Proceedings of the Standing Senate Committee on
National Finance
Issue 11 - Evidence - June 18, 2010
OTTAWA, Friday, June 18, 2010
The Standing Senate Committee on National Finance, to which was referred Bill C-9, An Act to implement certain provisions of the budget tabled in Parliament on March 4, 2010 and other measures, met this day at 9:02 a.m. to give consideration to the bill (topic: Parts 16, 17, 19 and 20).
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Honourable senators, welcome to this meeting of the Standing Senate Committee on National Finance.
[Translation]
Today is the seventh meeting on Bill C-9, An Act to implement certain provisions of the budget.
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Over the course of our previous six meetings this week on this particular bill, departmental officials reviewed the provisions of 17 parts of this bill, which has 24 different parts to it. All of these parts have elicited a great deal of discussion. We have not always been able to complete all of the work that we have planned in a given meeting. This morning, as we did yesterday, we will continue hearing from officials in relation to some parts that were scheduled in previous meetings for which we ran out of time.
I request that you bear with us. Thank you very much for having been here earlier and having waited to be heard, when we were not able to get to you. We really do appreciate your understanding in that regard.
In this meeting we will focus on Parts 16, 17, 19 and 20. These parts deal with the Canada Deposit Insurance Corporation, CDIC, federal credit unions, participant funding programs and environmental assessment.
As we have been doing in previous meetings, we will begin with one part and work our way through the various sections of that particular part. When we have exhausted the questions and comments, we will move on to the next part.
To help us with Part 16, which amends the Canada Deposit Insurance Corporation Act, we welcome Sandra Dunn, Chief, Financial Sector Stability, Financial Sector Division, Financial Sector Policy Branch, with the Department of Finance Canada. Also from the Department of Finance Canada is Diane Lafleur, General Director. That is a good title.
Ms. Dunn, you could begin. I assume you have worked this out between you and there is no conflict as to who should go first. Please begin by explaining to us clauses 1886 to 1893, which begin on page 569 of the bill, and we will then proceed to questions and discussion.
Sandra Dunn, Chief, Financial Sector Stability, Financial Sector Division, Financial Sector Policy Branch, Department of Finance Canada: Part 16 amendments are technical amendments to the Canada Deposit Insurance Corporation Act. I would be pleased to provide background and a description of their intent.
Part 16 amends the Canada Deposit Insurance Corporation Act to make technical amendments to enhance the ability of CDIC to make faster determination of insured deposits through bylaw provisions, and it clarifies certain aspects of the legislation in the creation of a bridge institution.
By way of background, in Budget 2009, authority was provided for CDIC to have additional tools to increase the flexibility to deal with failing institutions and systemic risk, which were a result of work done through the turmoil to make sure that our tool kit was as robust as could be. One tool added in 2009 was the creation of a bridge institution, which in essence provides for the Minister of Finance, on the advice of the CDIC board, to create a new bank and appoint the CDIC as receiver of the failed bank. The failed bank is put into liquidation, and CDIC transfers insured deposits and any other assets and liabilities, certain assets and liabilities, into the bridge institution with the objective of protecting insured depositors, maintaining essential banking services and preserving the value of the clean bank in an attempt to sell it. The bad bank then goes into a court-supervised liquidation process.
The proposed amendments in Bill C-9 would allow CDIC to make bylaws that require its member institutions to capture and provide specific information in a standard format to CDIC so that it can quickly identify insured deposits in a payout or when transferring them into a bridge bank. The proposed bylaws would also require member institutions to have certain systems capabilities to apply and release holds on accounts as necessary to transfer deposits into a bridge institution. These bylaws are described in clause 1886.
The amendments also clarify that when deposits are transferred into a bridge institution they are done so as of a specific date and time so that there is more certainty for depositors and to allow CDIC certainty in knowing at what point it is actually valuing those deposits. It also provides certain clarity on when derivatives contracts, if they are transferred into the bridge institution, all related derivatives contracts and their collateral would also be transferred. This was provided for in the budget bill of 2009, but we were asked to give further clarity about that.
Essentially, Canada's banks have weathered the turmoil storm well, but G20 governments realized that it was important to have efficient resolution regimes and to go back and check that their resolution regimes were robust. These amendments continue to enhance CDIC's ability to protect insured depositors and to address the stability of the financial sector.
I would be pleased to take any questions you might have.
The Chair: There are only two or three sections. Tell us what is being achieved in each of these sections. Before you do that, though, can you tell us whether we are making these changes as a result of a G20 commitment, or would we have done them irrespective of the downturn in the economy?
Ms. Dunn: There is a broad G20 commitment that requires that jurisdictions look at their resolution regimes and ensure they are effective and efficient. We did do quite a bit of work through 2008 and 2009 to look at our tools, and much of the results of that showed in Budget 2009 where we did give the bridge institution powers and certain other flexibilities. This is sort of a continuation of that work in checking that operationally these provisions can work as well as possible.
The Chair: Is it done not because of some specific problem that has happened with a financial institution but rather just to be prepared in the unlikely and hopefully-never-happens event that a bank should fail?
Ms. Dunn: That is right. CDIC was looking through how it would operationalize a bridge bank, because it would be a new tool to Canadians, although it is used in United States quite a bit by FDIC, the U.S. Federal Deposit Insurance Corporation. In going through some of the operational issues, CDIC came across, for example, that this date and time certain of when the deposits were transferred would be useful to have identified at the time the bridge bank is to be created.
A clause here will specify that when the minister creates the order for the bridge bank it would actually specify the date and time that deposits would be valued and transferred over. Other amendments, for example, respecting derivatives were a result of the industry asking for further clarification on an issue that we thought the original legislation addressed clearly, but the industry wanted to have further certainty. There were some of these little technical issues that we went through. No absolutely new tool is being created here.
The Chair: Have we ever used a bridge bank scheme for a failing bank in Canada?
Ms. Dunn: No, we have not. We have luckily not had the occasion to.
The Chair: The failure of those two banks in Alberta several years ago was handled quite differently.
Ms. Dunn: That is right, sir.
The Chair: Could you briefly tell us what you are achieving with each section here so that we will all have a clear understanding of the sections that we will approve or otherwise in the next few weeks?
Ms. Dunn: Clause 1886 gives the board new bylaw-making powers. Clause 1886 references sections 14 and 39.13. Section 14 is in respect of the corporation's ability to pay insured deposits, and section 39.13 is in respect of the corporation's ability to create a bridge bank. For the purposes of paying deposits or creating a bridge bank, this requires that member institutions provide certain types of information to CDIC and that they have the capability to identify deposit liabilities or put holds on deposits.
This first clause essentially provides CDIC the authority to create a bylaw. The details of the bylaw would be worked out in consultation with industry and would be pre-published through the regulation-making mechanism.
The Chair: Good; all right.
Ms. Dunn: Clause 1887 defines deposit liabilities.
The Chair: That is just the definition; that is fine.
Ms. Dunn: It is just a definition.
The next one is where the date and time certain is required. It directs the minister to specify the date and time certain of the transfer of deposits when the bridge bank order is created.
Clause 1889 clarifies eligible financial contracts, and these are derivatives contracts. If they are assigned to a bridge institution, then all related eligible financial contracts and the collateral assigned to them must also be assigned. This is to clarify that there could be no cherry picking between what derivatives contracts were in place with the counterparty. You could not just choose certain of those contracts. It is to provide certainty that you bring all or nothing over.
Clause 1890 clarifies the definition of "eligible financial contract."
The next clause again clarifies that the deposit liabilities assumed will be those that are insured and posted as of a certain date and time.
The Chair: It says "both insured." Is that a conjunctive and both of those aspects have to be there before the bridge institution can assume the institution's deposit liabilities? Is that the way you read that paragraph?
Ms. Dunn: That is right. It is to ensure that they are posted against the books of that institution. They have to be both insured deposits and recognized to be posted against that bank's books as of the time of the transfer. Sometimes, there might be a deposit on a weekend that is not posted until the Monday, for example. It is just to clarify that.
The Chair: Unless each of those items is there, that particular liability does not go to the bridge institution?
Ms. Dunn: That is right.
The Chair: That is the way I would read that as well. Good. I guess that is it.
Ms. Dunn: There is then the coming into force.
The Chair: I will now go to our list and begin with Senator Eggleton, from Toronto.
