
for their intellectual and moral qualifications, in the public interest.
Those were the few remarks I wanted to make, in view of the fact that in recent days, I had two occasions to put forward the views of our group on that all important matter of the Bank Act and of the Bank of Canada Act.
I hope that during the discussion in the banking and commerce committee, major amendments enabling a Christian democracy such as Canada to free itself from such an economy of poverty will be presented in a specific manner.
Topic: DECENNIAL REVISION AND EXTENSION OF CHARTERS
Mr. Speaker, I would be remiss if I did not say a few words on Bill No. C-102.
The Minister of Finance (Mr. Gordon) introduced several amendments which may lighten the burden while he left the biggest piece of the pie to the banks and consequently the Canadian economy is still in the hands of the big financial institutions. The monopoly of finance is left practically intact; it is a terrible and cruel monopoly. As the Holy Pope stated:
Those who have control over money and credit have become the masters of our lives and we can no longer breathe without their permission.
The government with all its prerogatives is not in the least interested in regaining control of money and credit for the benefit of the nation.
How can such a weak monetary system survive by the simple process of getting new loans to pay off old ones? This leads finally to the periodic and wholesale write-off of private and public debts which is done by one of the following well-known three means: bankruptcy, repudiation or devaluation.
We went through all those stages of the economy. There is no end to bankruptcies in Canada; their number is terrific. It is shocking that a country like ours has to devaluate its currency in order to survive and to keep the system going.
As for collective and personal debts, they are the undeniable proof that our banking system has to be improved and that the outmoded concept of creating credit based on the scarcity of products should be changed. And this is precisely what is proposed by Social Credit, which maintains that the insufficient purchasing power may be accounted for by the failure of the present financial system to provide enough money for the buying of production.
[DOT] (9:30 p.m.)
Mr. Speaker, what we must do at all costs -I am talking about the 265 members of parliament, 26 ministers and 102 senators- if we want our economy to improve, is to put our present financial system in order by turning the national debt into a national asset. And the Minister of Finance is far from advocating or doing this.
But how can the national debt be turned into a national asset? All the country's consumption should no longer be financed by chartered banks but by a central bank or a credit board, a non-profit organization, as opposed to the chartered banks. The entire country's consumption should be financed by the money required and without interest; the entire private production and the entire public production should be financed by debt free money. Thus, the national debt would disappear, and be turned into national capital, a national asset; it would bear national interests that would be distributed as national and social dividends.
The national debt should immediately be converted into national assets and the interests on the national debt should become dividends for all Canadian citizens.
That part of our present taxes which is used to pay bank interests is sheer robbery and should be abolished as well as that portion of taxes which is used to pay off loans; and everybody knows that those two parts are enormous, considering all the municipal, school, provincial and federal administration they require.
Mr. Speaker, the national debt is an unequalled fraud and interests on public debt extorted from the taxpayers are the product of fraudulent activities.
Bank bookkeeping authorized by the government is dishonest, since with the government's knowledge the bank appropriates the financial credit of the country. The bank enters to Canada's account the asset of the country, but whereas in the debit column, it passes the country's asset to its own credit.
The bank has simply taken the total asset of the country and transferred it to the bank's credit and to Canada's debit; a deadly mix-up in columns for the Canadian citizens. It is the greatest fraud ever known in this country. The population has been kept in the dark, in total ignorance about this aspect of the economy.
I shall go even further, Mr. Speaker, and say to the face of those responsible in this house that banks are forgers much more dangerous than the counterfeiters we put
May 18, 1965
in jail. It is really counterfeit money that we allow the banks to create, since it is debt money, debt credit, instead of debt- free money that the Canadian citizens could spend without binding themselves for ever to creditors such as international financial interests.
The Creditistes have understood that it is the financial system, the present indebtedness system that must be changed if we want to escape that individual and collective indebtedness; this is why they suggest that the financial credit reflect the real credit, that of existing goods, taking into account the potential of our production and the needs to be met.
We are still wide of the mark, Mr. Speaker. Privileges granted to those institutions go far beyond the limits of social justice. Something has to be done and this is the time to do it, while we are authorizing banks to operate for another ten years. Canada will again be in the dark for ten years and the victim of the big financiers who, without taking production into account, will create money and put it into circulation, relying only on the judgment of a few, to the detriment of the population, disregarding besides the volume of production, the value of which will be $50 billion in 1965.
The national credit will be controlled by a commission independent from the government; the credit and the population of Canada will be controlled simultaneously; Canadian workers will increase production, while the bankers will enter no figures in the books to balance this production increase.
