FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 6, 1998

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[English]

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Order. Good morning, all.

Today we're resuming hearings on the future of financial institutions, in particular to hear Canadians' comments on the view of mergers, bank mergers amongst others, but more importantly, how Canadians feel about the future of financial institutions, as they see it, placing Canada obviously at a competitive advantage worldwide.

We are consulting Canadians coast to coast. Today is day two of the eastern swing. We move on this afternoon to the Halifax-Dartmouth area. My colleague and the chair of the finance committee, Mr. Bevilacqua, is doing the same out west, in Calgary, Vancouver, Saskatchewan and Manitoba.

We hope to report to the minister on both the pre-consultation budget hearings that were held yesterday and the recommendations on the MacKay task force report, as it has become known, hopefully by mid-December at the latest so that Mr. Martin has the feedback he's looking for.

We are waiting for one more witness. What we normally do is hear the round table witnesses. We give them roughly 10 minutes to make their presentation and then we open it up for questions.

I'd like to introduce the witnesses right now. Thank you for being here on behalf of your own corporations and the associations you represent and, more importantly, on behalf of Newfoundlanders, who I feel will benefit by your presentations to us.

Mr. John Thompson is here from the Insurance Brokers Association of Newfoundland. He is accompanied by Mr. Jeff Wedgewood and Mr. Brian Flemming. We also have Mr. Sam Walters from the Royal Bank of Newfoundland and Labrador.

Who would like to start?

Mr. Walters, would you like to start? We'll go in reverse alphabetical order.

Mr. Sam Walters (Vice-President, Royal Bank of Newfoundland and Labrador): Thank you very much.

Welcome to St. John's and to the capital of Newfoundland and Labrador, which, I'm sure you're aware, next year will be celebrating 50 years as part of this great country Canada.

The Royal Bank of Canada has had a presence in this province since 1895. You'll readily recognize that was long before we were part of Canada. I think it was its first or second branch outside of Canada at that time, which was opened here in 1895.

We believe since then we've had a very good relationship with the citizens of this province, spanning over some 104 years. During the celebration of our 100th year in business, we used the phrase “Proud partners in a proud heritage”. I know our proposed merger partner, the Bank of Montreal, had similar celebrations around that event, as they have been here approximately the same length of time, maybe a little bit longer.

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We as an organization were also very involved with the Cabot 500 celebrations, which were well recognized across Canada and around the world, as a key sponsor with the city of St. John's, and will be very involved with the 1999 Canada Winter Games in Corner Brook next February. That will be the first Canada Winter Games this province has hosted.

With that as background, I would like to talk to you about three issues related to the merger from a Newfoundland and Labrador perspective: the branch network; the impact on employees; and the small business marketplace.

Our chairman, John Cleghorn, has already appeared before you, as has the chair of the Bank of Montreal, Matthew Barrett, and dealt with issues from a national and international perspective. It is not my intent to deal with these issues here.

From a network perspective, we have only four communities outside of St. John's where we have a Royal Bank and a Bank of Montreal in the same community—Gander, Grand Falls—Windsor, Corner Brook, and Stephenville. In the city of St. John's, our network is very well distributed across the city, and I see all units remaining open in the event the merger is successfully concluded.

I should also mention that in the four communities of Gander, Grand Falls—Windsor, Corner Brook and Stephenville, in our dialogue with the mayors of those communities they have expressed no concerns about, and in some cases have expressed support for, the merger as an evolutionary step for our country and their communities going forward.

Coming back to St. John's, in the case of our two main branches, which are located on Water Street, not very far from here, they both have a common wall. Certainly in our building we have it pretty well full, and in the Bank of Montreal, where there's some surplus space, we would not be able to accommodate the staff in that building who would be needed in a combined operation.

You may have heard, by reading Maclean's and other magazines, and as a result of John Cleghorn's visit here in February, that our proposal with this particular facility would be to join the two facilities by way of a common archway or wall.

I should also mention to you that in the case of the Royal Bank and Bank of Montreal network in this province, which totals together some 47 units, we would still be smaller than one of our key competitors, the Bank of Nova Scotia, in this province. I should also mention that the combined network of some 47 units would enable us together to provide our business customers with much wider provincial coverage for deposits and other services than is now the case.

In essence, I see the merger having very little impact on our network across the province. I see the merger having very positive impacts for our customers, with the ability for us to provide services to the citizens of Newfoundland and Labrador in an improved fashion from what presently exists.

From an employment point of view, springing off of the impact from the network, we see very little negative impact. This is a result of the network configuration, which I've just referred to, as well as the fact that both banks have their people operating very efficiently.

I can use the example of Stephenville, where, as I've mentioned, we have a branch of the Bank of Montreal and a branch of the Royal Bank. While it is true that if the merger is approved we would likely end up with one physical facility in Stephenville, Newfoundland, we have, let's say, for point of reference, three personal bankers at Royal Bank and we have two personal bankers at the Bank of Montreal. When we bring those businesses together, all of those personal bankers have a full desk of customers with them. As a result, when you bring them together you will still need five personal bankers in that building, or whatever building we choose it to be.

Likewise, if we have three people at the Bank of Montreal counting cash as a result of deposits coming in from their business customers, etc., and we have two people at the Royal Bank, then we will still need five people to count that cash, because there will still be the same amount of cash to be counted in Stephenville, Newfoundland.

I don't know if that's exactly the number of people, but I use it as an analogy. Please don't hold me to the threes and the twos. It is just very symptomatic of the business we have in our communities across the province, and I would think somewhat analogous to what we would find in rural communities across the balance of Canada.

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Finally, I want to talk about our small business customers in this province. Certainly speaking for the Royal, and I know the Bank of Montreal would say similar things—in fact, maybe every bank in this province would say similar things—small business is the heart and soul of the business community in this province. We have very few pubic sector companies. In total, even with some small IPOs that have been done recently, there are probably less than 12, but really it's somewhere in the range of 6 to 7 significant public sector companies.

So small business here is maybe even more important to us than it is in other parts of Canada where, as you know, small business is often referred to as the “engine of the economy”.

We feel we have a very solid record in this province in supporting small business. We've been here, as I mentioned, some 100 years, and we have supported the traditional industries in the resource sector, whether that be fishing, agriculture, forestry or mining.

We as well feel it is essential that we do a good job for this sector, not only because of the opportunity it presents to us as a business to deal with small business but also because it provides us an opportunity to have a relationship with many of those owners of businesses, who also deal with us on a personal capacity as well.

At the Royal we have a very good reputation in the sector, and are active in supporting the new economy, or the knowledge-based economy. The Prime Minister was here for SoftWorld just about a week ago, and laid out the strategy for this very important sector going forward.

We at the Royal Bank have been very active in supporting that sector at both the national and local levels. We've been involved in very different community organizations around business, whether that be the Board of Trade, whether that be involvement with SoftWorld, which I just mentioned, or whether that would be involvement in various committees.

In my own capacity, I chair something called Operation On-Line, which is funded by the federal government through the province. It's certainly an effort by a private sector board to try to grow our knowledge-based economy here in the province.

So it's extremely important to us that we serve the small business sector well. I think the record of both banks both here in the province and nationally speaks for itself in our support for small business. We are very close to the suggested ratios that Tony Ianno's task force mentioned during their tour here and across the country.

With that, I would like to say that I appreciate this opportunity to mention some things about the efforts put forward by us in this community to support our province in every possible way to help it grow and prosper and be an even greater contributor of going forward in our great country of Canada.

Thank you.

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

I now turn to, I presume, Mr. Thompson, or are all three of you going to be presenting?

Mr. John Thompson (President, Insurance Brokers Association of Newfoundland): Essentially, it will be just me who's presenting, and then for questions, the three of us will respond.

The Vice-Chair (Mr. Nick Discepola): Go ahead.

Mr. John Thompson: Thanks very much, Mr. Chairman.

I'm here today on behalf of the Insurance Brokers Association of Newfoundland. IBAN represents approximately 500 independent property and casualty insurance brokers in this province.

Recently members of this committee had the opportunity to hear from our national advocacy group, the Insurance Brokers Association of Canada. We will not repeat the concerns expressed by IBAC but we would like to share our perspective on the MacKay task force's bank insurance recommendations.

Our association is particularly concerned about the impact the MacKay task force's bank insurance recommendations will have on our ability to compete on an equal footing. The MacKay task force proposes to give the banks even more powers and special privileges at the expense of small business and fair competition. The task force's own research suggests that there is no strong evidence that consumers will benefit.

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As IBAC pointed out, the task force proposes a framework that will reduce competition, not increase it. In doing so, the task force has totally ignored the impact this recommendation will have on jobs and job creation.

The task force only notes in passing that some existing jobs may be lost. This statement is particularly disheartening and may be inappropriate given the challenges we face in this province in keeping our jobs and creating new ones.

In this province, independent brokers have been an integral part of their respective communities for decades, and they have served the P and C insurance needs of Newfoundlanders since the early part of this century. Many of the brokerage firms have been handed down from generation to generation. Our 500 members are located in approximately 100 communities throughout Newfoundland and Labrador, including most rural communities.

The typical insurance broker and brokerage firm support their respective communities through donations and strong community activism. Independent brokers also contribute to the economic well-being of their communities by maintaining jobs and creating employment opportunities. It is useful to note that approximately 85% of the goods and services that brokers require are purchased locally.

In suggesting that the banks be given an unfair competitive advantage, the task force is putting hundreds of jobs in this province at risk. Furthermore, millions of dollars in regional benefits and tax revenue will be lost.

How is this going to help maintain jobs and create new ones in this province? How does this help the small business community here? The task force fails to answer these questions.

In fact, to our surprise, the task force has completely ignored the role of the independent broker. We don't understand why. Do these jobs not count?

The task force report also ignores the fact that Canadians enjoy the benefits of having one of the world's most solid, cost-effective, and competitive P and C sectors.

The issue, therefore, is not about the lack of competition in the P and C sector. The real issue is about the lack of competition in Canada's highly concentrated and dominant banking industry. That should be the starting point for further discussion.

Let's make certain that this kind of intense competition characterizing the P and C sector is reflected in Canada's banking sector. Let's not, however, endorse a policy that favours banks over other groups.

Thank you.

The Vice-Chair (Mr. Nick Discepola): Thanks very much to both of you.

I'd like to now turn to Mr. Forseth. We'll go with ten-minute rounds.

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Thank you.

A question to the insurance folks: Have the banks ever come directly to you to discuss their desire to encroach into what you see as your area? Have there been direct discussions between, say, your national organization and the banks?

I know throughout the press reported in the country that there seems to be a body of opinion on one side and a body of opinion on the other. I'm asking, has there been any direct discussions and negotiations about the banks wanting to, it looks like, enter your field?