Senator Eggleton: You have answered the first question that I was going to ask, what gave rise to this, and it seems it was international, G20-type discussion. You mentioned the U.S. Federal Deposit Insurance Corporation. Is this similar to what FDIC does; is it identical; or are there differences in its operation?
Ms. Dunn: It is very similar. There were discussions between CDIC and FDIC on how to structure. There would be differences, but I do not have the specific differences on the top of my head.
Senator Eggleton: They are different banking systems. Could you paint a scenario of where and how we would use this bridging?
Ms. Dunn: With bridging, you would want to consider an array of options. In some cases, there may be an immediate buyer for an institution; in other cases, you would want to just close the institution.
This tool is to be used, for example, when you think there is value to an institution. There is no immediate buyer, but there is a view that there is enough going-concern value that you could protect so that it is worth trying to keep the institution going. Rather than trying to package and sell the existing institution, this tool gives you an opportunity to get the bad stuff out and to let the receivership process start for bad assets and sort of to clean the bank. It allows a liquidation process and takes the other assets aside. CDIC would then appoint a board and would manage and try to finding a buyer for that bridge bank.
Senator Eggleton: How long a period of time could this last? Is there any risk to the public finances, the government finances?
Ms. Dunn: The legislation specifies that the institution would be in place for two years and then it could be extended annually up to another three years.
While the institution is in place, CDIC is standing behind the institution in order to provide confidence in the market. However, CDIC has an obligation to minimize its exposure to cost. It has a least-cost mandate. There may be occasions where the least-cost mandate would be overwritten if there was a view that systemic risk was at stake and that it would be better to keep an institution open rather than to close it. As for risk to the public purse, any costs that CDIC bears are recovered through member premiums. Over time, any costs that CDIC bears would not come from the public.
Senator Eggleton: Had this tool been in effect 10 years ago, looking back, do you see any circumstances in the last two years where this might have been used?
Ms. Dunn: We have not had to take a decision about an institution that was at risk in the last 10 years, so no, I do not see any.
Senator Eggleton: I am just trying to determine possibilities.
Ms. Dunn: Two years ago, seeing how quickly things happened, CDIC told the minister it would like to know it could count on this tool if it needed to do so.
Senator Ringuette: I am looking at clause 1888. I assume that the direction of the minister to incorporate a federal institution means it would be a Crown corporation.
Ms. Dunn: Under the Financial Administration Act it is not considered a Crown corporation, but it would be fully owned by CDIC.
Senator Ringuette: You are under the responsibility of the minister and Parliament and government, so it would become a Crown corporation.
Ms. Dunn: Yes, it would be on the books of CDIC. It would be shown as essentially a subsidiary of the CDIC for a time. There are differences in how it would it be treated under the Financial Administration Act compared to other Crown corporations regarding reporting to Parliament and that kind of thing. It would not be considered a full Crown corporation, but it would essentially be a subsidiary of a Crown corporation.
Senator Ringuette: However, reporting would be done to Parliament?
Ms. Dunn: Through CDIC. In essence, the idea is to keep it looking and acting like a private bank. It would still have to report on its activities. The CDIC board would require certain reports, and the Office of the Superintendent of Financial Institutions, OSFI, would still require certain reports as a regulated bank.
Senator Ringuette: That was my next question. In order for the minister to decide to create this bridge Crown corporation, would the danger have to be flagged and reported by OSFI?
Ms. Dunn: The danger in terms of the prudential issues?
Senator Ringuette: With regard to the deposit liabilities for that given institution, because OSFI has the mandate to supervise those reserves and liabilities and so forth.
Ms. Dunn: That is right.
Senator Ringuette: Would OSFI be the institution to flag to you and to the minister, or how would that occur?
Ms. Dunn: It would be treated as any regulated institution, with a little more attention being paid to it through the CDIC board and through the Financial Institutions Supervisory Committee, FISC, the discussion group where the Superintendent of Financial Institutions, the Governor of the Bank of Canada, the chair of CDIC, the Commissioner of the Financial Consumer Agency of Canada and the Deputy Minister of Finance have the ability to discuss any prudential issues related to any of the financial institutions. This would be well followed in that respect. OSFI would still be supervising its activities, as with any other bank.
Senator Ringuette: My issue here is that we will be creating a new Crown corporation and reporting mechanism. Who will decide that an institution is in a liability situation?
Ms. Dunn: Do you mean the decision about whether an institution needs to have a resolution?
Senator Ringuette: Yes. I need to understand how the process will work, because I would think that a financial institution in a liability situation would need rapid action in order to protect the deposits.
Ms. Dunn: Yes.
Senator Ringuette: What would the process be? It is not clear here. I understand the responsibility of the minister. I also understand the mandate of the Office of the Superintendent of Financial Institutions. However, who has the responsibility to highlight the problem and kick-start the process, and what is the timing of that, in order for the deposits to be made into this new Crown corporation? The creation of a new Crown corporation is not done overnight. Are we just putting words on paper? For the required flow of action, should we not have a general Crown corporation already set up to receive these deposits?
Ms. Dunn: The intent is that the bridge bank would need to happen quickly because, as you said, the intent is to preserve public confidence and stability and to prevent bank runs, which would essentially kill the bank.
There is a process or a framework in place for the run-up to a decision as to whether an institution is non-viable or needs to be resolved. OSFI continually monitors the health of institutions and has the ability to stage them as there are increasing concerns. FISC would have regular discussions about any banks of concern so that the system would be primed and ready to appreciate that action may be required.
The superintendent would have the authority to declare a bank to be non-viable, and the CDIC board would determine what resolution options they felt were best to recommend to the minister, whether it would be in the interests of depositors, the corporation and the financial system to close and pay out insured depositors, or whether it would be best to facilitate a transaction whereby they could provide assistance to an acquirer, or whether a bridge institution would be a useful tool to have.
The board would take a decision regarding the process and the timing. Clearly, as you said, the legislation is created on the assumption that this needs to happen quickly, so there are certain provisions for order-in-council-making authority on the assumption that we would need to have this done in a facilitated time frame. CDIC decisions about what they took in and out of the bank would have to happen quickly.
Senator Ringuette: There are all kinds of issues. I can understand and appreciate the need for this proposed legislation. I can certainly understand the need for a rapid process to make this happen. However, there is no provision in the bill with regard to how long that bridge institution is there.
Ms. Dunn: The budget legislation from last year actually forms the legislation that provides for the creation, operation and disbandment of a bridge institution. What you see in Bill C-9 are particular amendments, so you do not get a sense of the entire package.
Senator Ringuette: We would have to look at the previous legislation?
Ms. Dunn: Yes.
The Chair: That was the budget implementation bill from last year?
Ms. Dunn: From 2009, yes.
Senator Ringuette: The first or second one?
Ms. Dunn: The first one.
The Chair: That had the five-week extension for Employment Insurance, which was important that we pass quickly. I remember that one.
Senator Murray: There is nothing like that in this bill, Mr. Chair.
The Chair: Maybe that is why we missed the other portions.
Senator Gerstein: Many laudatory comments have been made about the financial system in Canada today and how it stands in the world. I would like to refer back to a comment that Senator Eggleton made and that, in fact, Senator Day made at the outset.
Senator Eggleton asked a good question, in my view, as to how this might have been used in the last 10 years; and Senator Day made reference to the fact of several bank failures, going back 10 or 15 years, I think you said. Frankly, my recollection is that it was closer to 25 or 30 years ago.
I raise this because, in addition to the bank failures, many trust companies were on the edge as well. I do not know what the number would be, but I suspect the exposure of CDIC was enormous.
If you go back to that time, I think, as a backdrop, we had those great challenges in our financial system, and it was not at a time of global economic problems anywhere near what we have experienced over the last couple of years. My point is that 25 or 30 years ago I do not think the Canadian financial system would have been singled out as being an exemplary role model for other countries to look at as it is today. I am making these comments as a testimony to all governments in the intervening period.
I have asked myself what took place in the last 25 to 30 years that moved us from this situation of substantial exposure — not that we do not have exposure now — to being singled out as we are today as one the great financial systems of the world. I suspect it is a combination of the interaction between CDIC, the Bank of Canada, OSFI and the Department of Finance. As for what they did — because it did not happen by itself — in my view, it was probably a combination of strong regulations, excellent policing and early intervention.
As I read this part of the bill, I suspect that this is just enhancing and reinforcing that concept of how we moved from where we were 25 or 30 years ago to where we are today. Would that be a correct assumption?