So, we will have to tighten our belt and witness a large number of bankruptcies, all kinds of frauds, simply because the Minister of Finance and those responsible in the government do not want to assume their responsibilities. It is not the banks' fault if the administration of the nation's credit is in their favour, but those who are letting them do it are to blame, that is the government and the Minister of Finance. I would then ask each and every one before voting in favour of this charter, to fully consider this bill, because the credit of the nation and the control of our economy stem from our monetary system.
We lack absolutely nothing in Canada, except that our monetary system is ill-balanced. We are not complaining about production, since labour does its work well; the proof of this is that production goes up year after year. However, even if the volume of
production increases, credit does not expand at the same rate and that is a disaster. That is what the people concerned fail to correct- perhaps because they are shareholders of banks which have a greater degree of control than usual. Something will have to be done about that one day; otherwise, the people will rebel, because they are becoming aware of the principles of finance; the public is getting to know who controls Canada's economy. The people are starting to realize that production is abundant but that there is not enough money to purchase that production. In other words, great developments are physically possible but funds are lacking to implement them.
Mr. Speaker, I would like to say a lot more, but I shall conclude by asking the minister to consider carefully the situation in Canada, for rebellion is closer at hand than he thinks.
We must, at all costs, tidy up the economy and finance in this country, but the Minister of Finance and the government do not want to do it.
I therefore ask him to take his responsibilities because he has more influence than he thinks.
The people have had enough. In fact, they are fed up with all the unfair advantages enjoyed by financial interests. We must put a stop to that situation and the day may not be too far away when we will witness dreadful events because we will have failed to assume our responsibilities.
I therefore urge once again all hon. members and ministers, including the Minister of Finance, to think twice and to open their eyes to the situation of the national economy and the present financial system, because that system is indeed liable to render great services to the Canadian people by making everything work in this country, but it is restricting almost everything.
If you want to progress you must go into debt. Now that everybody is in debt up to his neck, no one dares go any deeper. Even if the government should set up some system of loans for every Canadian citizen, we must realize that Canadians are afraid of further debts and new loans. It is absolutely necessary to remedy that situation.
[DOT] (9:40 p.m.)
Topic: DECENNIAL REVISION AND EXTENSION OF CHARTERS
Mr. Speaker, this very important long range piece of legislation has been left dangerously near the point where it might get into dif-
May 18, 1965
Acuities, and we do not wish to delay the passage of the Bill, nor keep it out of the Committee of Banking and Commerce. I hate to think what might have happened if there had been an accident, which so many have been speaking about, resulting in the dissolution of this Parliament or in some adjournment, and allowing this bill to expire within the next few weeks. Therefore, I do not intend to delay it, certainly beyond ten o'clock. I hope we can give it second reading and get it into the committee tonight.
The only really new provision in this bill is the one permitting the banks to get into the real estate mortgage held. That is not really new either, because over the past few years the banks have gradually entered this land mortgage security held, which they for so many years completely avoided.
At the beginning of their venture into land mortgages, additional security was required when notes or other instruments became precarious. Following this Arst venture they then began to go into the mortgage Aeld in response to Government requests to put money into properties. We see now that the banks are getting into matters, such as small business loans, on which they take mortgage security, and mortgages which have been put forward on the basis of public policy in order to provide housing for the people of Canada.
From the original stage of being institutions which relied almost entirely in respect of their loans on the signature of a person whom they considered responsible, the banks may now develop into institutions which take land loans as a matter of routine. I hope that the authority for banks to move into the land mortgage Aeld does not divert too much bank money from the traditional lending practices they have followed in the past.
A good deal of the development of this country has been based upon short term loans from banks and quick loans given merely on a signature in the case of individuals, and fairly unsecured loans to larger Arms and businesses on the basis of their histories, balance sheets and reputation. I hope that this venture into a new Aeld, which is already well covered by a great many other institutions in this country, will not cause a drying up of traditional funds.
I hope when this matter gets into the committee it will be considered very carefully. We did look at the question of mortgage securities recently in respect of another bill, by which certain trusts, loan and mortgage companies were permitted to increase the amounts of their mortgages to 75 per cent of
the asset value of real estate. I was one of the Members of that committee who felt that the bill had gone too far, but I was not of the majority. The majority of the committee Members at that time felt that the Central Housing and Mortgage Corporation was lending close to 90 per cent, in some cases, of value, and that many other organizations were lending up to 75 per cent and more of value and, even as high as 83 and 84 per cent on Arst and second mortgages, and that there was no reason why trust and insurance companies should not get into this Aeld and take part in this lending program.
I still think that the percentage is too high and that there is too much money going into land mortgages, and that as a result of the banks getting into this Aeld the situation will grow even worse. For that reason, Mr. Speaker, I express real hesitation about the move to put banks into the land mortgage Aeld. One of the things that could easily happen-
Topic: DECENNIAL REVISION AND EXTENSION OF CHARTERS