Mr. Jeff Wedgewood (Secretary, Insurance Brokers Association of Newfoundland): As far as Newfoundland goes, I'm not familiar with or aware of any discussions that have taken place directly between, say, the Royal Bank or the Bank of Montreal and our association, nor any independent brokerage member.

On the national scene, we know that in the past there have been attempts to partner. The Toronto-Dominion Bank at one time had tried to partner with the Lombard Insurance Company to provide P and C products to their members.

Mr. Paul Forseth: Just for the record, when you talk about P and C products, you mean...?

Mr. Jeff Wedgewood: Property and casualty as opposed to life.

Mr. Paul Forseth: Thank you.

Mr. Jeff Wedgewood: So on a local scene, no, we're not familiar with any attempts to hold discussions.

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Mr. Paul Forseth: Then I'll give a chance to both you and Mr. Walters to answer this question about the banks entering, in a more direct way, comprehensive insurance services. The issue that has come to my attention is the one of training, ongoing accreditation, and thereafter, discipline and control.

We have what I would describe as a highly developed and mature sector in the insurance side that has a long developmental history. It's fairly stable but highly competitive. Even insurance companies who themselves market around the world and use brokers rather than agents are themselves pretty nervous about what the whole new game means here in Canada, because there's an element of economic risk and there's uncertainty, and economic planners don't like economic uncertainty.

We keep hearing the phrase “level playing field”. Many say, well, sure, we're willing to be involved in the game if there is a true playing field. So I'm wondering what, from your perspective, your concerns are around banks entering your area, specifically on the issues of training, accreditation, discipline and control and maintaining standards so that we truly do have a level playing field.

It was described to me in a scenario, I believe in one of the U.S. states, where there were promises of a level playing field. The local branch manager received all the accreditation and was supposed to go to ongoing seminars and so on, but what happened in the local branch was that a lot of the so-called clerical work or whatever was then handed down to others, and even part-time employees, when it was only supposed to be the oversight of the branch manager. Once the operations got two or three years down the road, all those original plans and scenarios fell by the wayside, and there was no outside independent mechanism to ensure that the original plans were being followed.

I'm wondering, even if we have an ideal situation here, where all the best-made plans and rules are laid out, if perhaps two years down the road we indeed have that whole scenario completely undermined and no longer have a level playing field.

I've introduced all of those issues. I'd like you as the insurance group to address that, and then perhaps Mr. Walters could respond as well.

Mr. Jeff Wedgewood: In Newfoundland, the Insurance Brokers Association sponsors and administers and runs a number of accreditation programs. Specifically, we run a program called Fundamentals of Insurance, which is required for licensing in this province as a property and casualty insurance broker.

We also run a program called the Canadian Accredited Insurance Broker program, which is a certificate program with a number of modules of study. It's very intense in nature and it separates those from being participants in the insurance industry to actually turning them into real professionals. We're quite proud of our graduates.

Upon attaining the CAIB designation, as we call it, the Canadian Accredited Insurance Broker designation, we also provide to our members a chartered Canadian insurance broker degree, which is a step above the CAIB program and truly separates again the top echelon of our members.

These programs are very rigid. There's a lot of study. There's experience required in the field in order to challenge for these examinations. We feel that once members of our associations have these certificates and letters behind their names, they really know how to provide the top-notch, superior advice that Newfoundlanders need when making insurance-purchasing decisions.

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As I stated with regard to the course on the fundamentals of insurance, that's the entry level licensing requirement for the province of Newfoundland and Labrador.

One of our problems, I guess, with insurance falling under a provincial guideline as opposed to a federal guideline or a federal regulatory area is that in all the provinces, the licensing requirements are different, and Newfoundland is one of the provinces that does have one of the most rigid licensing requirements for property and casualty insurance brokers.

So I guess our concern would be, who in the banks would be providing the insurance advice to Canadians, and at what level would they be educated and licensed? If you speak to one of our member firms, chances are you're getting somebody with at least a CAIB designation. In Newfoundland, we have the highest concentration of CCIB, or Canadian Chartered Insurance Broker, designates in the country per capita.

So that's something we're quite proud of. Our members are well educated and are very much able to offer the best advice that we feel is possible.

Mr. Paul Forseth: Can you comment also on achieving the CLU, or Certified Life Underwriter, designation?

Mr. Jeff Wedgewood: Personally, I can't, because that's a group separate from the one we represent today.

Mr. Brian Flemming (Treasurer, Insurance Brokers Association of Newfoundland): Perhaps I can make an additional comment.

As a little background, I am relatively new to the industry. I've been with my current broker for about five years. Prior to that, my background was with KPMG. I'm a chartered accountant.

As you all are probably aware, that's a fairly technical environment to come through. Prior to coming into the insurance industry, my experience had been audit-related within the industry. Then I did decide to go with my current employer, who is a broker.

I have to say, I was very surprised at the level of technical knowledge necessary to sell a standard P and C insurance product. A basic home and auto product in today's environment is a very complicated product. While people may not have full knowledge of their insurance products, we, through our professional training program, do try to provide as much knowledge as possible to the purchasing public.

As independent brokers, our focus is obviously on maintaining a certain level of business and becoming profitable. We do that by ensuring that our clients stay with us and that we can attract new clients. We do that from a professional point of view, we hope, and as well a price point of view.

The one interesting thing I did see when I joined the industry was that, from my previous perspective in the chartered accounting firm, the tenure of employees was relatively short. Two to three years was the average range for being an employee in that type of environment.

In coming to my current broker—my involvement is with personnel as well as with financial issues—the average tenure of employees for our brokerage is in the range of eleven years. During that time, ourselves as well as most members of the brokers association do fairly well to significantly sell the education products to our staff. We're probably at slightly in excess of 80% of our staff having a professional designation within the insurance industry.

If you look at professional designations with significant tenures of ten-plus years, I think that goes to show the commitment the brokers have, and the staff of the brokers have, to serving the public in any need they may have.

Mr. Paul Forseth: All right. You're just talking about property and casualty without getting into the whole certified life underwriters issue. I understand the banks want to sell all of that.

Mr. Brian Flemming: Unfortunately, our perspective here today, as the Insurance Brokers Association of Newfoundland, is that our members are not sellers of life; we are essentially an organization of property, casualty and commercial insurance.

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Mr. Paul Forseth: I guess Mr. Walters wants to chime in.

Mr. Sam Walters: As you know, at the moment we are not allowed to distribute insurance products other than credit or life in our branches. By credit or life, I mean, for instance, if we do a mortgage and someone wants life insurance, we can sell them the life insurance to support that. Normally we lay that off to a life insurance company such as Sun Life or Canada Life, or one of those entities.

From the point of view of training and education and standards, I think I can say without qualification that our people and our organizations have demonstrated that we are very committed to providing the highest level of training and skill sets for our people who are dealing with our clients, because if we don't, we will not be in business very long.

While we don't have people trained in the various insurance things, as has been mentioned, I can point with a great deal of pride to what we have done in training our people to qualify to sell mutual funds and meet the standards, the exams and the programs. Many of our people now have the Canadian securities course, which, again, has been something that has not been evident in the banks, but over the last three or four years, many of our people have had that. Many of them have received financial planning designates. As well, we have in our company people who are CAs, who've been CAs, and we also have many fine graduates we've hired from our university, Memorial, who have undergraduate or MBA degrees.

I know if we were to enter any of the insurance lines that have been referred to, we already are a substantial Canadian insurance entity, and we do that through companies such as Voyageur and our credit or life products, and other things we do in insurance.

Basically, our people have been trained to handle those products, limited as they are. They're not nearly as broad as has been mentioned here previously.

I can say without equivocation that if we were going to be in those businesses, we would expect that we would have standards we would have to meet as an organization before we could be selling such products to Canadian consumers.

I'd also like to point out that while the issue of tenure has been a challenge for banks, we do have a lot of people in our communities, in our rural communities and small communities, who deal with and interface with Canadians in our organization who assist and manage. Many of these people—our personal bankers, as we call them—have long tenures of service to their clients and to their communities.

Mr. Paul Forseth: I'll pass until a later round.

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

I'd like to now turn to Mr. Szabo.

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

Thank you, gentlemen. This is certainly one of the more interesting subject matters that has come before us, because it tends to polarize groups, to some extent, and others are somewhere in the middle of the range. An interpretation of a bunch of details of situations certainly are provocative, to say the least.

One of the most significant features within the MacKay task force report actually turns out to be in the summary, where he refers to the status quo as no option. Depending on who you are, you use that to suit your own purposes. I know the banks are saying, well, of course we have to go forward with mergers, because we can't be status quo. Yet if you read it very carefully, it's referring to the financial services sector as a whole, which is a very dynamic sector where there's much going on. Indeed, probably each element of the financial services sector would never be accused of being part of the status quo over the last decade, even now.

So it's probably a throwaway line, and yet politically it's being used by both sides.

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I wanted to ask you, Sam, about your view on the impact of the two proposed mergers on the insurance brokerage industry. You've heard their arguments this morning, and I'm sure you've heard others. I know the banks are well briefed on the issues as to the various questions that do come up.

In your view, do you see that our chartered banks getting into insurance through the branch network would affect the brokerage industry, particularly the jobs they have?

Mr. Sam Walters: That's a difficult question, and I don't know that I can give you a solid answer without having done some research, which I have not done. I would just say that the record of evolution of the financial services business has shown that many companies who many would have thought would not exist in this country do find ways to adjust and adapt.

You only have to look at the finance companies in Canada who at one time provided Canadians with virtually all, or at least a lot, of the consumer loan products, and banks entered that deal. They're still there, they're still out there with their shingles out in most of the communities. True, they may be of different ownership, and some of them are now owned by foreign financial institutions, but I personally feel that there will be a place for both of us to do business. I think some products banks may sell well, and others they may decide not to even enter. There will be places for both of our skill sets.

I should mention that one should not forget the 700 or 800 people who work for, in this case, both the Bank of Montreal and the Royal Bank in this province, and many of them work in rural communities. With technology and evolution occurring, it's important that they have the ability to serve their customers.

Basically, I think there would be a place for both to compete and do well. In my own view, and I believe that of the bank's, it should be up to the consumers of Canada to decide who has the best products. It's they who would decide.

Mr. Paul Szabo: That's interesting you used the language of “best products”. There's a presumption there, and yet it almost contradicts what the insurance industry has been saying about basically having a knowledge- or advice-based service, which the banks presently don't have. It does make me think that in the absence of any regulatory framework or restrictions, if I were a bank and all of a sudden I got the green light to go into auto, property and casualty in the branch network, I'd probably got out and cherry-pick all the best agents I could find and hire them for the bank. I would just wipe up. I'd just kill the marketplace, because I could afford to consolidate the very best, the largest brokers, the ones with the most networks, the most contacts. I'd put them in my branch, pay them the kind of salary and give them the kind of benefits, and the rest of them are going to wither on the vine. You could do it. And you know what? It'd be legal.

