Mr. Sergio Marchi (York West) moved:
That this House condemns the government for its miserable failure to offer leadership and direction to Canadian banks and other lending institutions in order to provide adequate financial resources for the growth and development of small and medium sized businesses and the consequent creation of thousands of new jobs.
He said: Madam Speaker, I would like to say at the outset that this motion and this debate are long overdue. It has become painfully evident to all members on this side of the House that the general lending practices of our major banks and lending institutions have failed our small and medium-sized businesses.
The federal government has failed to provide the leadership, the nurturing and the direction to those lending institutions which are under exclusive federal and parliamentary jurisdiction to improve and right the wrongs.
As a result, since it is well known, recognized and documented that the small and medium-sized sector is the engine of economic growth and job creation, an unfair lending bank policy for that sector complemented by a failure by this government to act on it has in my opinion undermined economic growth in Canada, dampened job creation and prolonged, not expedited, an already long and painful economic recession.
In a key address in February of this year to the Empire Club of Toronto, the Leader of the Official Opposition said:
But for many small -companies it's not just the Small Businesses Loans Act -It is some of the practices of the major Canadian banks.
Canadian banks do not operate in an unregulated environment. Over the years, they have benefited a great deal from the protection of the Bank Act-I believe it is time for the banks to give something back. The time has come for the government to exercise leadership and to challenge the banks to sit down and develop concrete ways to help small and medium sized Canadian businesses find the capital that they need.
It is time to give something back. How many times have we heard that from Canadian business people in our ridings over a cup of coffee, on the floor of their plant or in fact from workers at the gates?
We constantly hear about the banks and lending institutions pulling back loans to those small businesses, freezing and undercutting their lines of credit. All too many times those businesses cannot get to first base with their banks. Despite being a long and loyal customer for many years of a bank or despite which bank they try, often and regrettably the response is a negative one across the board.
In the last couple of years our small businesses have not needed additional pressures from our banks. There are enough pressures in the marketplace. Try to think what those small businesses and firms have had to face: the collapse of Meech Lake, the Persian gulf war, the aftermath of the free trade agreement, the consternation over NAFTA on the horizon, the introduction of the GST, a high dollar-high interest rate policy in respect of the United States for all too many years, record unemployment, cross-border shopping, a national constitutional referendum that sucked the energy and confidence of a nation, no consumer confidence, an economic recession, and I would suggest a psychological depression of Canadians.
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That is the background these firms have had to work with. On top of those burdened shoulders they cannot get the financial lending strength from the banks that they come to expect and rely on.
In my own city of Toronto, my own province of Ontario which is the economic centre of the country that produces over 40 per cent of all goods, over 50 per cent of all manufactured goods, 225,000 jobs were lost during the recession in manufacturing, most of them small and medium sized firms. There were a record 31,400 bankruptcies last year in my province alone.
The budget of two weeks ago said nothing about an economic growth strategy, nothing about a job creation strategy and not one line on what the role of our banks and the lending institutions ought to be for our country in developing that so-called new economy.
On top of that there is no hope from the leadership candidates who have embraced the economic agenda of the current Prime Minister and the former finance minister and current trade minister. They have embraced them.
The banks have an important and indispensable role in the equation of a national economy and that role becomes doubly important when the economy is faced with a serious recession such as ours has been faced with over the past several years.
I do not want to put the whole blame for the economic malaise and performance of our national economy on the doorstep of our banks and lending institutions. Not at all, because that would be too simplistic and quite unfair. I am not suggesting that.
I am asking myself, and business people in my riding are asking themselves, within that one important variable of that equation what the banks have done to help get Canada working again. What have those banks done to assist those small business people over the incredible hurdle they have faced?
We as a Parliament should be asking ourselves, given that the federal statutes give rise to a very prestigious position for banks, and some would suggest a monopoly, that it is time for us to discuss and debate as we are doing today, what is the role of our lending institutions vis-a-vis our small business entrepreneurs who create the wealth of jobs.