Ms. Dunn: I would support your comments. I think probably many lessons were learned from the failures in the late 1980s that involved Confederation Life and some of the trusts, OSFI's intervention system and the whole FISC framework and the tools that CDIC has developed. I think they have all served to strengthen Canada's regulatory system and the ability to work together as a team of regulators to strengthen our system.
There are a number of reasons why we hear that Canada has come out well, but I do think that this strengthened supervisory focus and the ability of Canada's regulatory agencies to have regular updates of our legislation and to be able to react quickly as problems arise has served us well.
Senator Gerstein: You agree this fits in with the framework of what you are talking about.
Ms. Dunn: It very much does in terms of trying to keep it evergreen and to learn lessons not only from our own history but also from what other countries experienced. There were many surprises during the turmoil around how quickly things were happening and how regulators had to react to things that were different from two or five years ago. Bank products operated differently, so we had some luxury of looking at other government systems and seeing what we could learn from them. We also wanted to be as prepared as possible, given that there was a clear responsibility to ensure that our framework was as robust as we could make it.
Senator Callbeck: Talking about the bank failures in the 1980s, if this legislation had been in place for this bridge institution, would that have been helpful?
Ms. Dunn: I do not know the answer to that question. I think often one does not know what the options on the table are. I cannot speak to that, but clearly the more tools and flexibility, the better.
Senator Callbeck: As I understand it, this bridge institution is set up by the minister on the advice of CDIC. It is run by a board of directors that would be appointed by the minister.
Ms. Dunn: Appointed by the board of CDIC.
Senator Callbeck: It is there for two years and can be expanded to three. It could be there for five years. Does the board make the decision whether it will sell it or close it, or is the minister involved in that decision?
Ms. Dunn: The board would make a recommendation. I think the ultimate wind-down decision would be the ministerial decision.
Senator Callbeck: This bridge institution is very similar to what they have in the United States, I think you said.
Ms. Dunn: Yes, that is right. FDIC has used the bridge tool quite often over the last two years.
The Chair: FDIC is a U.S. body?
Ms. Dunn: FDIC, the Federal Deposit Insurance Corporation, is the U.S. equivalent of CDIC.
Senator Callbeck: Is it the same or pretty much the same, or are there any differences?
Ms. Dunn: In terms of the bridge institution?
Senator Callbeck: Yes, to what we are proposing.
Ms. Dunn: I could get back to you on specific differences. I think there would be differences, because their legislation is not entirely in tune with ours. However, the intent of the legislation, the flexibilities built into the legislation, are quite similar. I could try to get more detail on that for you.
Senator Callbeck: No, that is okay. Thank you.
The Chair: To clarify the record, we are talking about a bridge institution for winding up a failed institution. Do we also use the bridge institution in a situation where you are hoping to rescue a company in difficulty?
Ms. Dunn: The bridge institution takes a failed institution and allows the failed institution to go into liquidation. It takes the good parts from the failed institution and creates a new bank. It allows for the liquidation of the bad bank and the creation of the new bank. From CDIC's perspective, it takes the insured depositors and allows them to have continued service in the new bank and to bring over any key assets and liabilities that could preserve the value of the new bank.
The Chair: Would you contemplate using the bridge institution in a situation where a banking institution needs some help, either governance or an injection of funding, in just a rescue-type situation?
Ms. Dunn: There would be a decision that this is a non-viable institution, so the bridge institution is really to address the option of letting a bank go into receivership or trying to preserve it.
The Chair: Thank you. I just wanted to clarify that.
Senator Callbeck: You say the directors would be appointed by CDIC?
Ms. Dunn: The board of CDIC.
Senator Callbeck: Of the bridge institution. Would they have to be approved by cabinet?
Ms. Dunn: I do not think so. No, it is not a Governor-in-Council approval.
Senator Callbeck: Thank you.
Senator Marshall: On clause 1886, where there is a reference to temporarily preventing withdrawals of deposit liabilities, what were you anticipating for a time frame? I am thinking about protection of the consumer.
Ms. Dunn: The idea was that this would happen over a weekend.
Senator Marshall: You start off with your deposit liabilities. They are in a failed institution; they are moving over; and they will eventually end up in a new bank. Is there any period of time when CDIC is not ensuring those deposits? Will it be seamless as the deposit liabilities move through an assembly line?
Ms. Dunn: That is right. The idea is to be able to say, "Do not worry; you are protected. We are creating a new bank, and CDIC is standing behind it." It would enhance confidence.
Senator Marshall: In a way, it would be entirely seamless to the consumer?
Ms. Dunn: That is right. There may be a point in time while the deposits are transferred over that a short hold would be needed, but the intent is that would be very short.
Senator Marshall: Thank you.
Senator Murray: I have a comment to make on which the witnesses may wish to offer their own comments. Some background comes to mind as a result of Senator Gerstein's comment and Senator Callbeck's question: Those two western banks failed early in the first mandate of the Mulroney government. Then, as now, there was a fair bit of hubris surrounding the Canadian financial system, among both government people and those in the private sector. It was inconceivable that we could allow a Canadian bank to fail; think of what it might do to our reputation, and so forth.
Accordingly, public money was committed to bail out or to support those banks, and if my memory serves me well, the major chartered banks came to the party at the urging of important people, such as the Governor of the Bank of Canada at the time, I think.
Notwithstanding this injection of public and private support, they failed anyway. Of course, in hindsight we probably should have let them fail in the first place. I do not think the bridge facility would have been of much assistance at the time.
I was chairman of the Senate Banking Committee at the time, and then as now there were some very able people on it. We did a study and made some recommendations. Mr. Justice Bud Estey of the Supreme Court of Canada was appointed to conduct a royal commission, an inquest, into what had happened, and he made some recommendations.
There we are for the western banks. Now we have some proposed legislation, a bridge facility and all that. We still take a lot of pride in the solidity of the banking system, and I do not want to begrudge anyone their satisfaction and pride in that, especially in view of what is happening elsewhere, and we keep saying, quite correctly, that we have not had to put any public money into bailing out banks or the financial system. However, if we are not bailing anyone out, we are certainly standing behind them big time. There is something called the Extraordinary Financing Framework. It is $125 billion for the Insured Mortgage Purchase Program; $12 billion for the Canadian Secured Credit Facility; $13 billion through additional credit provisions by the financial Crown corporations, Export Development Canada, EDC, and Business Development Bank of Canada, BDC; $40 billion through modernized authorities of the Bank of Canada to support liquidity of the financial system; and $10 billion through the new 10-year Canada Mortgage Bonds launched in the fall of 2008. These are very considerable supportive measures that Parliament has brought in.
With the background of that facility, with that kind of backup, it seems to me the institution would have to be in pretty awful shape by the time the need for the bridge institution kicked in. It would have to be in extreme circumstances, or am I missing something? I presume you would not take that step until it was clear that all the existing backups had failed.
Diane Lafleur, General Director, Department of Finance Canada: There are a number of points there. I will touch on a couple of them. If I miss anything, please bring me back to it.
Clearly, supervision is key here. Before an institution gets into trouble, you want to ensure the regulatory system is effective and diligent. One thing we found from the crisis is that rules are not enough. You need a supervisor doing the job who ensures the rules are being respected and who has the tools needed to effect corrective action if a problem arises. Many countries had great rules on their books, but that does not mean that the supervisors were doing their job, and so that is the first thing that we take away from this, and we take great pride in our supervisory framework.
In terms of the Extraordinary Financing Framework and the measures announced in fall 2008 and spring 2009, Canada was affected by the crisis. We saw liquidity dry up in financial markets. There was a very real concern that credit for Canadians would also dry up. Yes, significant measures and actions were taken. Most of them were temporary, and many of them, like the Insured Mortgage Purchase Program, have now expired. As well, some of the assurance facilities that were temporarily put in place and never used have since expired.
Senator Murray: What is left?
Ms. Lafleur: The secured credit facility that you mentioned is still in place, and many of the tools we have provided ourselves will continue to be in place. These are the tools we hope never to use, because we never want to have that kind of problem, but as Ms. Dunn said, they are tools we felt it is prudent to have in place in the event that we do get into some trouble.
In the international discussions there is now a lot of moral hazard in the system everywhere because of the extraordinary measures that other countries had to take to bail out their institutions. We are working with international partners to ensure we reduce that moral hazard going forward. Reducing that moral hazard means we need credible tools and policies in place to show that our institutions are in fact not too big to fail. We need to be able to resolve in an effective manner a problem institution because we cannot have this perception that if one of our big banks gets into trouble the government will bail it out. That puts all the wrong incentives into the system.