What do you think? It's good strategy.

Mr. Sam Walters: I would say only that we live in a free country, and employees are free to choose the choices they're offered by different employers within the country, but I still would maintain that many of the organizations that are out there will find ways to survive. Many of the independent brokers are anchored by very well known people within the community. Many clients, just like clients may have a relationship with the Royal or the Bank of Montreal, are very committed to those organizations for the service they've had. I think the same would apply on any of the independent brokers, because the trade name—

Mr. Paul Szabo: I suspect that the other gentlemen probably have a comment to make on this as well.

Mr. Sam Walters: —of many of the independent brokers is very well established in many of the communities, as has been alluded to.

Mr. Brian Flemming: Very quickly, Mr. Chairman—

The Vice-Chair (Mr. Nick Discepola): We have lots of time, so don't make it quick.

Mr. Brian Flemming: Okay.

As an independent broker, as I previously mentioned, our business exists to provide a service to our customers. We do that.

I'll take my particular brokerage as an example. We represent in the range of seven to eight standard personal-lines markets and a number of specialty personal-lines markets.

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If you come in and sit down in front of one of our agents, we will look at you as an individual—your driving record, your home, where it's located, how far you drive to work, and any other issue that relates to the insurance product you're going to buy. In order to get you the product you want, and to get you as a client of our organization, we will pick the best product in the market that suits your needs.

This is my impression of how a bank would sell insurance: They would sell for their own company. They would have one market that is going to provide one product for me as a consumer.

I don't see that this is necessarily providing me the best choice there is. It's really a different playing field, completely, from the perspective we're coming from. We get and maintain our clients by providing them with the best service available in the market. We don't try to sell them a service that we ourselves are promoting.

If we can't give them as good a service as this broker down the street because he represents a different market, then obviously we will lose that client, and we should lose that client.

The Vice-Chair (Mr. Nick Discepola): Can I jump in here for a second?

Doesn't that give you a tremendous competitive advantage? Instead of, as you're saying, the banks coming in with nice, glossy brochures, with catchy program names—and we all know it's going to be a canned product suited to their clientele for their bank—you as a broker can give the consumer a tremendous advantage in trying to personalize a service based on the consumers' needs.

Mr. Brian Flemming: The problem being, do we even get to see that consumer in the future? If that consumer is in arranging a loan—and tied selling is a whole issue we hadn't planned to get into here today—and he is presented with his loan documentation, whether it be for a mortgage insurance, whether it be for home insurance, whether it be for car insurance, at the time of the purchase, that is really cutting him off from a lot of the market that exists out there.

Now, there are some consumers who would partake of that and there are some who probably wouldn't, but I think it would eliminate a lot of our client base from the process they now go through, which is to go and search for things, because they don't have that link where they can go into the bank and say, all right, here's my car loan, get me my insurance as well.

I don't think it necessarily gives the bank or us a competitive advantage from the banks. I think if the banks have that initial contact, then they may have a significant competitive advantage over our industry.

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

Mr. Paul Szabo: I wanted to ask something that puts a reverse onus on.... A big part of the MacKay task force report concentrates heavily on the public interest, and part of that is, say, cost efficiency within the financial services sector. It means getting the best price possible in a competitive environment. It really stresses the competitive forces.

But it turns out that, well, the brokerage industry itself is another level—and I don't want to be unkind—of commission or bureaucracy between the insurance providers, the base, where the roots come from...and there are opportunities for the broker to do a little bit of steering and to shop around and do all this other stuff. But there is a substantial component of business within the auto, property and casualty business that is vanilla. It's stuff like a tenant package where the landlord specifies the details, and there's really not much happening. There is the basic auto for lease. I've leased an automobile where the dealer says I have to have $1 million liability and I have to have $500 deductible on the comprehensive or something.

It's kind of like well-defined products, not a lot of options, not a lot of thought, and the customer is looking for fast-food service from your business, but they still have to go through your business, and obviously there is a cost of going through the insurance system.

Some insurance companies are even offering direct-to-the-public now as well, which is another move. This is another threat to the insurance brokerage industry.

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I guess the question for you is, do you believe the banks necessarily have to have the knowledge- or advice-based or trained people to offer all of these products when they could probably—and maybe it's what they're looking at—do certain things on a sufficient volume basis extremely well and basically eliminate a middleman?

I mean, it's one of those things where maybe it's just the optics. I understand the amount of training and the amount of expertise that's necessary in some complex risk claim material, but still, from the banks' perspective, they're probably looking at you and saying this is not an efficient distribution system; it's costly to the consumer; we can offer it better, and the consumer is entitled to have the choice, whether or not they want to be very price-elastic and in fact go for the cheapest deal they can possibly get and still get the basic coverage they need.

Mr. John Thompson: Thanks for the question.

On the first part of the question, the expense side, CIBC Insurance, as you probably are aware, since 1992 has become the 21st-biggest insurance company in this country. So it certainly didn't take long for CIBC to take advantage of the relaxing of the rules in 1992.

However, CIBC is right in the middle of the pack when it comes to expense ratios for the industry. From broker-related companies right to direct writers, they're right in the middle of the pack, so there's no advantage on the expense side for CIBC.

In fact, they are now using an American company to do some of their call centre business to save them money, because at present their expense ratios are too high. So the consumer is not seeing a reduction in rates as a result of reducing expenses.

As far as some insurers going direct to the consumer, realistically, the consumer is looking for different distribution channels—or some consumers are. The insurance brokers still offer over 70% of the insurance products to Canadians, so it is the choice for Canadians.

Our biggest problem, I guess, is if the banks are allowed to retail insurances, how can an organization of my size compete with an organization the size of CIBC when it comes to advertising dollars? CIBC can run ads for 24 hours a day on TV if they like, and an organization my size can't do that. The CIBC can shoot a gunshot blast across everybody's bow. I can't do that.

You know, it's a matter of serving the public. We feel as insurance brokers we do a great job at doing that. We're educated. As a broker, we can contact many insurers to find the best product for that consumer.

It goes back to the point that Brian was making earlier, that the bank is going to have one product. We feel as though we have many products to chose from.

So on the expense side, just to review, we don't think the expense side is an argument that can be used. The CIBC, which is operating in this environment, hasn't proved it to Canadians.

Mr. Sam Walters: I guess I'm really not in a position to comment on what one of our by-competitors is doing.

I would just like to say that in the case of insurance products, it's not an area we've focused on in our efforts on what we do presently in insurance under the current regulations under the Bank Act. I would just note that in 1995 my competitors entered the game, but 70% of Canadians are still dealing with the brokerage sector of the community.

I think that goes back to some of the things that exist. I think I indicated earlier that Canadians have relationships with firms and companies, and I think as we go forward the relationship will likely get even more important.

I think as clients now do for many products, whether it's in automobile, whether it's a mortgage, or whether it's likely insurance, they will shop the market and look around and see if people are competitive, if their firm is being competitive. So I think those are growing patterns.

• 0830

As well, as was alluded to, the power of technology here and the ability for players to get to Canadians through such methods as the Internet will all be factors that we'll all have to consider, going forward, as this whole industry and in fact this whole society becomes more and more progressed and more advanced and more knowledgeable.

Mr. Paul Szabo: Thank you.

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

I'd like to pick up on one comment that was also echoed in Ottawa—that is, this feeling from your industry that even if the banks were allowed to sell P and C insurance over the counter, they would only be able to penetrate roughly 20% of the market. You've espoused the same figure, that 70% of the market would still be yours.

If that is the case, then, with an awful lot of the advantages your industry has in terms of being able to personalize the product, in terms of being able to give the consumer a more educated choice.... Because I feel if I go to the bank, for example, the person on the other side of the counter, who is going to be a specialist in an awful lot of things and may be a specialist in none, will only be trained to gear advice around the products that the branch or bank offers. I see that as a tremendous advantage for you.

One other thing the Canadian association said was that they have no reservations about banks selling insurance, because they do it right now anyway; their concern is selling insurance over the counter at the branch retail level.

I'd like you to explain what the difference is. I allude to the fact around your concern that if I'm a mortgage holder with a banking institution, for example, I believe contractually I have to disclose who my insurance is with for my house, for example. Quite often in order to guarantee the loan I have to have personal insurance guaranteeing, and I have to give RRSPs. I have to give all kinds of information that the bank readily has available anyway. The only difference is, what your industry is saying is, “Don't let them use that information over the counter, but they can use it outside the counter”.

Could you explain your concerns over those two aspects, please?

Mr. John Thompson: I think by and large right now, if you were a customer of ours and you dealt with the CIBC, we would have to send to the CIBC your homeowners' insurance documents to prove that you do have insurance to satisfy the details in the mortgage. As well, if your car was financed, then we would send those documents. So in your files at the CIBC are your insurance policies, which give coverage, give pricing, give every single aspect. So now, when the CIBC can retail from their branch, inside that document is everything to do with that person's insurance file—there's pricing, there's coverage, there's everything.

The Vice-Chair (Mr. Nick Discepola): But they have that now.

Mr. John Thompson: They have that now but they cannot retail from the branch. They cannot use that information, as you said. But retailing insurance from the branch I guess would allow the use of that information.

How can that be policed? How can it be policed so that this information cannot be used?

The Vice-Chair (Mr. Nick Discepola): What's preventing them from using it right now?

Mr. John Thompson: Because they can't retail from the branch.

The Vice-Chair (Mr. Nick Discepola): But they can give it to a—

Mr. John Thompson: No, they can't give it to CIBC Insurance. As far as I'm aware, that information cannot flow out to CIBC Insurance.

The Vice-Chair (Mr. Nick Discepola): And never happens.

Mr. John Thompson: Well, that's our concern.

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

Mr. Nystrom, please.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Thank you very much, Mr. Chair. I welcome both groups to the committee this morning.

I'd like to ask Mr. Walters a few questions. I'm just a simple prairie boy from Saskatchewan. I want to get a better picture of Newfoundland.

I understand you have 47 branches in the province. Does that include Labrador as well?

Mr. Sam Walters: That does include Labrador.

Mr. Lorne Nystrom: How many in Labrador?

Mr. Sam Walters: Royal has two branches in Happy Valley—Goose Bay, and Bank of Montreal has a branch in Wabush as well as an outlet in Nain, which is a new concept, distributed through Canada Post.

Mr. Lorne Nystrom: How many branches of the Bank of Montreal do you have in Newfoundland and Labrador altogether. Is it 47?