There are 66 banks in Canada, 58 trust companies, and over 3,000 credit unions and caisses populaires with $600 billion in assets. In terms of aggregate assets the big five have more than all the other lending institutions combined. Let us look at the profits of the six major banks alone. Last year their profits came to $1,843 billion. In 1991 their profits were $3.7 billion and in 1990 their profits were $3,567 billion. The only reason they dropped in profits in 1992 was the shellacking those loans to the large multinational commercial real estate holdings took.
One company alone in Canada, O&Y, cost the banks $2 billion. Who is paying for those sins, for those loans that unfortunately went bad? With all due respect I would suggest that it is the small business person who is being denied and who is being unfairly asked to pay the price for those bad loans. That is not only unfair, but it is not helpful to attempts to stimulate economic activity.
We have had reviews of the financial banking act. We had legislation but it was a strengthening of the lending institutions allowing banks to offer insurance activities through subsidiaries. Banks can now own real estate brokerage firms. Banks can now hold, manage and develop land holdings. Banks can now offer in-house investment counselling, portfolio management and financial planning. Our government has given us green plans, blue plans, all sorts of coloured plans about strengthening financial institutions.
Has anybody asked why there have been no amendments to serve and help the clients of those lending institutions? Why did the last revision of the Bank Act, which is supposed to take place every 10 years and which we did in 1991, silent on anything that had to deal with the small and medium-sized firms? How have those lending institutions helped Canada prepare itself for the new economy?
It is important for the banks to support small business because it is the small enterprises that are the sparkplug of our economy. Between 1979 and 1989 businesses with less than 100 employees created 80 per cent of all new jobs, 80 per cent over a 10-year period. Since 1989 that percentage has increased to 98 per cent.
When we talk about bank losses, bad loans to small businesses last year totalled $600 million. That may be a big sum, but there are 900,000 businesses in Canada and the banks have lost $600 million on bad loans for all of
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that sector. Compare that to the financial losses incurred on the big corporations, $2 billion on O&Y, and that is not mentioning the loans to South America and other faraway places.
Yet loans during the same decade to small business people have dropped 11 per cent and loans to the so-called big businesses have increased 11 per cent. In fact the Canadian Bankers' Association, which was invited recently to our caucus at the urging of caucus members such as the members for Broadview-Greenwood, Willowdale, Nepean, and others who have been active with the small business communities in their ridings, told us that the ratio between business loans to big and small businesses are 70:30.
I am giving the speaker the benefit of the doubt because in fact he told us that it was 26 per cent to small and medium-sized firms and I am rounding it off. Seventy per cent of all business loans go to big business, 30 per cent to small and medium sized firms. Yet in the same breath the Canadian Bankers' Association told us that most jobs are created in the small and medium sized sector.
Why is it that the lending practices of the banks do not go to where the most economic activities are going to be derived? Should those loan percentages not be at least better balanced, if not tilted, toward small and mediumsized firms? We have to get our loans in sync with where jobs are created.
Can members imagine how it would be if we harnessed those loan practices with the small business sector? If only half of the 900,000 small industries in Canada created one new job we would immediately put back to work 500,000 unemployed but willing Canadians; half a million jobs.
We do not have to imagine it. We do not have to dream about it. We do not have to hold it up as an ideal. I believe, as do members of my caucus, that if there is a partnership between a national government responsible for banking and those lending institutions with the small business network we can right those wrongs. We can fix those mistakes. We can reverse that trend. We can provide the financial spark that would ignite the entrepreneurial engine of our small business sector.
In this debate I propose six recommendations which I believe the government can use to help banks move forward with what I would refer to as a small business development strategy. I know my colleagues who will be speaking after me will put other ideas on the table and by the end of the day we will, if we can, grab one, two or three good ideas. My ideas are by no means exhaustive but are an attempt to address the problem we hear first hand on Saturday mornings when we visit our constituents and at our many appointments.
I offer six ways. Recommendation No. 1 is for the government to call a national summit among the national government, the major banks and the small business network. Let us meet, sit down, become partners and talk about the short-term and long-term challenges facing small businesses and the whole question of the credit crunch. Let us talk about it now. If we bring those representatives together and pool our ideas, we will be doing justice and honour to the economic needs and aspirations of a people and a country.