The bridge bank is one of those tools. If an institution gets into trouble, basically we have a way of ensuring that insured depositors will continue to get uninterrupted service and that the value in the franchise can be preserved, but that bank, as it was before we bridged it, ceases to exist. It is dead and gone, and those shareholders have lost everything. That is a very credible thing and one way of dealing with the moral hazard in the system.
Senator Murray: Thank you. That is very interesting. Others may wish to pursue the point.
Senator Ringuette: To clarify, you indicate that this bridge institution would provide the depositors and the clients with the service?
Ms. Lafleur: The idea in a perfect world is that as a retail customer with insured deposits your service would essentially be uninterrupted. We have seen that happen in the United States, where on a Friday night and over the weekend the Federal Deposit Insurance Corporation takes control of an institution and transfers the assets. Customers still have access to their ATM and debit cards over the weekend, but the paper transfer of assets and liabilities happens over the weekend, and on Monday morning the new bank opens and customers still have access to their funds. There is just a different name on their cheques going forward, and they may get a different debit card with a different name, but they have had uninterrupted service over the weekend. We want to be able to do that if we ever find ourselves in that situation.
Senator Ringuette: This is more than just putting the deposit liabilities in a safe, temporary institution. This is running a financial institution in every way from A to Z.
Ms. Lafleur: The board that will be appointed by CDIC will run that institution going forward, yes.
Senator Ringuette: I find it is a good step to secure the deposit liability, but I am not sure about a Crown corporation running a financial institution for X number of years. Anyway, I guess we will see if ever the experience happens.
Senator Gerstein: Hopefully never.
Senator Ringuette: Yes, hopefully never.
Ms. Dunn: The intent of CDIC is to bring in people who know how to run banks, not to run banks itself. The CDIC people are not people who run banks. They have a different expertise. In the U.S., for example, FDIC would bring on former retired executives of banks or whoever would have an expertise.
Senator Ringuette: We have to realize that all kinds of things are happening. It is also a matter of taking over the physical assets of that institution, if we continue to operate it. There are all kinds of implications, and I am sorry that what we have here is only a partial view of this bridging set-up. Other kinds of liabilities may apply if we take over the physical assets of a financial institution and if we take over the daily operations with regard to the employees and so forth.
This is just a partial view. I have concerns about the whole view. As Senator Gerstein said, I am just hoping we do not have to resort to this.
The Chair: The primary objective of the Canada Deposit Insurance Corporation is to protect members of the public who have deposited funds into this institution, which may have mortgages, commercial activity, many different things. The policy behind this is that the best way to protect the industry and that particular group of depositors is to carry on with all of the activity of that institution that is still viable.
Ms. Dunn: Again, the decision to create a bridge bank would be taken in light of these considerations, whether this is a good candidate for a bridge bank. Clearly, CDIC would bring over the insured depositors as a way to protect them. CDIC has a responsibility to protect them. Whether other parts of the business would come over is a decision based on the value of that other business to the going concern.
In any particular situation — large bank or small bank — there are different considerations about the complexity and the size of the business you are bringing over. What would stay in the new institution and what would not are decisions taken based on background that CDIC would have gathered in conjunction with OSFI on the value of the bank and the operations of the bank.
The Chair: CDIC has personnel on staff who can make that kind of assessment. Is that right?
Ms. Dunn: CDIC would have the ability to bring in consultants as well. Clearly, as an institution is of concern, they are looking deeper at the books of that institution.
The Chair: Any further supplementary questions on that line? Seeing none, we thank you very much, Ms. Dunn and Ms. Lafleur, for helping us out with this part of the bill.
Honourable senators, we are now proceeding with Part 17 of Bill C-9, which deals with federal credit unions. This is on pages 571 to 697. There are many sections we will want to look at and understand, and we have a number of government officials here to help us do that. We have William Kendall, Economist, Strategic Planning and Trade, Financial Sector Policy Branch; Veronica C. Wessels, Expert Advisor, Financial Sector Policy Branch; and we welcome back Diane Lafleur, General Director. Who would like to give us a bit of an overview and then refer us to sections that achieve the intended purposes?
Veronica C. Wessels, Expert Advisor, Financial Sector Policy Branch, Department of Finance Canada: I will, thank you.
Part 17 introduces a legislative framework to enable credit unions to incorporate and continue federally through amendments to the Bank Act and some other federal acts.
Just to provide some context, this initiative has been around for quite some time. It was initially proposed by the MacKay task force in 1998. We had consultations in 2002 and 2003. In 2007, a group of large credit unions, who called themselves the Case for Progress, got serious, and so we started working on the initiative pretty much full time. This initiative has been driven largely by this group of large credit unions who were looking for options to expand nationally and become more competitive. We have worked closely with this group to develop the framework and have also engaged with the provinces and other stakeholders in our consultations.
The framework is being implemented in the Bank Act, and federal credit unions would therefore technically be banks and generally also be subject to the same legal requirements as traditional banks. However, we have departed from the Bank Act model where necessary to take into account cooperative principles, and here we base ourselves on internationally recognized cooperative principles as well as on existing federal cooperative legislation, which includes the Canada Cooperatives Act and the Cooperative Credit Associations Act.
The cooperative principles in the bill are set out in clause 1902, and we can go back to that later. They include that each member has one vote regardless of how many membership shares the member has. A federal credit union must provide services primarily to its members. Membership is open, but the framework would allow for traditional bonds of association — based on a common workplace, for example.
The amendments also provide for flexibility by way of transition to facilitate the migration of credit unions to federal jurisdiction. Also, a credit union would not be able to continue federally without the support of its home province, and this requirement would be in the legislation.
Credit unions are, by their nature, widely held, because they are owned and democratically controlled by their members, so the size-based ownership regime in the Bank Act that requires only the largest banks to be widely held would not apply.
The key cooperative ownership requirements for federal credit unions would include requiring that a federal credit union maintain a minimum of five members, restricting ordinary voting rights to members and permitting investment shareholders to elect up to 20 per cent of directors. As well, any person is prohibited from controlling a federal credit union.
Amendments are proposed to adapt the shareholder-based corporate governance structure in the Bank Act for member ownership. For example, members may exercise their right to vote by delegate or by mail, but the proxy rules do not apply. It sets up a regime to allow for the demutualization of a federal credit union to become a share-owned bank that would protect members and shareholders, and that would be set out in more detail in the regulations.
Federal financial institutions generally have considerable flexibility in choosing their name, so long as their name is not confusingly similar to the names of existing institutions. To ensure that consumers can distinguish federal credit unions from provincial credit unions, a federal credit union choosing the term "credit union" would also have to use either "federal" or "bank" in its name.
There are a few related proposed amendments. The Canada Deposit Insurance Corporation Act is amended to apply deposit insurance coverage for federal credit unions providing transitional deposit insurance to credit unions that are continuing from provinces with higher deposit insurance limits. Also, the Bank of Canada Act, the Financial Consumer Agency of Canada Act and the Office of the Superintendent of Financial Institutions Act are amended to adapt the current restriction on regulatory agency executives owning shares so as to allow these executives to be members of federal credit unions. The Income Tax Act is amended to provide that federal credit unions that meet the definition of a credit union in the Income Tax Act be subject to the same income tax rules as provincial credit unions. There would be no change from the status quo there.
This proposal has been very well received by stakeholders. We are expecting that the framework will be of interest to the larger and more complex credit unions but also to some of the smaller ones, who could use the system to amalgamate with their sister entities across the country. However, we expect that the vast majority of credit unions will remain under provincial jurisdiction.
We welcome your questions.
The Chair: I do not want you to look to each section, but are you able to group the sections of this part and tell us where the points you have made are generally found?
Ms. Wessels: The definition of a federal credit union is in the definition section, clause 1894. The definition states that it is a bank within the meaning of section 12.1, and section 12.1 sets out the cooperative principles. It is basically a bank that is organized and carries on business on a cooperative basis.
Proposed section 12.1 is very important, and that is in clause 1902 at page 580. It basically sets out the international principles and adapts them to the Bank Act. Basically, a majority of the members must be natural persons, and the federal credit union must provide services primarily to members. It talks about the bonds of association. You can have bonds of association as long as the bonds comply with human rights legislation. Each member has only one vote. A delegate has only one vote, so no matter how many members a particular delegate represents, that delegate can still vote only once.