Mr. Sam Walters: No, it's 47 combined.

Mr. Lorne Nystrom: Oh, combined. Okay.

• 0835

If the merger goes ahead, how would the merger improve access to banking services for people in Newfoundland and Labrador, particularly for those in remote communities? There are many outports here, small towns and so on, not too dissimilar from the rural parts of the prairies. What's in it for the ordinary Joe Newfoundlander?

Mr. Sam Walters: I think at the moment we have networks across the province. We are, as I mentioned earlier, not the largest player here in Newfoundland and Labrador. The Bank of Nova Scotia is. I think they now have about 65 locations around the province.

What we see the merger as doing is providing a wider network. For instance, in terms of some of the services my competitor—the Bank of Montreal at the moment—offers in, let's say, Clarenville, a location where the Royal isn't, I see it having an impact more on business clients. You know, if someone has a current account and deals with us, then we'll be able to offer them services and hopefully reduce service charges as a result of that ability to serve from one branch to the other as opposed to going through several branches.

We think it'll give us, combined, a larger presence here, and hopefully we'll be able to improve the level of service we can offer to Newfoundlanders and Labradorians. And it's mostly through the network.

In terms of rural areas, again, there's a concept I mentioned in Nain, which the Bank of Montreal has experimented with, working with Canada Post in trying to get coverage into that remote community in northern Labrador. Certainly we've been looking at things together. I think it'll allow us to do some of those things.

With the new technology evolving today it is an area that offers a lot of exciting potential to rural areas.

Again, I refer to the Prime Minister's visit here at SoftWorld. He connected up with some people from northern Canada, Inuvik, and saw what they were doing there. They were searching out business opportunities on the Internet and other things.

So I think that is going to be of considerable assistance to rural communities as we go forward. I don't see this merger as being something where all of a sudden there's going to be a branch bank in every small community in Newfoundland and Labrador, but I do see it as offering us the potential through technology to offer Canadians better service wherever they live.

Mr. Lorne Nystrom: Maybe you mentioned this before—I had to be out for a few minutes—but in terms of those 47 branches, are you assuring the people of this province that they will remain open, those actual branches? I know Mr. Cleghorn has talked about the services of a branch, not necessarily the branch itself. Would they remain open?

Before when we had the amalgamation of financial service industry institutions you often had the closing of branches. Mr. Doug Peters, who was the former federal Liberal financial services minister and chief economist at the Toronto-Dominion Bank, I think has said that the mergers, if they go ahead, will result in 30,000 or 40,000 layoffs in terms of people losing their jobs.

I wonder if you can give any assurance to the people in Newfoundland and Labrador that none of these actual plans will disappear because of the amalgamation.

Mr. Sam Walters: I think I could give quite a bit of comfort to the people of Newfoundland and Labrador around that issue. I mentioned the four communities in which there are duplications in this province—namely, Gander, Grand Falls—Windsor, which is a combined community, Stephenville, and Corner Brook.

Mr. Lorne Nystrom: And probably here in the city there'd be neighbourhoods where you'd have banks fairly close together.

Mr. Sam Walters: Yes.

But it's quite amazing. I know I took John Cleghorn around the city when he was here in early February. We visited the locations. I encourage you as well, if you have time before you leave St. John's, to drive around and see that the Bank of Montreal and Royal Bank branches are very much dispersed throughout the city. As I see it, there will not be any branch closures within the city. We have the two main branches, which as I also alluded to would like to be merged or combined since the two buildings are bearing the same common wall. They're on that side of the wall and we're on this side of the wall.

So I don't see any branch closures in the city of St. John's. Where I do see the likelihood that we would have a common building is in those four communities that I alluded to.

• 0840

In those communities, I see very little impact on employment, or virtually none, with the possible exception—again, using Stephenville—of not likely needing two branch managers. But we will need all the rest of the staff, and combined there will be different operations and there will probably be a need for different types of jobs and support roles within them.

So it is just those four locations that we've talked about bringing together. Even in Corner Brook, I might mention, the Bank of Montreal has a very large shop that's very full, and we have a branch that is very crammed and full of people. So it is still likely even in that community that they would still use the two facilities in some combined fashion, maybe one a personal centre and one a business centre.

Mr. Lorne Nystrom: And then in the other communities you talk about a common building—in other words, one branch instead of two in terms of a building.

Mr. Sam Walters: That would likely be the case. I think that is very consistent with the message that you heard from Mr. Cleghorn as well. But the impact on jobs will be very minimal in those communities.

I also might mention that as I've alluded to here, I have spoken to the mayors of all four of those communities and they are all okay.

Mr. Lorne Nystrom: So you're probably going down, then, for actual brick-and-mortar buildings, from 47 to 44, with a couple in Corner Brook for different purposes.

Mr. Sam Walters: Something in that area, yes.

I should mention that in some of these cases where we do bring them together, there will be a need for additions to buildings and this kind of thing. So there will be improvements required as well.

Mr. Lorne Nystrom: Now, in terms of the ordinary person in Newfoundland, to get back to what it means to him or her, just the ordinary citizen—the teacher in Corner Brook, the fisherman in one of the outports and so on—you mentioned service charges. What guarantee do you have that there will be lower service charges? Why would this result in lower service charges?

Mr. Sam Walters: Well—

Mr. Lorne Nystrom: I'm not sure that even Mr. Cleghorn is making that promise.

The Vice-Chair (Mr. Nick Discepola): Did Mr. Cleghorn say that the services charges will be reduced if they merge? I never heard it.

Mr. Lorne Nystrom: I never heard it either. That's the point I'm making.

The Vice-Chair (Mr. Nick Discepola): I thought you said that the banks had undertaken to reduce service charges if they are allowed to merge.

Mr. Lorne Nystrom: No, no, I thought Mr. Walters was saying here that there might be some lower service charges when Mr. Cleghorn has not made that claim.

The Vice-Chair (Mr. Nick Discepola): Oh, I see. You're putting words in Mr. Walters' mouth.

No, go ahead.

Mr. Sam Walters: Just to clarify that, what I'm saying is that if we have business customers, and let's say they're based here in St. John's and they happen to have a branch in Clarenville, right now if they are a customer of the Royal Bank they cannot deposit money at a Royal Bank in Clarenville, because none exists. Therefore, if that opportunity exists, there may be some ability for them to reduce charges, because they can deal within the one institution as opposed to having a fractured situation, as we have here.

At the moment, for instance, the Bank of Nova Scotia has a very large network, so they very much have a competitive advantage in this province for that very particular reason. But in the area of service charges, I'm not here to speak for Mr. Cleghorn on the whole issue. I indicated right up front that I was talking about the Newfoundland and Labrador scene.

I think the big issue around the whole thing is where we're going to go. Technology is very much going to drive that and the services that are available to Canadians. That's already happening in the choices that are available through technology. I think that's going to be a big issue going forward.

Mr. Lorne Nystrom: So why go ahead with the whole thing? There is not really much in here for the ordinary consumer. A lot of people have said that the main reason the banks want to merge is to make them bigger players internationally or globally, but again, what is the evidence that this will help you globally? Isn't it all about market size in the country, that you want two bigger institutions in the country so you'll have more muscle in terms of Canada, in terms of the other banks and the insurance companies, and the credit unions, and the caisses populaires?

Mr. Sam Walters: The reason, I think, that this should occur—again, I'm thinking from a Newfoundland and Labrador perspective, while Mr. Cleghorn has talked about the national and international picture—is that more and more foreign competitors are entering the marketplace. I myself have been solicited by MBNA bank at least six times in the last six months.

Mr. Lorne Nystrom: I guess the question I have is, how does big make you better? If you put on another 50 pounds, are you a better man?

Mr. Sam Walters: No.

Mr. Lorne Nystrom: How does big make you better? Sometimes when you're a little bit smaller you are more agile and able to be more competitive in that marketplace.

Mr. Scott Brison (Kings—Hants, PC): Unless you're a sumo wrestler.

Mr. Lorne Nystrom: Oh, oh. And you would have a long way to go.

Mr. Sam Walters: No, I don't think I'm any better now than I was 50 pounds lighter, but I think I'm maybe a little wiser.

• 0845

The reason I think this is important at this level is that if we are unable to compete against those who are going to come at us from outside... And they're coming at us now. I can assure you that I've had clients in St. John's and Stephenville who've had calls from the Wells Fargo bank. I know most of our clients, and as I said, I personally, have been solicited by MBNA bank at least six times, and by Capital One.

We have a huge amount of competition out in the marketplace, whether it's from the insurance side, whether it's from the investors' side, whether it's from the financial planners, etc. Together in this province we will be able to have some efficiencies and do some things that I think will enable us to continue to offer Canadians products that are based in Canada, from Canada, that will be able to compete with those products that are being offered to Canadians through various electronic means. That's only going to continue.

Mr. Lorne Nystrom: But you'll still be small by world standards. I think you'll still be about eighteenth or nineteenth or twentieth in the world. I mean, does it make that much difference?

Mr. Sam Walters: We'll be in the race as a Canadian bank, and I expect we'll be in the race as a Canadian bank here at home. That's why I feel that this merger will have benefits for consumers from Newfoundland and Labrador as well as Canada.

Mr. Lorne Nystrom: Which leads me to my last question here, Mr. Chair.

A concern I think a lot of people have is that if you get this large and have a half-trillion dollars in assets and so on, are you in effect what they call “too big to fail”? What happens if the bank fails? There's no guarantee that anything is going to last in this world, and if the bank fails, what happens? Does it bring down our entire financial services sector? We're seeing all kinds of problems now in the world.

I asked these questions of Mr. MacKay, and I think he said there were two options. One option is a massive bailout by the taxpayer in this country, and the other option is to open the doors and allow a foreign bank, Citibank or whatever, to take over the monster bank or the mega bank, the Royal and Bank of Montreal, or the TD and the CIBC.

Now, if you're too big to fail, where people know the government will have to step in because if they don't step in, there's going to be a real financial disaster, doesn't that set you at a very unfair advantage in the marketplace compared with your competitors? They know the government would just be forced to make sure you don't fail. But what about the Scotiabank or credit union or the Banque Nationale or insurance companies and so on? They're a lot smaller.

It's like you stepping into the ring with Mike Tyson. Unless you can bite his ear pretty fast, you might be in trouble. Doesn't that give you a very unfair advantage in terms of the marketplace, and doesn't that put the taxpayer at a real disadvantage with the guns the taxpayers had?

I'm hearing this from people as I travel around the country. It's a very legitimate concern that people have, and not just in the insurance industry.