Recommendation No. 2 is that the federal government immediately urge, if not demand, that banks stop withdrawing capital from small businesses that are meeting on a regular monthly basis their interest charges on loans. How many times have we heard that the banks have moved in to pull back loans or freeze credit lines and that the small business person has had to react? How? He has to either close the operation, scale down or lay off employees because he is being asked to pay the long-term debt to the bank in a very short and constrained time period.
We have a recession. After the business person pays monthly instalments on that loan, any left over capital should not be forced irresponsibly by the bank to finish the loan. It should be allowed to be reinvested in that operation so that the business can survive, if not prosper, in the economic drought.
I will give two examples. Two years ago a food manufacturer in my riding took out a loan with one of the big five for $700,000. He has paid down almost $500,000 in two years. Last week he received a notice from the major big five bank saying he has to pay the remaining $250,000 in 30 days or else.
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He has paid $500,000 during a recession and is continuing to pay it. Now his loan is being called in 30 days. What is that food manufacturer going to do? If he cannot get the money through private financial ways he is going to have to let employees go or close down.
A construction company in my riding employs 15 people. That person took out a loan one year ago of $150,000 for new machinery. He has paid back more than half. He has about $75,000 outstanding. Three weeks ago he received a notice telling him he has to pay the $75,000 off in 30 days or else.
That same business owner owns a house in Wood-bridge that is appraised at $600,000. He has an outstanding mortgage for $250,000. No one asks him any questions and it is the same bank. The bank on that loan says nothing but on the $80,000 business loan it says it is time to collect. He has 15 employees who he is worried about, 15 families that rely on the small construction company.
The practice has to stop because it is irresponsible. The banks which are entrepreneurs and have taken the risk should put loyalty, confidence and risk back into the loans they have made to those small businesses and not choke the businesses by pulling them back in the irresponsible fashion suggested in those two cases.
Recommendation No. 3 would be for the national government to encourage the banks to expand their small business loans portfolio. My colleague from Broadview-Greenwood has been a strong advocate of these small business loans. The ceiling for loans has increased over the years from $100,000 to $250,000. However the business people in my riding tell me they still cannot get access to those loans. We have increased the ceiling, but people are telling me they cannot even get $100,000, never mind $250,000.
The banks should at least double the portfolios available for those loans. They should not double the value of their portfolios. They should double the effort in selling the program and encouraging customers to take advantage of it. The banks should not put up a poster and rely on the world to take care of itself. Let us add some muscle to the program.
Recommendation No. 4 would be the establishment of a business development corporation joint venture among the major five banks. Today it is no longer the local bank manager who knows the business person and who is
making or turning down that loan. It is a faceless bureaucrat from a regional office.
The banks do not have the culture to deal with the small entrepreneur because they are driven by maximizing profit margins. Rather than taking a lot of time with the small or medium sized firms they would rather take the risk with some of the big players.
I believe a new culture can be created by establishing such a joint venture. Each can put in $150 million to $200 million capital. Then the banks will be more in sync with the concerns and needs of small business.
Recommendation No. 5 would be the strengthening of the Federal Business Development Bank because both the number of loans and the average size of those loans are going down significantly. We have to remember those are the same businesses that are being turned down by the chartered banks which are now being turned down with greater frequency by the Federal Business Development Bank. We have to reverse that trend.
The last recommendation, No. 6, is to have a joint task force made up of government, banking institutions and the small business network come together to hold public hearings with real live Canadian small and mediumsized firms. We could then have that information updated as well as the experiences they are having. They could then plug into that national economic summit. We may be on the leading edge.
Those are six ideas that I propose for debate. It is not an easy situation. I am not blaming the entire situation of our economy on the banks. I realize they have an obligation to their shareholders and the people who invest in their banks and obviously the depositor, but I believe they also have an obligation to the national economy by virtue of the federal statutes.
I believe there needs to be a better balance between the banks and small business so we can once again put wind behind the sails of our entrepreneurs and thank God for small businesses.
Subtopic: ALLOTTED DAY, S. O. 81-THE ECONOMY