The Chair: Is that so even if she has letters from other people, not a proxy but letters from other people saying this person represents my interests?
Ms. Wessels: Yes.
The Chair: A delegate can vote only once.
Ms. Wessels: He or she can vote only once.
The Chair: Why would they have the letter at all, then?
Ms. Wessels: That is consistent with cooperative principles and democratic ownership, because we are trying to avoid the situation where a delegate would go around and round up votes and influence the voting that way.
Ms. Lafleur: It is very important to the cooperative sector that this be maintained.
The Chair: You have to be there at the meeting, and you get one vote.
Ms. Wessels: Yes.
Dividends on membership shares are limited to a maximum percentage fixed in the bylaws, and bylaws are mandatory in the federal credit union context. We were told that governance is sometimes an issue and that it is important to be quite prescriptive about what the bylaws of the federal credit unions are supposed to have. This is a difference with banks.
Surplus funds are used to provide financial stability, to develop business, to improve common services, and to provide for reserves or dividends. Again, this is based on international standards. That is clause 1902.
I talked about flexibility for transition to facilitate migration from provincial to federal jurisdiction. There I would refer you to clause 1914, which is on page 584. It is in proposed paragraph 39(2)(a)(ii). Basically, if a credit union is carrying on a business activity that would not be permitted under the Bank Act, there is an opportunity to apply and to make an undertaking to the minister. The minister would have to accept the application, and that activity would have to cease on the date of the undertaking.
Clause 1924 is a long clause, but the exemption is contained in proposed section 47.19 on page 592, where it provides that the minister may exempt an entity — for example, a credit union making an application to continue or a federal credit union — from the application of proposed section 47.11, which is the requirement that a majority of the members be natural persons.
Then in proposed section 47.12, the credit union must provide its services primarily to members, and proposed section 47.18 says a credit union must ensure that it has five members at all times. That provides transition accommodation for entities that do not have that in place when they come in.
The other point that I made was that a credit union would not be able to continue federally without the support of its home province. That is in existing legislation. We did not have to put that in. It is in the Bank Act, section 33(2). It is not in one of the clauses.
The widely held requirements are embedded in clause 1924, the provision I just spoke about regarding having a minimum of five members, restricting ordinary voting rights to members and permitting investment shareholders to elect up to 20 per cent of directors. That is in clause 1931, which is on page 594.
Prohibiting any person from controlling a federal credit union is in clause 2061, which is on page 665.
Regarding corporate governance, I indicated that voting by proxy would not be allowed. We did not have to do anything to that because the definition of "proxy holder" in the Bank Act applies only to shareholders; members have a different definition. I spoke about members being able to exercise their right to vote by delegate, which is in clause 1902, as we have said, and in clause 1986, which are the mandatory bylaw provisions on page 623. They can vote by mail, which is in clause 1961. That is a distinction from the current Bank Act. This would apply only to federal credit unions that felt it was important to maintain that ability.
The Chair: That is a practice members are accustomed to.
Ms. Wessels: It is a current practice. Then we set out a detailed regime to allow for demutualization of a federal credit union to allow it to become a share-owned bank. That is in clause 1995.
Clause 1995 is a very long clause. It covers conversion from a bank into a federal credit union, and it then goes on to deal with conversion from a credit union into a bank, starting in proposed section 216.08.
The basic requirement of the name provisions is in clause 1917, on page 586, where, if a federal credit union chooses to use the name "credit union" in its name, it would also have to use "federal" or "bank."
The related amendment clauses for the Canada Deposit Insurance Corporation Act are clauses 2094 to 2107, starting on page 682.
The amendments to the Bank of Canada Act, the Financial Consumer Agency of Canada Act and the Office of the Superintendent of Financial Institutions Act are in clauses 2110 to 2112 on page 688.
The amendments to the Income Tax Act are in clauses 2108 and 2109 on the previous page, 687.
I think that covers my remarks.
The Chair: Thank you very much. This is quite an interesting regime. It must have been quite an interesting regime for you as well when you were putting this together, being someone who is familiar with the Bank Act and normal banking rules. Is there such a thing as a shareholder of a federal credit union or it is just membership of a federal credit union?
Ms. Wessels: A federal credit union can issue shares, if permitted in its bylaws.
The Chair: Do the members elect up to 20 per cent or at least 20 per cent?
Ms. Wessels: When you think about it, the members are equivalent to a bank's shareholders, but they have only one vote. If there are shareholders of the federal credit union, you should think of those as preferred shareholders of a bank. We call them investment shareholders, as do some of the provinces. They are called investment shareholders under the Canada Cooperatives Act, which deals with commercial cooperatives like Mountain Equipment Co-op. We have given them the ability to elect up to 20 per cent of the directors, if permitted by the bylaws. It is the choice of the federal credit union.
The Chair: It is the preferred shareholders that have the opportunity to elect up to 20 per cent of the board?
Ms. Wessels: Yes.
The Chair: I am glad I clarified that because I saw sections that talked about shareholders and members at the same time and it was getting confusing.
Senator Eggleton: This is an interesting possible provision. I take it that the impetus for this comes from the cooperatives themselves; they want to take on the banks, become competitive and do better on their financial situation.
You have said that they will be getting into banking and will be covered by the Bank Act and all the provisions of the act and the oversight and supervision; is that correct?
Ms. Wessels: Yes; that is correct — except if we felt that we needed to provide for cooperative principles.
Senator Eggleton: The cooperative principles are the characteristics of a co-op; are they not? That is, one member, one vote. That is what you are talking about there; is it not?
Ms. Wessels: Yes.
Senator Eggleton: It is not any weakening of the regulations under the Bank Act.
Ms. Wessels: No.
Senator Eggleton: That is important to know. A cooperative that is provincially registered and wants to set up a bank would have to set up a separate corporate entity because it comes under federal regulation. If it is staying under the provincial co-op status, then it needs a separate entity. How does that work?
Ms. Wessels: This framework provides for de novo incorporation. A new entity can apply in the normal course and set up a new federal credit union. It also would apply to a provincial credit union that meets the requirements to continue into federal jurisdiction. It would no longer be provincial; it would now be federal.
Senator Eggleton: It could not stay under provincial jurisdiction as a co-op?
Ms. Wessels: No.
Senator Eggleton: If it wants to become a bank, it has to switch over the entire banking operation into federal jurisdiction.
Ms. Wessels: That is correct.
Senator Eggleton: Did you say there is a transitional period?
Ms. Wessels: Yes.
Senator Eggleton: What risks to the fisc are there in this? Are any provisions being made for the possibility of any risks? This could greatly expand the banking community out there.
Ms. Lafleur: As Ms. Wessels said, these potential new federal credit unions will be subject to the same supervision and regulation as any other bank. They will become members of the Canada Deposit Insurance Corporation and will pay risk-based premiums, like any other banks, and get the same kind of coverage.
Senator Eggleton: How many do you think might want to come under the provision? Do you have any idea?
Ms. Wessels: At the moment, we have one serious applicant. The system is looking to see how it goes with that applicant and whether the applicant will be successful in its application. We expect to have more down the road, if it works out well for this applicant.
Senator Eggleton: Does the government anticipate any expansion in OSFI or CDIC in staffing or any other financial provisions to ensure this increase in banking institutions will be properly monitored?
Ms. Lafleur: It is expected that in the short term there may be one applicant. Obviously, there is no immediate need for additional resources. OSFI funds itself through assessments on the institutions that it supervises. That is where it would go to get additional revenues, if needed. CDIC would not need additional resources to administer these.
Senator Eggleton: Do we have any international comparisons? Have you studied any other countries where this is being done and how well it has worked, if it has been in effect for some period of time?
William Kendall, Economist, Strategic Planning and Trade, Financial Sector Policy Branch, Department of Finance Canada: Yes, we have. A number of countries have different models incorporated at the provincial level or, in the United States, at the state level. However, they have the option to incorporate at the federal level. That is similar to what we are proposing, which is an option for these credit unions to choose to be either at the provincial level or at the federal level, where they can go across the country.
European cooperatives have been around for a long time. We looked at that structure as well. It is probably more similar to the Desjardins structure than the credit union structure, but we looked at that and tried to provide as much flexibility as possible.
Senator Eggleton: Has it worked well, from a supervisory standpoint, for the governments in those countries? Have they had massive failures or anything like that?