Mr. Sam Walters: I personally don't feel it will, because both banks have a credible record in Canada. They've been in business here for over 100 years, in fact 140 years, and we've had a very solid record of being fiscally and financially responsible. We've had very few bank failures in Canada. Just because we were combined as an entity to better position ourselves to compete at home would not in my mind see us abandoning the principles we've had.

Both banks have good credit-granting records, and I don't see this as just being abandoned because we were there.

Mr. Lorne Nystrom: I don't think so either, but—

Mr. Sam Walters: We'll still be, as you said, smaller than Citibank and others, and they're there. They're very big players. What would happen if Citibank failed in the United States? Well, there would be a problem for the United States government, or a potential problem. But in the past it's been proved that this has not happened.

Mr. Lorne Nystrom:

[Editor's Note: Inaudible]...hedge fund in the United States very recently.

Mr. Sam Walters: Yes, as well. There will always be problems and challenges in the industry, because there are risks in the business, but I think we've shown as Canadian banks that we are very responsible. We've done a good job, and I think that would continue to be going forward.

We're monitored, as you know, and controlled, as we should be, through OSFI, and I think those processes and regulations would continue. So I don't see it as a big risk.

Mr. Lorne Nystrom: No, I agree; I don't think you'll fail either. But what happens if the bank does fail in that situation? Doesn't it put the taxpayer at a real disadvantage compared with other financial institutions?

I mean, what happens if the bank does fail? What impact does it have on the other financial service industries in the country? Once you reach a certain size, it can be very dangerous. We can see what's happening in the world today with some of the big banks in Asia and other parts of the world.

Mr. Sam Walters: True.

• 0850

Mr. Lorne Nystrom: You'll be so big compared with the credit unions or the Banque Nationale or the Scotiabank or insurance companies that maybe we couldn't allow it to fail. And then it puts the gun to our head as taxpayers.

I mean, we have to answer those questions to our constituents. I'm not trying to make life difficult for you here.

Mr. Sam Walters: No, no.

Mr. Lorne Nystrom: But we're hearing this all the time as we travel around the country. In Saskatchewan, I'm not for the Liberal Party, but one of the MLAs of the Liberal Party just did a survey of his riding in rural Saskatchewan. As I recall, over 80% of the constituents didn't want the merger to go ahead. These are some of the questions people are asking.

There are all kinds of surprises. Japan was the model for so many years. There are all kinds of things that would never fail, that would always succeed—the Liberal Party goes on forever, that type of thing. These things sometimes come to an end. We have to know what the contingency is.

An hon. member: Look what happened to the Tories.

Mr. Sam Walters: I would just say that if we continue to have in this country a good regulatory system, as we've had.... It's usually, as has happened in the Asian crisis and the Japanese crisis, the countries' systems that get in trouble. Yes, there are individual banks and others that have difficulties, but when you have the major failures, it's usually countries that have the problem. If we continue to have the systems that we've had in Canada of control and regulation and we continue to have good policing of our financial services institutions, then I would think it will be the same in the future as it has been in the past hundred-and-some years, and we'll have a very successful financial services industry.

Mr. Lorne Nystrom: I'd like to get in my last question. Sorry, Mr. Chair; I know I said that before.

Let's assume it doesn't fail and everything is going to work out well. Doesn't it still put you at an unfair advantage in terms of your competitors? Because people will know you are so big that if something happens, the taxpayer has no choice but to help, to bail you out. If a smaller bank were to fail, that's not necessarily the case.

So if Mr. Wedgewood there, as an ordinary consumer, takes a look at a huge bank and a small bank, and the country is in a bit of economic difficulty, he knows if he goes to you that you will not fail, but the smaller bank may run into trouble, as they have in the past once or twice in our country. Doesn't that put you at an unfair competitive practice in terms of business in the country? I mean, Mr. Wedgewood might feel more secure going to you than the Scotiabank or the National Bank.

Mr. Sam Walters: I don't think it does. Again, our competitors are not just within Canada but are coming from south of the border at an increasing rate. I don't think it will put us at any unfair competitive advantage at all.

My view would be that if we as a country continue to do a good job with our bank insurance and financial services sector, then we will be just fine going forward.

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

Mr. Walters, would your opinion be the same if you were speaking on your own personal behalf, as an individual Canadian?

Mr. Sam Walters: Yes, it would.

The Vice-Chair (Mr. Nick Discepola): You paint a very rosy, very optimistic picture for Newfoundland. Excuse me if I don't share that optimism.

You have how many branches right now of the Bank of Montreal?

Mr. Sam Walters: The Royal has 20 and the Bank of Montreal has 27.

The Vice-Chair (Mr. Nick Discepola): So combined, then, you have 47, and you're saying you may end up with 44.

Mr. Sam Walters: We could end up with 44, yes.

The Vice-Chair (Mr. Nick Discepola): But in your opening remarks you stated that there would be no job losses, no branch closures. If we only look at your merger, as a merger of the Bank of Montreal and Royal, possibly the impact might be less, but as legislators we also have to analyze the other requests coming in.

So if I take a look for Newfoundlanders, how is a choice of only three institutions better than having five institutions to choose from? How is the choice of only 44 service distribution networks better than 47 in your case?

You paint a very rosy picture, and I don't share it at all. You gave the example of adjoining establishments where you're just going to knock down the wall. What about the rural areas where you do have two branches? You're definitely going to close one of them with time. It's inevitable.

You gave the example of three account managers or personnel managers in one and two in another, and all of a sudden we're going to end up with five. Well, you're certainly not going to end up with two bank managers. You're only going to need one. And in a province where you have an 18% or 19% unemployment rate, I can't see how the mergers, let alone allowing banks to also sell property and casualty insurance and putting x amount of employees on the unemployment lines in Newfoundland, will benefit Newfoundlanders.

• 0855

Mr. Barrett is now stating that if the mergers aren't allowed to go through, they are going to have to downsize also and lay off people, and before he was threatening that if the mergers weren't allowed to go through, there would be no job losses. So we're getting very conflicting viewpoints and comments.

Excuse me for being very facetious, sir, but as a representative from a rural Quebec riding, if you're telling me that the only hope my rural communities have is to equip themselves with a $1,500 or $2,000 computer and pay $30 or $40 a month for an Internet service provider so they can possibly access banking services.... Sir, they don't even have touchtone let alone 911 service in those communities. I can't go to them and say, okay, here's what we're offering you, or here is what the banks are offering you, for additional services.

I see a picture totally different. I see an awful lot of job losses. I'm not going quantify it the way some people have, at 20,000 or 30,000, but it's inevitable that you're going to have some bank closures and many job losses. That's my main concern with the service level also.

If you're telling me that Newfoundland is going to be sheltered from that, well, I'm encouraged, because Newfoundland obviously has the most to lose with its high unemployment rates.

Mr. Sam Walters: In this province, as I mentioned, some 700 or 800 people work for us as an organization. It's very important that we be able to be competitive so we protect those jobs from the competition that's coming from various sources. We're not afraid of that competition. We want to be able to be in a position where we can deal with that competition at home and offer our customers services provided by Canadians right here in the communities in Canada, wherever they may be, whether it be in St. John's or around the rural parts of our province.

In terms of the three branches I mentioned that we would consolidate, I think that has been consistent, and I think it's quite minimal that we would do that. I mentioned, and you mentioned as well, that there might be three branch managers, which would not be needed in those communities. I feel very confident that those people will be placed within our network. We do have people revolving through our system on a regular basis. Canadians are very mobile today. They move back and forth between one sector and another. So I feel very confident about that.

I am very confident about the future of Newfoundland. I see Newfoundland and Labrador as being a very bright spot in the Canadian future going forward. I see the potential of us, down the road.... I can tell you, I just opened a new location of the Royal Bank in Paradise, and I alluded to the Bank of Montreal providing service in Nain, a community that had not had any banking presence in the past.

So as the economy in our province becomes stronger, I do see our presence as being able to expand as a growing organization here. Hopefully there will be opportunities for all the other players to also participate in that growth.

While I do seem confident in relation to the future, I feel that we as an organization here have provided a service to this community of Newfoundland and Labrador for many years, and going forward, I think we want to be able to continue to do that and be able to compete with whatever players and forces that come at us through the marketplace, whether that be more physical locations on the ground or whether that be the electronic commerce that is evolving and growing as we speak.

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

Mrs. Redman, please.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chair, and thanks to you all for coming this morning.

• 0900

I'd like to ask about the property and casualty insurance business. I think you've articulated very well that most people have a good relationship with their agent, not unlike their bank manager. Hopefully it's a positive experience. How do you see your industry changing, though, when you look five or ten years down the road at the advances of technology, at inroads some of the American companies are making? I think somebody mentioned CIBC and the fact that there's a call centre in the United States that's digging into the market in Canada but doesn't have any physical presence here.

Aside from the advantage banks may or may not have by their inside information, and being able to use that, if they're out of the market, how is the property and casualty insurance business going to look in the next five to ten years?

Mr. John Thompson: I would hope that we would take advantage of all of the advances in technology, but when I look at the MacKay task force report, I don't believe the task force researched enough on the technology. If we move forward right now I think we're putting Canadians at risk with the Internet and so on. There's nothing there to police these transactions.

Five to ten years from now I'd love to have our customers go into the Internet, pull up their own personal file, and make changes if that's what they want. At present we have a web site on the Internet but it's not interactive. People can go in and obtain information and learn about products and services, learn about our company, but it's not interactive; we don't have the confidence, and I don't think we as Canadians have that confidence, that we can go to the Internet and play with our account. Certain people do it, but I personally don't have that confidence.

That's why I think Canadians are at risk at present with the technology, and I don't think the MacKay task force did enough to research that.

So as far as technology goes, I think as brokers we're taking tremendous steps. Every broker who's a member of our organization has a sizeable investment in technology, and moving forward will be as advanced, hopefully, as any broker in the country.

Mr. Jeff Wedgewood: I'd like to add something to that.

Brokers are moving forward very fast with different means and methods of electronic technology and commerce. A number of us are setting up web sites where customers can come in and have a look at what's new or get some advice electronically and then communicate with us through e-mail and such things. However, property and casualty insurance is very distinct in nature. It keys in more on risk management and risk factors and how those risk factors may affect individuals or individual corporations or small businesses. That is very much a face-to-face and person-to-person analysis.

I can only speak to my own situation, my own banking experiences and my own corporate banking experiences, and at times they've been less than, “I think my bank understood me or my needs”. But my job is to make sure that my clients understand what their risk factors are, and it's very important that I understand what their risk factors are and how I can provide them with the proper advice and solutions to their problems.

Thank you.