Mr. Kendall: It is hard to speak to that, but generally no.
The Chair: Thank you. I have a supplementary question. You said, "The system is looking to see how it goes with that applicant and whether the applicant will be successful in its application." I presume that one of the tests you will apply to determine whether that credit union can fit under this federal credit union regime would be whether it has provincial approval? That had been mentioned. What will you need from the province to satisfy you?
Ms. Wessels: Generally speaking, the provision says that it must be authorized by the laws of the province. The application for continuance will be an application just like any other application for continuance going to the Office of the Superintendent of Financial Institutions. The applicant must satisfy OSFI's capital requirements and so on. In that application, OSFI will be asking for the provincial approval.
The Chair: You say that it must be approved by the law. Do you anticipate that laws will have to be generated in each province to facilitate this regime?
Ms. Wessels: It will be either something that is specifically in the laws or approval by the regulatory authorities.
The Chair: Can you direct us to the section that explains that?
Ms. Wessels: Yes. It is section 32(2) in the current Bank Act.
Mr. Kendall: There is a section in the current Bank Act. As we said, technically they will be treated as banks, so this would work.
In case you do not have a copy of the Bank Act in front of you, clause 1908 of the bill contains a similar provision. This is specifically for a credit union that is amalgamating with a federal credit union. We anticipate that situation as well. As you can see, the language specifies "if so authorized by the laws of the jurisdiction in which it is incorporated."
The Chair: Not by any executive order but by the laws?
Mr. Kendall: As Ms. Wessels mentioned, there will be discussions between the federal and provincial regulators.
As well, I would like to add to your previous comment about the provincial laws being created. Some of the provincial laws already contemplate federal continuance. For example, we have a Cooperative Credit Associations Act, which is a federal financial institutions act. It will allow credit unions to become retail associations. Some provincial laws already provide for that.
The Chair: Good. That is helpful. Thank you for that.
Senator Rompkey: So that I understand clearly what is happening, I want to focus on the example of the former Civil Service Co-op, which is now called Alterna. Without asking specifically what requests have come from that co-op, I assume that it was put together first by federal civil servants, of which there may be many members in this room. However, it is incorporated provincially; is it not? If it were to go federal, would it have to stop being incorporated provincially and be incorporated federally? Could it combine with another co-op, such as the one in Quebec, for example, and make itself even more powerful? Would it then have the opportunity to establish unions with other co- ops across the country?
Mr. Kendall: We tried to create the greatest amount of flexibility possible to address all the situations you just mentioned. I should mention that we have had discussions with Alterna. It is part of the Case for Progress committee.
Your first question is whether it would have to stop being incorporated provincially. Currently Alterna has a credit union.
Senator Rompkey: It is incorporated provincially.
Mr. Kendall: Right now it has a credit union that is provincially incorporated in Ontario. It also has decided to incorporate a bank, which is owned by that credit union and which is incorporated federally; it is a bank. That will allow Alterna to serve members in Quebec, for example. If it wanted to, it could continue the Ontario credit union and merge or continue to own the existing bank, or it can merge with the existing bank if it wants to. However, if it chooses to, it can incorporate a new federal credit union, or it could indeed mutualize the existing bank that it owns. There are a number of options.
With regard to your last question, whether Alterna could then amalgamate with other credit unions across the country, indeed it could. Once Alterna has created a federal credit union either by continuing itself or by incorporating a new one, the provision I just mentioned, clause 1908, would allow a credit union from another province to merge with other credit unions across the country. We tried to provide as much flexibility as possible to address all those scenarios.
Senator Rompkey: A credit union in Newfoundland and Labrador, for example, would have to stop being incorporated provincially if it were to join with Alterna and others and be part of a federal incorporation, and it would no longer exist as a provincial entity. Is that correct?
Mr. Kendall: If it chose to merge, yes. However, as I said, there are a number of options. They could incorporate a new credit union if they wanted to.
Senator Rompkey: What would this do for competitiveness? How would this affect the marketplace?
Mr. Kendall: The Government of Canada is committed to fostering a competitive marketplace in the financial sector, and indeed credit unions are an important part of that competitiveness. Allowing credit unions to expand nationally will improve services to existing members and allow them to attract new members, so it will foster increased competition in the marketplace.
Senator Rompkey: You are providing for this, but how likely are we to see federally incorporated credit unions that are an amalgamation of credit unions across the country? How likely is that to happen?
Ms. Wessels: As I said earlier, the system is monitoring closely this first credit union that is interested in coming over.
Senator Rompkey: We will not say which one it is.
Ms. Wessels: If all goes well with it, I think we will see a lot of activity in the next five to ten years.
Senator Rompkey: You have already answered the question about international comparisons. You have said that in the U.S. this works reasonably well.
Ms. Wessels: Yes.
Senator Runciman: Most of my questions have already been answered. However, I am curious about the temporary exceptions from the cooperative-basis requirements. What is the thinking there? Why do you see that as necessary, and how would it work?
Mr. Kendall: The cooperative principles are very important, as we said before. They are what distinguish a cooperative. However, there are a number of scenarios whereby a cooperative could become a federal credit union, not just by continuance but by incorporation.
We understand that to incorporate a federally regulated financial institution takes a lot of money, time and knowledge. Therefore, it may be difficult for a federal credit union to have, for example, five members who are natural persons to incorporate a federal credit union. With a bank, there is usually one major funder. Certainly we would look at that situation, and we have provided ourselves with flexibility. For example, if a farmers' cooperative wanted to incorporate a federal credit union to serve its farmers, we could use that exception and then eventually, over time, it would meet the requirements of a federal credit union.
Senator Runciman: When you say "over time," do you mean it is open-ended?
Ms. Wessels: The minister would have to look at all the facts. It would not be an open-ended exemption.
Senator Runciman: However, there is a lot of flexibility there?
Ms. Wessels: There is flexibility, yes.
Senator Marshall: The federal credit unions will now be regulated federally, and the provincial credit unions will continue to be regulated provincially. Now you will be running two regulatory regimes in parallel. Has any thought been given to provincial credit unions being regulated at the federal level? Is that possible?
Ms. Wessels: Provincial credit unions, once they continue, will no longer be provincial; they will be federal.
Senator Marshall: Yes, I understood that.
Ms. Wessels: You are concerned about two parallel regimes, some being regulated by the provinces?
Senator Marshall: Right, and some being regulated federally. Has there been any discussion about whether those two regimes could mirror each other, or will there continue to be two separate regulatory regimes, provincial and federal? Has any thought been given to combining the regulatory regimes into one?
Ms. Lafleur: The regimes would continue to be separate. There is no proposal on the table to impose federal jurisdiction on provincially regulated credit unions. This regime is respectful of the shared area of responsibility that we have here. Credit unions have a choice, and provinces have to give their consent if there is a continuance to the federal jurisdiction. It is cooperative, if you will; no pun intended. It is a collaborative approach.
Senator Marshall: You have worked on the legislation, and obviously it has been worked on for a while. Where do you see this going? Do you think that most of the provincial credit unions will go federal, or do you think this will be a rare event?
Ms. Lafleur: I think time will tell. As Ms. Wessels mentioned, we expect some of the larger credit unions to migrate to federal jurisdiction because they have broader ambitions of growing their businesses across provincial boundaries. However, many of the smaller credit unions are smaller by design and by intention. They like to be closer to their members. The smaller credit unions may very well decide that that is exactly what they want to do, to stay close to their members and focus on their core business. They may choose to stay under provincial jurisdiction because there is no ambition to grow.
Senator Marshall: Based on your feel for the sector, do you think that once this proposed legislation is in effect, the provincial sector will still be fairly robust?
Ms. Lafleur: Yes, I do.
Ms. Wessels: We understand from the Credit Union Central of Canada, which basically represents the system, that the vast majority will remain provincial.
Senator Marshall: That was the basis for my question. If most of the provincial jurisdictions move to the federal system, then why maintain both a federal and a provincial regulatory system, if the provincial system contracts significantly? You do not anticipate that?
Ms. Wessels: We are told that is virtually impossible.
Senator Marshall: Maybe we can discuss that further in a couple of years once we see what happens.
The Chair: I pass through Quebec from time to time, is a caisse populaire a coopérative de crédit?
Ms. Wessels: Yes, it is.
The Chair: Is that the Quebec name for that, or is it just a particular type of coopérative de crédit?
Ms. Wessels: Sorry, I do not understand your question. Is it a credit union? Yes.
The Chair: In this bill, in French you use the term "coopérative de crédit." Is that "credit union" in English?
Ms. Wessels: Yes.
The Chair: You are with me so far?
Ms. Wessels: Yes.
The Chair: When I go through Quebec, I see caisse populaire. Is that a generic term and not a trade name for a particular chain of companies?
Ms. Wessels: Yes. Right.
The Chair: Is that the Quebec name for a credit union?
Ms. Wessels: In Quebec, yes.
The Chair: It is in Quebec, but not nationally?
Ms. Wessels: No.
The Chair: Okay. That straightens that out for me.
Senator Callbeck: You said you consulted with the provinces, so all the provinces have agreed to this?
Mr. Kendall: We have undertaken extensive consultations with the provinces. We first talked with the provinces that had a credit union that was interested in the model. We talked about that Case for Progress committee, but we reached out to all the provinces on this initiative. Their responses ranged from positive to neutral, but we took into consideration their concerns when we designed the model, and indeed they helped us in designing some elements.
Senator Callbeck: What were their major concerns?
Mr. Kendall: Probably the most common concern was consumer confusion over the name, because if this bill is passed there are credit unions that would be credit unions under provincial jurisdiction and credit unions under federal jurisdiction. What goes along with that is an entirely different regulatory regime, so we wanted to be clear and make a distinction for the consumers that there is a difference between the federal and provincial jurisdictions.
I mentioned that the provinces helped us in our discussions, and this is one. If a federal credit union wants to use the term "credit union" in its name, we will also require the use of "federal" or "bank," and that is intended to show the distinction that it is a federal entity under federal jurisdiction and regulation.
Senator Callbeck: Was that their only concern?
Mr. Kendall: I do not think I can say yes. I do not know whether I would characterize it as concerns. There were certainly many discussions on various elements of the model.
Senator Callbeck: Generally there was agreement?
Mr. Kendall: As I said, it ranged from neutral to positive.
Ms. Wessels: No one said, "We hate this. Do not do it. We are going to fight it."
Ms. Lafleur: At the end of the day, the provinces have a certain amount of control because they have to enable the continuance of a provincial entity into the federal realm. If they do not want to allow that, they can simply choose not to.
I think the neutral position is potentially from provinces that are thinking, "Maybe we will not facilitate that; we want to keep our credit unions provincial." As I said, the regime gives them that flexibility and authority to keep their provincial credit unions provincial.
Senator Callbeck: Some provincial centrals now are regulated under the federal government. However, Prince Edward Island, New Brunswick and Newfoundland are not, are they? Do the provincial centrals that are under federal regulation have to follow federal and provincial regulations?
Ms. Lafleur: To be clear, you are asking about the centrals now and not the individual credit unions. Is that correct?
Senator Callbeck: Yes.
Ms. Lafleur: The centrals are essentially the liquidity providers for the system in the provinces, and most of them are subject to some oversight by the Office of the Superintendent of Financial Institutions. They opt to subject themselves to that. However, OSFI does not currently go below the centrals and regulate any of the member credit unions in the provinces.
Senator Callbeck: What are the main differences between the federal credit unions and the ones that are governed or regulated by the provinces? What are the main differences in regulations?
Ms. Wessels: Are you talking about the differences between this proposal for federal credit unions and the existing provincial legislation?
Senator Callbeck: The laws or the regulations that govern the federal credit unions and the laws that govern the provincially regulated credit unions.
Ms. Wessels: Right now we have no federal laws.
Senator Callbeck: There are no laws now?
Ms. Wessels: Only provincial laws. Right now all credit unions are governed provincially. This is a completely new framework that would allow for federal credit unions, but we do not have any yet.
Senator Callbeck: Is it more difficult to have a federally regulated credit union or a bank?
Ms. Lafleur: I think it will be pretty similar, because with the exception of things like cooperative principles, the regulatory structure will be very similar. The prudential requirements will be essentially the same, and the deposit insurance requirements will be the same. It is a question of how you want to structure yourself. It is to provide that flexibility, but the costs should be essentially the same. There will be distinctions between dealing with members versus dealing with shareholders, but the supervisory and regulatory aspects should be quite the same.
Senator Callbeck: In 2001 amendments were made to the federal financial institution legislation, I thought, to allow these credit unions more flexibility in expanding. Did that not fly?
Mr. Kendall: It did fly, and we do have a retail association as well as the centrals, which we were just talking about, that have chosen to become associations under the Cooperative Credit Associations Act. I guess there is a key difference, though, with this current proposal and those amendments.
This current proposal allows an individual credit union to continue federally, and for a number of reasons some of the credit unions thought that would be more suited to their business models. That is why there is a desire to have those different options, such as having two or more credit unions form a retail association, or having one credit union become a federal credit union. Then they can maintain their branding and their customer base, for example. They do not have to merge or partner with another one.
Senator Callbeck: That 2001 amendment did create some movement then?
Mr. Kendall: Yes. We have a retail association.
Senator Callbeck: In clause 1894 on page 572 you change the definition of "personal representative" to exclude a delegate. What circumstances or reasons led to the need to modify that definition of a personal representative?
Mr. Kendall: I think the answer is that "personal representative" is already in the Bank Act for banks, whereas "delegate" is specific to a federal credit union. We did not want to have those things mean the same thing. We needed to remove "delegate."
Ms. Wessels: We received legal advice that we needed to exclude a delegate. We looked at the Canada Cooperatives Act, and the same appears there. I think it was just for the sake of clarity.
Senator Callbeck: Okay.
The Chair: Did you say the Canada Cooperatives Act or the Canada Corporations Act?
Ms. Wessels: The Canada Cooperatives Act, which governs Mountain Equipment Co-op, for example — non- financial co-ops.
Senator Callbeck: Thank you.
Senator Ringuette: I will use the New Brunswick example of les Caisses populaires acadiennes to ask my question. They have converged into La Fédération des caisses populaires acadiennes. I would dare to say there is probably an average of 80 different caisses in the federation. If the federation decided it wanted to become a federally chartered bank, could it do that as a federation, or would each of the member units in the federation individually become a federal bank?
Ms. Wessels: This framework would not fit well with that model because of the cooperative requirement of natural persons. The Cooperative Credit Associations Act.
Senator Ringuette: A federation of credit unions could not apply to become a federally chartered bank?
Ms. Wessels: A bank, yes, but not a federal credit union.
Senator Ringuette: Not a federal credit union.
Ms. Wessels: No.
Senator Ringuette: Okay. That is interesting.
Ms. Wessels: It is because of the requirement that the credit union primarily serve individuals, which was considered important.
The Chair: Natural persons.
Ms. Wessels: Natural persons.
Senator Ringuette: So each unit of that federation would have to make an application to become a federal credit union?
Ms. Wessels: If they wanted to come under the Bank Act as a federal credit union, yes.
The Chair: Could they not apply to amalgamate?
Ms. Wessels: There are many options; I was just dealing with that example.
Senator Ringuette: They could do that by steps, I suppose.
Ms. Lafleur: They could first amalgamate and become one large credit union inside of New Brunswick; potentially then there would be one application for a federal credit union.
Senator Ringuette: Would that amalgamation happen under provincial legislation?
Ms. Lafleur: Potentially. I am not familiar with the New Brunswick legislation, but I assume it provides for that.
Senator Ringuette: I will go to the issue of OSFI and the bank requirements. You indicated it will be the same requirement for a federal credit union as the banking system that we have right now.
Ms. Lafleur: The capital rules and the prudential rules will be the same.
Senator Ringuette: If there was an amalgamation, the new entity in its entirety would be under the supervision of OSFI?
Ms. Lafleur: Yes, correct.
Senator Ringuette: Okay. Then you said that you can go from being a credit union to a bank and go from being a bank to a credit union. Do these provisions provide for that?
Ms. Wessels: The proposed amendments do, yes. We have a framework for mutualization, which is bank to federal credit union.
Senator Ringuette: What would be the advantage to a bank of doing that?
Ms. Lafleur: It is a business decision.
Ms. Wessels: It is up to them. We are just trying to provide as much flexibility as possible.
Ms. Lafleur: It is a business decision whether they want to do it.
Senator Ringuette: That is it. Thank you.
Senator Dickson: For clarification, what would be the advantages of a provincial credit union reverting to a bank under federal law? What is the driver to make it happen? Why would they do it? What is the underlying business reason?