Mrs. Karen Redman: One of the concerns I've had delineated by other witnesses is the fact that banks may well skim off what is, as I think somebody referred to it, the fast-food kind of insurance, the kind of insurance that's relatively cheap to process, and leave independent agents such as yourselves with a product that's more expensive to deliver and more complex and that will, at the end of the day, cost the consumer more, because it will drive prices up.

I just wonder if that scenario is one that you've thought through.

Mr. John Thompson: I think that's by and large what our major concern is today, that it is going to be the home and auto product that is going to be skimmed off the top.

One point I'd like to make in relation to that is that the banks have been fortunate in the last number of years to receive a return on investment of roughly 16% to 18%. The insurance industry hasn't made an underwriting profit since 1978, and in the last number of years their investment return has been roughly 8%.

• 0905

So I still can't really see the reasoning for the banks to enter an industry that is performing at roughly a 50% rate of return to what they're used to.

Going back to your question, that if the bank is fortunate enough to take that home and auto business, which is really the bread and butter of the brokerage industry, will we be around to service the expensive business? I don't think we will. The IBC reports that the industry could lose as many as 20,000 to 30,000 employees, coast to coast. In Newfoundland, that could be 500 jobs. I don't believe this province can afford to lose 500 jobs.

Mrs. Karen Redman: If I may, Mr. Chairman, I would like to ask Mr. Walters a question.

We heard from the foreign banks when we were in Ottawa. One of the things the MacKay task force talks about is looking at banking institutions and insurance companies in an entrepreneurial light, allowing them the room to reinvent themselves, and having the regulatory framework that will protect the consumer but allowing them to expand their operations.

One of the things that struck me when we heard from the foreign banks was that a lot of them were niche market, offering the Canadian public mono-line kinds of services.

As a Canadian banker, as a representative of Canadian financial institutions, is that going to serve the consumer well? Is that something we should have a red flag on to worry about?

Mr. Sam Walters: Not having had the benefit of being at those hearings, I can only comment that the so-called mono-lines, as you and others have called them.... I alluded in my comments to the competition we face. I think if we have a strong, Canadian-based financial services industry, then we need to be able to offer products to our customers at prices that can compete with competition that will come at us from wherever it comes.

That's why we believe, and I believe, this merger is beneficial for Canadians. It will allow a Canadian-based company to have an opportunity to compete against the mono-lines, which in many ways will likely be the way in which the competition will come at us. It will likely be in that fashion.

We would like to be able to be in a position as an organization to be able to compete with whoever comes at us, to be able to offer Canadians good value. It's our firm belief that if we don't offer Canadians good value for their dollars, then they will make alternative choices.

The Vice-Chair (Mr. Nick Discepola): Is it possible, Mr. Walters, that your industry has not served those niche markets, either voluntarily or involuntarily?

I'll give you an example that you yourself used, Wells Fargo. For years I sat on the industry committee, and we were praying and begging the banking industry to provide not only statistics but also loans to small business people in the $50,000-or-less range. Your industry, first of all, was not equipped to give us those statistics, or any statistics below, I think, at the time, $1 million. More importantly, one other area that we asked them to provide was one that we were hearing from our business community. People I represented were coming into my office, giving all kinds of anecdotal evidence, and saying, look, I'm prepared to pay 1% or 2% more—as long as I can get access to the finance.

That's what Wells Fargo has done. They will charge 1%, 2%, even 3% more, and their average loans are less than $50,000, whereas the banks before didn't want to touch that sector. Now you're saying they're competitors for you. Maybe it's because either the banks were not equipped to lend at that micro level or maybe you didn't want to lend it. So why are you now saying that they are your competitors, criticizing these people or institutions from coming in and serving those niche markets that maybe your industry didn't want to serve?

Mr. Sam Walters: I've been a banker around Atlantic Canada for some 36 years now, and I've been lending money to small businesses for a good part of that time. I can sit here and say to you with great comfort that we have lent money to small businesses, and we have lent lots of money below the $50,000 level. That's particularly true in this province. I can say to you that we have come out with electronic lines of credit, a small business delivery product we've introduced, and other things.

• 0910

I'm not sitting here criticizing the fact that Wells Fargo has come to Canada at all. I think if there's a need, and Wells Fargo can provide a service, that's fine. Canadians should be able to access products that meet their needs. All I'm really saying is that we as an organization want to be in a position as a Canadian-based firm to be able to deal with that and have competitor products and meet that competition from wherever it comes.

The Vice-Chair (Mr. Nick Discepola): Haven't you been able to fulfill that need for the past 20 to 30 years?

I'm sorry, I'm supposed to be chairing here.

Mr. Pillitteri wants to piggy-back on this issue, if you don't mind, Scott.

Mr. Scott Brison: Okay, Mr. Chairman. It's just, you know, you chair a meeting.

The Vice-Chair (Mr. Nick Discepola): Yes, I'm sorry. It's not easy to stay neutral on this and just stay back.

Mrs. Karen Redman: Mr. Chair, I had one final question.

The Vice-Chair (Mr. Nick Discepola): I'm sorry, I thought you were finished.

Let me get back to chairing the meeting and staying out of these debates.

Mrs. Redman.

Mrs. Karen Redman: At the risk of taking us away from Mr. Pillitteri's comment, I want to get back to the fact that the MacKay task force is not about mergers. Mergers are one part of a very broad-based financial sector reform that is being suggested here. One of the things it deals with when it speaks to bank mergers is the fact that mergers may make business sense for some banks, and in that light, they should be considered.

I'd like to go back to the question about jobs, because we've heard from bankers that whether it's bank cards or payroll, banks in Canada have chosen to opt out of that because that service is offered at a financial advantage by other financial sectors, be they south of the border. It's made business sense to get out of that.

So when I look at the business case to be made for bank mergers, it strikes me that there must be economies of scale and that in the absence of bank mergers and looking at technology and the way that the financial sector is unfolding, probably there will be a shift in the kind of jobs, if not the total number of jobs, three years, five years, ten years down the road.

Is it a fair burden to put on banks that are looking at mergers to demand that those jobs remain? I mean, it seems to me that if you go from A to B to C, part of the ingredient may be that there will be some job loss and that this needs to be part of the conversation, because that's just being big people—and being honest.

Mr. Sam Walters: Again, I know John Cleghorn has spoken at depth about that very issue. I think there's no doubt that we in Canada and in fact the whole world are going through a technological revolution in terms of what is available, so change has become very much part of all our lives. Going forward, I think we as institutions and companies and as ordinary Canadians will have to deal with every outgoing change. So I'm sure there will be issues going forward.

As far as the commitments that have been given, those commitments have been given with a lot of sincerity, and I certainly believe those commitments that have been made will be fulfilled. I can tell you that in branches in Newfoundland where we are the only branch, we have had a large poster on an easel with a signed commitment from John Cleghorn—and I believe the same happened at Bank of Montreal branches to those communities—that we would be there, and would support those communities.

Mrs. Karen Redman: Thank you.

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

I'll go to Mr. Brison, please.

Mr. Scott Brison: Thank you, Mr. Chair.

Unfortunately, I do hear people referring to it as the “bank merger task force”, or the “bank merger issue”, and it really isn't. This is a holistic issue, and I feel that MacKay has dealt with it in a fairly holistic way.

One of the things you were saying earlier about the P and C companies is that the profits aren't necessarily what they used to be, but it's still a very highly profitable financial services sector. I have in front of me a list of assets and net income for the federally regulated financial institutions.

For instance, in 1997, chartered banks had 69% of the assets and 55% of the profits. Trust companies had 2% of the assets and 2.5% of the profits. The list goes on—loan companies, societies, credit associations. But the P and C companies had 2.96% of the assets and 12.94% of the profits.

• 0915

So it is a very lucrative area, and I can see why the banks would be interested in it. My question for you is, if the banks were in fact to skim, as you were saying, the low-cost products, you say you would not be in a position to offer the high-cost products. But who would be? Who would offer those products?

Mr. John Thompson: Well, right now there are international brokers operating in Canada—big, large, multinational corporations. They may have an office.

You know, this would centralize the industry. Right now in Newfoundland, for example, in communities where there's no bank, more than likely there is an insurance broker.

Mr. Scott Brison: Sure.

Mr. John Thompson: In communities in Newfoundland where there is one bank, more than likely there are three or four insurance brokers. However, if the banks are allowed to retail the product, everything will become centralized.

Mr. Scott Brison: Well, wouldn't these big international companies be able to skim the low-cost products?

Mr. John Thompson: No. Their relationships with their insurance companies are now primarily on a larger commercial basis, and for smaller independent insurance brokers, our relationships have been on the smaller side of the market.

Mr. Scott Brison: So are they handling the more complex products now?

Mr. John Thompson: By and large.

Mr. Scott Brison: But doesn't that work against the argument that...? I would have thought the local insurance guys, with a better understanding of your customers, would be handling the more complex ones, and they would be skimming the cream.

Mr. John Thompson: They're also looking at a market where, as Sam alluded to earlier, we have probably 6 to 12 publicly traded companies, and our marketplace is probably much different from southern Ontario's, or B.C.'s lower mainland. Our focus is with the mom and pop type of consumer, the home and auto type of business.

Mr. Scott Brison: What percent of your members do you think would be selling mutual funds, for instance?

Mr. John Thompson: Very few.

Mr. Scott Brison: But there are a few.

Mr. John Thompson: Realistically, I don't know of any of our members who are.

Mr. Scott Brison: Is that so? Because the company I buy my car and home insurance from also sells some financial products.

The arguments against the banks being able to sell insurance are very similar to the arguments that I heard a few years ago from stockbrokers about the banks being able to sell mutual funds. Now, I was one of those skeptics at the time, and felt a little trepidant about the banks getting into the brokerage firms. For those of us who were concerned, we all looked at Midland Walwyn as an example of a Canadian-owned, or large and independent, brokerage firm.

Ultimately Midland Walwyn is now owned by Merrill Lynch, and those head office jobs are now in New York and not in Toronto, and the sky hasn't fallen. The stockbrokers who are working for the bank-owned firms are still making a lot of money. But I guess the banks have done a fairly good job on the mutual fund side, and those are complex products. TD, for instance, has done a really extraordinary job in that industry.

In a lot of banks—and correct me if I'm wrong—the employees are becoming more and more skilled in a wide range of products. Do you think some of these mutual funds and these fairly complex financial instruments and products are less complicated than insurance?

Mr. John Thompson: Being an insurance broker, I don't know if I can really comment on investment products. However, in the mutual fund industry we are only now starting to see a saturation of the mutual fund products. We're only starting to see that monthly sales are levelling off for the first time in the history of that product line.

So when you say that the banks have done a tremendous job, it's the industry that has done a tremendous job. Canadians in their RSP products and outside their RSP investments have pointed toward the mutual fund as opposed to buying individual stocks.

Even though I'd like to give Sam credit for it, I can't, because it's a product that as Canadians we've all supported. So I can't compare that to insurance products.

• 0920

Mr. Scott Brison: Sure.

The whole decline of the four pillars really took off in 1988 and 1992. Both times, I believe, the insurance brokers made the case that, well, we recognize this as an evolutionary situation, and the financial services sector is evolving, but we need more time.

Now, I want to make the statement that I personally believe that there will come a day, at some point in the future, when banks sell P and C insurance. I also believe that there will come a day when there will be a lot of new banks—and one of the recommendations in the MacKay task force is on $10 million banks; you know, a bank can start up with $10 million worth of capital—and that ultimately insurance companies and individuals through these new banks are going to have full access to the payment system. So it's going to be a completely different dynamic.

If you people were provided with an opportunity to participate in the payment system through, say, new banks, through insurance companies or through the various vehicles as we liberalize the regulations, and an opportunity to participate in all kinds of the various financial instruments, how long do you think it would be before you said it was all right that the banks could actually sell P and C insurance?

Mr. John Thompson: The first thing that comes to mind is that I don't think the consumer has asked government to allow banks to retail insurance. I think the banking industry went to government and asked them for a task force, which is what we saw just recently as the MacKay task force report. It was a very bank-friendly document.

Yes, I do agree that banks will sell insurance, but I think it's the mandate of this committee, as well as others', to review the level playing field issue. Is it going to be fair to Canadians to allow banks to retail insurance? Obviously you know what our position is.

Mr. Scott Brison: I guess what I am asking is, what conditions can we set, what advantages can we give, for instance, to new banks, or what advantages can we give to you people to have access to some of the traditional lines that banks are into now over the next few years that will enable you to level that playing field a little bit and then say, okay, the banks can enter?

I'm trying to get some type of dialogue or feedback from you on this, something more quantitative, because it is going to happen. I really believe it is going to happen. I just want to make sure you guys are protected and have opportunities to diversify now.

Mr. Jeff Wedgewood: Until insurance brokers have access to the same level of information on customers that banks have—and personally, I'm against that as a privacy issue—and until we have the massive assets in terms of billions and billions of dollars behind us, the playing field will never be level.

Mr. Scott Brison: Now, in the U.S.—correct me if I'm wrong—banks are selling P and C insurance, and there's still a P and C insurance industry, right?

Mr. John Thompson: In Canada you have five large banks. In the United States you have tens of thousands of banks.

Mr. Scott Brison: Okay. So that's the issue. You want to see more competitors in the Canadian banking industry.

Mr. John Thompson: I don't think I said that, but by and large, I think the industry is completely different. I think we have to look at the Canadian industry as a whole. If you look at the European industry and the American industry, they're completely different from what we have.

The Canadian banking industry is one of the most stable in the world, and one of the most envied in the world. The Canadian P and C industry is much the same. We have 230 insurance companies operating in this country. We have 60,000 brokers operating in this country. We have many other direct suppliers of the product. There is a variety of distribution channels. There is a low market concentration, the least concentrated member of the financial services sector; neutral economies of scale and scope; ease of entry into our industry; product innovation in new products such as sewer backup and replacement costs.

Our industry is moving forward much like the banking industry is moving forward. Unless I can be shown why those two industries should be merged, I can't see why we would support it.

Mr. Scott Brison: Sure.

I guess there are different ways of looking at it. You guys believe in the free market, and obviously you're business people. If we really believe in a free market, recognizing that one role the government does have is to provide access to the levers through education and health care and that kind of thing, the onus is on us to prove why bank entry is bad. It is not necessarily on the banks to prove why it is good, because if you believe in the market the banks won't enter a particular business unless they can make some money on it.

• 0925

So when governments or legislators get involved to try to direct a market, we all know what the consequences are, whether it's the subsidization of a fishing industry that leads to the depletion of cod stocks under the guise of creating employment.... There's a bunch of issues here. It's very complicated.

You're saying CIBC Insurance is in the middle of pack?

Mr. John Thompson: I don't have the numbers in front of me, but there's no perceived advantage in their cost element as a result of being a bank. One other important point that is not in their cost numbers is the use of the bank's computer system. You know, I'm sure you could tag another 4% or 5% in costs onto their numbers, because there's no cost factor in their numbers for computer technology.

Mr. Scott Brison: But they haven't really achieved any efficiencies, so why are you worried?

Mr. John Thompson: We go back to the level playing field every time.

Mr. Scott Brison: Yes, but these guys are not as efficient as you guys.

Mr. John Thompson: On a cost basis, that's fine, but since 1995, the CIBC, out of 230 insurers in this market, has been in the top 10—in three years. There are insurance companies who have been operating in this country for a century who are now smaller than the CIBC.

Mr. Jeff Wedgewood: We're not opposed to the banks selling insurance products. CIBC does sell insurance products, as we're all aware, but they do that now on a playing field that's level. And that we support. But to retail the products directly out of the branch, and to make use of their vast information systems, that's where we draw the line.

Mr. John Thompson: And if they were allowed to retail from the branch, their cost factor would go down dramatically, because then they'll be using their current facilities, their current infrastructure.

Mr. Scott Brison: If they did that, wouldn't the prices of products go down?

Mr. John Thompson: Short term, but what's going to happen to the current delivery system across the country? The current delivery system, the 6,000 brokers and staff, will be demolished.

Mr. Scott Brison: Yes, but once the prices go down, with the death of distance as a determinant in the cost of telecommunications, then long term isn't the competition going to come from people buying insurance products or financial products on their computers or via telephone? In the long term, isn't that going to be the real competition? It's not a bricks and mortar argument any more, is it?

Mr. John Thompson: Well, it's going to come down to jobs; that's what the argument is going to be. It's going to come down to whether or not the law makers in this country want the banking industry to use their current network and current staff levels to sell P and C products at the cost of 30,000 jobs in this country.

Mr. Scott Brison: That's based on the premise that the banks wouldn't hire any more people to sell P and C.

I'm trying to figure this out for myself, because I really feel that government doesn't do a very good job at job creation and has a terrible record of it, and in protecting industries or protecting jobs, government has been an abysmal failure in a lot of ways. I'm just trying to clarify your arguments for my own understanding of it.

Mr. Jeff Wedgewood: Well, the issue comes down to, in addition to the job losses that are going to occur, choice for Canadian consumers. As the banks take over and conquer the property and casualty sector, then the price of the product is really up to them as opposed to...because at that point there are no free market forces.

Mr. Scott Brison: What about these other companies that are doing the business by phone, selling auto insurance and house insurance or P and C insurance? Isn't that going to be a competitive force?

• 0930

Mr. Jeff Wedgewood: As the chair pointed out earlier, what about those people who don't have access to computers and faxes?

Mr. Scott Brison: Telephones?

Mr. Jeff Wedgewood: Well, there are a lot of Canadians who don't have phone service.

Mr. Scott Brison: Good. Thank you.

The Vice-Chair (Mr. Discepola): Thank you, Mr. Brison. Are you okay? No more questions?

Mr. Scott Brison: Absolutely. Thank you.

An hon. member: He's always okay.

Mr. Scott Brison: I'm okay, you're okay; sounds like a good book.

The Vice-Chair (Mr. Discepola): Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you very much, Mr. Chairman.

As a member of Parliament and as a Canadian, I like the Canadian banking system. Really, you service us well.

Canadian parliamentarians long ago had a vision, I thought, and gave out only six franchises, which is six banks. To think today, in the MacKay task force, about wanting to open that up, more competition.... As it's been said, south of the border we have thousands of banks, over 5,000 banks, and they want to go through merger processes.

I just kind of wonder, why create all of those banks that he wants to create and then, ten years down the road, after buyer beware, try to amalgamate them all and try to go through the amalgamations?

Let me go into another direction. South of the border, banks have much more restrictions than they do here in Canada. With the exception of auto leasing and insurance, they do practically everything they want here in Canada.

Possibly it's a coincidence, Mr. Chairman, but I don't see any representatives from auto leasing. Maybe they were afraid to come here because of banks having the upper hand of getting money from them, so no loans could be approved. But that's only a coincidence.

I'm making some comments, of course, but I do want to ask a question. I'm thinking out loud here.

Another point is that there is a bailout of a large bank right now in the United States. I read an article about it the other day. As I understand it, even though it was the bank of a country—I think it was the Bank of Italy, similar to the Bank of Canada—that had a few hundred million dollars, working in speculation, even they were caught. I just wonder, if our Canadians banks were to get so big, being competitive, that they could afford to sort of risk a few hundred million dollars here and there to hedge out the market...but I'm thinking out loud.

You talk about competition. You say competition is coming to us south of the border.

I want to correct my colleague, the chairman, on Wells Fargo with regard to 1%, 2% or 3%. Pardon me; it's 600 to 800 points, which is 6% to 8% higher than our normal lending practices here in Canada.

Why would any Canadian want to borrow money from Wells Fargo—it's 6% to 8% higher than what our banks would be able to give—and sign a contract that it only has to answer to the State of California, because they have no bricks or mortars here in Canada, unless those services and those loans were not provided here in Canada?

I'm talking about Wells Fargo, Capital One, Capital Fund and all of those, the former financial institutions that used to charge anywhere between 15% to 28% years ago.

• 0935

Is it that the banks here in Canada became so comfortable—I'm not saying “irresponsible”—that they no longer provided those loans, no longer serviced that market?

I said I like my banking institution, but why let them come in, because they're charging 6% to 8% higher than the bank rate? Why haven't you provided that service?

As well, the other day I showed three credit cards, and I said, “Why do I pay 16.5% for this?” The answer was, “What if you get those for 9.75% here in Canada?” Did it have to take someone from outside—Wells Fargo and other companies—to come into Canada in order for our banks to start giving me the same product at 9.5% and up to 10%?

Would you want to put some sense into my nutty ideas here this morning?

Mr. Sam Walters: I wouldn't think that they'd be nutty at all.

Around the issue of the market, I'd just like to say that the types of products that businesses and consumers will use are certainly tied to in many cases the convenience. Sometimes it's very convenient to have plastic cards. We all use them, me included. And there are varying prices on those cards. People still have department store cards in their wallets, and they use them at very high rates.

I would say the same thing would apply with competitors phoning us from south of the border. You get foreign competitors, and not just the one you mentioned but also others who are looking for deposits and the like. They have very good systems of picking clients they want to call. I know with the ones who called me, the clients have not chosen to do business with them, but I know they're calling, and they weren't calling a year ago or six months ago. I think it's a sign of what's coming and what's evolving.

Canadian banks have to be responsive to their customers' needs. I think the low-rate fee card actually maybe got started in Canada before we really saw the arrival of MBNA and Bank One. I think it was something Canadian banks started themselves. So there's a variety of card products out there, and again, they're tailored to meet the needs of our consumers and our customers.

In the Canadian banking industry, I think the Royal Bank, which I represent and for whom I work, has been very responsive to trying to respond to changing needs in the marketplace with different products, with a variety of cards. I mean, we alone have a multitude of different cards that we offer to our customers depending on their needs—some with airline points, some without airline points; some low-rate Visa, some regular Visa; some with classic two options, etc. There's an array of product out there in cards.

It just goes to show that the whole world in financial services has gotten complex, and Canadian consumers have grown with it. They're very astute, and they're starting to look at the choices that suit them best.

So it's a convenience, it's an adaptability, and basically Canadian banks have, I think, responded somewhat well. However, we've never seen the amount of competition and things that are coming from south of the border that we're seeing now, and we expect that to continue to grow. So we want to be in a position to serve Canadians well, as we've done for the past 100-plus years.

Mr. Gary Pillitteri: Just to follow up on that, Wells Fargo, Capital One and Capital Fund came before our task force and before the finance committee, and they have no interest in coming into Canada and being deposit takers. They don't want to be part of the deposit insurance group.

• 0940

Given that option, they don't want to compete with the banks; they only want to cherry-pick. I mean, you're going to be cherry-picked, as possibly you would, if you had the opportunity, cherry-pick others.

Those schedule banks have no interest, even though later on, possibly, some legislation will be passed so that they could operate as branch banks, but they don't want to be part of the deposit taking in Canada. This has been clear. So I cannot see the factor of a merging to be big here because we're worrying about them as the competition, because the only competition they provide here in Canada is in niche markets.

To tell you the honest truth, I don't like to see that competition here in Canada, because you have provided a good service. You have provided a secure service. You are providing a secure service.

Responding to the taxpayers, I don't want to have that “buyers beware” in Canada as it is in the United States. If we're talking about competition, I go down south of the border, and I sometimes enter a bank. If I want to get a roll of quarters, they say “Do you have an account here?” They won't even give me change.

Is this what I want to see coming to Canada? I don't want to see that. That's why I'm reluctant to see changes, not because I'm saying the possibility would be that by merging you would not be better, but the possibility that then you're giving opportunities to the others to come in. That's my fear.

Mr. Sam Walters: I would just say to this that others have arrived. They are here, and they will continue to come. If we surrender without being able to compete with these people—and technology is a powerful force in today's environment—and if we surrender all those niches you refer to, if we surrender our card business, if we surrender our mortgage business, if we surrender our mutual funds business, if we surrender all those types of things, then we're down to giving up on some of our very important businesses without being able to compete.

We want to be able to compete. We want to be able to provide Canadians with the types of services you've alluded to. We take great pride in providing that quality of service to Canadians in this province and all across Canada. So we want to do all those things but we do want to have the ability to be able to meet that competition head on.

Mr. Gary Pillitteri: Just one more comment, Mr. Chairman.

Sir, I'm afraid to say that Canadian banks are far more advanced than are American banks in technology. This is not an excuse to merge. I haven't found an excuse to merge in terms of technology.

Yes, I've heard Mr. Cleghorn, Mr. Barrett, Mr. Godsoe and Mr. Flood. All of them have been before the task force committee. All of them admit we have far more technology and are far more advanced in Canada than they are south of the border. So it's not the bigness for more technology because you cannot afford it; you have it there.

As a matter of fact, if you go south of the border and go to the central and lower parts of the United States, it would take a week before they would have a clearing of a cheque, whereas here in Canada, if you deposit it here in the morning in Newfoundland, in the afternoon it's already accepted in British Columbia.

Mr. Sam Walters: That's correct.

Mr. Gary Pillitteri: No country in the world has the technology that the banking institution here in Canada has. So that is not an excuse.

With regard to dealing and taking risks, I've heard Mr. Godsoe say there's not one deal in Canada or outside of Canada that we're too small to handle. There's not a deal that we cannot handle, even from the smallest bank, the National Bank. And I could go on about the comments they've made.

• 0945

So it's not to get larger to be more competitive. The reason really has not come out. I asked Mr. Baillie, where's your business plan, the real business plan? I have seen it. I don't know if my colleagues have seen it.

Thank you. I just wanted to make that comment.

The Vice-Chair (Mr. Nick Discepola): That was just a comment, not a question?

Mr. Gary Pillitteri: Just a comment—unless they'd like to add to it.

The Vice-Chair (Mr. Nick Discepola): Does anybody have a comment on the comment?

Mr. Sam Walters: I'd just like to conclude that, again, you have had the privilege of hearing all those gentlemen speak and I have not. But I think technology is a very big part of the future going forward, and it's going to continue to be.

I agree with all the things you've said, that we do have a wonderful system. Our hope for this merger is that we can continue to have that system based in Canada and we'll be able to adapt and be able to keep up with that technology, which is changing at just breakneck speed. That's sort of the goal of what we would like to accomplish—to be able to stay there and provide Canadians with the very fine service you alluded to.

Thank you for those comments.

The Vice-Chair (Mr. Nick Discepola): The last question goes to Mr. Paul Forseth, please.

Mr. Paul Forseth: Thank you.

Mr. Walters, what's the proposed name of the new bank?

Mr. Sam Walters: The proposed name of our new bank has not been decided at this point.

Mr. Paul Forseth: You have no hints.

Mr. Sam Walters: No hints.

The Vice-Chair (Mr. Nick Discepola): Perhaps the “Reform Bank of Canada”.

Mr. Paul Forseth: The Reform Bank of Canada, yes.

The Vice-Chair (Mr. Nick Discepola): Or the “Reformed” Bank of Canada?

Mr. Paul Forseth: Oh, oh.

A lot of the discussions across the country have been about job loss, and from some sectors the proposed mergers have been dismissively talked about as, well, basically what they're trying to do is eliminate employees; it's all about downsizing and has a lot to do with the way the world is going.

In some respects, our whole discussion about job loss might be the kind of level of discussion about worrying. The local town or the local merchants are wondering about whether the local horse harness shop and delivery stable will survive, and whether the local maker of the horse buggy-wheel shop will survive. They're worried about job loss.

But as the poet and songwriter said, “The times, they are a-changin”'.

The Vice-Chair (Mr. Nick Discepola): Has he survived?

Mr. Paul Forseth: So it relates to this very good question of Mr. Pillitteri's: Where is the real business plan? Give us a picture of where we're going. We're envisioning where perhaps very soon all coin and paper money may disappear. It would no longer be of any value or use. Branch banking as we know it may really disappear, and insurance products where you go to a broker. In essence, having that kind of choice may disappear.

For example, you may buy a car, and when you buy the car you know that what comes with it is the comprehensive insurance package. That's part of the product. All the products that you sell are inherent in the merchandise itself, and it's part of the price. There's no choice. That's one of the attractive selling points of the product. It stays for the life of the product.

So there are no brokers. There are no agents. There may be very few branches of banks. There may be no cash and coin as we know it. The cheque system may disappear. The whole nature of all of this business that we're talking about is changing.

What is the real business plan? Where are we going? Are we perhaps arguing about, in essence, the buggy shop, and trying to preserve and split hairs over things that are basically going to be passé in a very short period of time?

Mr. John Thompson: Well, you paint somewhat of a bleak picture there, that, you know, it may be a good thing that there are no bank branches because no one is going to be able to put any money in them. Sam alluded to it and others around the table alluded to it that small business is the engine of this country. If we're not going to put some controls in place that at least protect that animal, it's probably just as well to close up shop and turn the lights off now.

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I think we all agree that the banking system in this country is one to be envied. The banks have done a tremendous job in the products they're in. I think the insurance industry and the brokers have done a tremendous job in what they do. So why break down those barriers to get bigger and better when bigger and better is going to hurt Canadians, both in job losses and in choice?

Really, I think it's a pretty simple answer to the whole equation.

Mr. Sam Walters: I guess the future is always difficult to predict with great accuracy, but Canada has evolved over its history, and we've adapted to change as we've gone forward.

I sit here as a Canadian with every confidence that we will continue to adapt and go forward. I also sit here as a banker saying that I fully expect to see coin and paper around for quite some time. Despite all the technology we've introduced, we still have lots of demand for cash and coin.

I think branch banking will still be around, because Canadians, whether they want to deal with their insurance broker or with their bank, will have a desire, or some Canadians will have a desire, to have that personal relationship. Many others will choose to use technology for their access points. It's really going to depend on their own individual choices. Certainly we as an organization remain committed to offering them the choices they wish.

I think small business, again, has shown great versatility in adapting to threats. Some businesses have changed. The horse and buggy has pretty well gone. There are very few blacksmiths left in this community.

I know when I was a kid growing up in Lunenburg, Nova Scotia, right next to my home was a blacksmith shop. We used to go over there and watch the oxen have their shoes put on. You can't find too much of that around now, but you'll find other small businesses in the community in which I grew up. They've now adapted that blacksmith shop and they make metal parts for trawlers, and they do other little things. So adaptability has been a great strength of Canada's.

We talk about Internet and fibre as if it's a threat to rural Canada. I can tell you that here in Newfoundland—and I believe our premier will espouse this, too—fibre for us has eliminated distance and allowed us to find access to the Canadian marketplace. It's allowed us to show to Canadians and to the world that we do have good stuff here in Newfoundland. We have bright people and lots of opportunities.

I think as well that we just have to recognize those opportunities. We in the banking sector, bringing you back to the industry and the company of which I talk here today, want to use those facilities so we can compete and stay there and adapt and adjust to the forces that come, and we can continue to be here and serve Canadians well, going forward as a Canadian-based financial services institution.

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

I guess the fact of the matter still remains that if I own a horse or an ox and I still want to get them shoed, where would I go to today? Horses and oxen are still around, let's face it.

Mr. Sam Walters: I'm not sure where you'd go in St. John's, but if you went to my hometown of Lunenburg, Walter's blacksmith shop is still open.

Mr. John Thompson: Bring it to your insurance broker's office.

Voices: Oh, oh.

The Vice-Chair (Mr. Nick Discepola): Well, gentlemen, as you can see, the debate has only started. On behalf of my colleagues, I would like to thank you for participating in that debate and bringing forth mainly Newfoundland's perspective on this debate.

I guess our objective or commitment should be, as legislators, to make sure we do what is right for Canadians, no matter where they live from coast to coast to coast, no matter what sector or what industry they are. To that end, we endeavour to make the right decision at the right time, and I believe you have that commitment from us.

Thank you once again for your valuable input.

Colleagues, we will adjourn until tomorrow morning in Dartmouth.