Ms. Lafleur: These are business decisions, but the most obvious one to me would be the ability to offer services to members across provincial jurisdictions and to grow operations nationally.
Senator Dickson: What about raising capital? Generally speaking, do provincial credit unions now have shareholders?
Ms. Lafleur: They have shareholders that, as Ms. Wessels described them, are as more like preferred shareholders rather than the members that are what we consider the traditional shareholders of a bank.
Senator Dickson: Once they become a bank, what happens then insofar as shareholdings are concerned?
Ms. Wessels: There would be a conversion proposal. We have all kinds of steps that you would have to follow, super-majority approval, et cetera. It has to go to OSFI. The protection is there. However, even though there is quite a lot of detail in this framework, the actual nitty-gritty of what the rules will be regarding valuations and so on is being developed in the regulations. We have not figured that out yet.
Senator Dickson: Bottom line, after they go through all the nitty-gritty that you are still working on, the reason a provincial credit union would want to convert to a bank would be to raise capital?
Ms. Wessels: Possibly.
Senator Rompkey: I noticed with interest the definition of "natural persons," and I was tempted to ask whether there is a definition for "unnatural persons" and how such an entity would be defined, but I will not ask that question.
You said you consulted the provinces and that their response was neutral to positive. Did you consult the chartered banks? If so, was their response also neutral to positive?
Ms. Lafleur: The answer is yes. They were consulted and did not object to the proposal.
Senator Rompkey: Okay. Clearly there will be an impact on them.
Ms. Lafleur: I do not want to speak for the banks, but I think their key concern would be a level playing field, that no unfair advantages would be provided to federal credit unions versus banks. If it is a level playing field, they are happy to compete on that basis.
Senator Callbeck: This may have been covered, but when Part 17 passes, will there be regulatory or other differences between a federally regulated credit union and federally chartered banks?
Ms. Wessels: Will there be differences other than the differences that we have outlined?
Senator Callbeck: Will there be different regulations or other differences?
Ms. Wessels: Other than the cooperative-basis requirements that I outlined earlier and the regulations that we spoke about concerning mutualization and demutualization, there will be one regulation dealing with notice and disclosure requirements on continuance, basically to deal with members being told about their deposit insurance and any changes from what they currently have. We also have to go through all the existing regulations — there are about a hundred under the Bank Act — to see whether any tweaks need to be made to those. Those would just be consequential amendments.
Senator Callbeck: Right now, as far as deposit insurance is concerned, how are these provincial credit unions covered?
Ms. Lafleur: It varies by province, so there will be transitional arrangements to migrate everyone affected to the federal level of coverage.
Senator Marshall: I wanted to follow up on Senator Callbeck's question regarding the provincial consultations. Did any of the provinces show interest in one regulatory regime? Were any of the provinces interested in having the federal system look after the credit unions that would remain provincial as well?
Ms. Wessels: No. No one asked for that.
Senator Marshall: No one mentioned that?
Ms. Wessels: No.
The Chair: Clearly, if this piece of legislation was stand-alone legislation, it would be before the Banking Committee to look at, and that committee would have as witnesses the various stakeholders and interest groups.
You did consultations, which you told us about. I thank you for that. If we were to have consultations on our own as a means of confirming and understanding some of the points, rather than asking every credit union in Canada to appear, who could we call on that would best represent the credit unions? Is there an association of credit unions?
Ms. Lafleur: I would start with the Credit Union Central of Canada as the point of departure. If you wanted to go beyond that, I would seek their guidance on which other players in the system would be the most useful to speak to.
The Chair: We are pleased to let you know that they have asked to be here, and we will be inviting them. Anyone who has asked to be here will be here, but sometimes some of this proposed legislation is not even known to people who will be impacted by it. Is there any association of members of credit unions?
Ms. Lafleur: Not to my knowledge.
The Chair: Are there any professors, universities or think tanks that have done a particular amount of work with whom you have consulted and that are knowledgeable in this area?
Ms. Lafleur: We did work closely with an expert lawyer in the area named Joe Dierker.
The Chair: Where is he from?
Ms. Lafleur: From Saskatchewan.
Ms. Wessels: He is from the firm of McDougall Gauley.
The Chair: I have exhausted my list. There are no other honourable senators who wish to participate on this issue at this time.
On behalf of the Standing Senate Committee on National Finance, thank you very much for being here and for giving us an introduction to this matter. A minister actually referred to this at some length in his appearance here yesterday, and you were able to explain it to us, so we are pleased about that.
Ms. Lafleur, are you staying with us?
Ms. Lafleur: I am not.
The Chair: Thank you for hanging in there all morning; we appreciate that. Ms. Wessels and Mr. Kendall, thank you.
Honourable senators, we are now dealing with Part 19 of Bill C-9, which comprises 24 parts in total. We are moving along very nicely.
I am pleased to welcome this morning, from Natural Resources Canada, Jay Khosla, Director General, Strategic Policy and Planning, Major Projects Management Office; and Philip Jennings, Assistant Deputy Minister, Major Projects Management Office. From the National Energy Board, we have Robert Steedman, Professional Leader, Environment. From the Canadian Nuclear Safety Commission, we have Jason K. Cameron, Director General, Strategic Planning Directorate, Regulatory Affairs Branch. Thank you all for being here to help us with this part.
I understand Mr. Jennings will give us an overview, and then we will ask each of you to tell us what the impact and the objectives are.
Philip Jennings, Assistant Deputy Minister, Major Projects Management Office, Natural Resources Canada: Thank you for the opportunity to be here to talk about clauses 2149, 2150 and 2151. We will give you the overview, which is related to the creation of participant funding programs for the National Energy Board and the Canadian Nuclear Safety Commission, CNSC.
The amendments proposed in clauses 2149 and 2150 provide the authority in the National Energy Board Act and the Nuclear Safety and Control Act to enable the National Energy Board and the Canadian Nuclear Safety Commission respectively to establish participant funding programs. These programs will facilitate the participation of the public, including Aboriginal groups, in hearings related to large and major energy projects.
Participant funding is considered a best practice for public engagement in hearings and is currently provided for in panel reviews and comprehensive studies under the Canadian Environmental Assessment Act. In addition, most provincial public hearing processes provide some level of participant funding.
[Translation]
The proposed amendments to the jobs and economic growth act are in keeping with the government's commitments in the Speech from the Throne to offer improved environmental protection and greater certainty to industry in terms of project reviews.
[English]
It is important to emphasize that the creation of these programs will be cost-neutral for the Government of Canada, as funds will be recovered from the regulated industry. The amendments under clauses 2150(2) and 2151 reflect this cost-recovery principle for project reviews under the Nuclear Safety and Control Act.
In conclusion, these amendments will allow the Canadian public and Aboriginal peoples to have a more meaningful role in the review of large and major resource projects. The amendments will strengthen the performance of the federal regulatory framework in order to improve the competitiveness of Canada's resource industries and to improve the protection of the environment.
We are pleased to respond to any questions the committee may have.
The Chair: Will any regulations or any guidelines be generated on how much of the fee the various agencies will be able to charge the larger companies involved?
Mr. Jennings: The funding programs will be modelled after what currently exists under the Canadian Environmental Assessment Act, the program established by the Canadian Environmental Assessment Agency. The fees charged depend on how large the project is and how many groups are involved. For instance, a megaproject such as the proposed northern gateway project, which is a linear project involving over 40 First Nations, has many public interests. Based on what is provided at this point, it would be in the range of $3 million for participation. For other projects that are local and have a limited public interest in participation, you can see it being limited to $50,000. It really depends on the type of project, but it is modelled to ensure a moderate amount of funding is available for people to participate in these processes. The funding would cover travel and access to information that has a cost associated with it, and, for First Nations, it could involve some honoraria for participating.
The Chair: Would room and board and lawyers' fees and accountants' fees be covered if someone wanted to intervene and needed some expertise and advice?
Mr. Jennings: It is a moderate program in terms of what is available. People can apply for those things, but a limited amount of funding would be available. Obviously some expertise could be accessed, but it would not extend to having one participant have access to $1 million.
The Chair: That is what I am looking for. This looks like a blank cheque. I am not objecting to the concept, but I would like to see some limitation on this, because you can kill the goose who is laying the golden egg here. We should have some feeling for limitations.
Mr. Jennings: I will give you a sense of what is in the budget itself. The budget has allocated $4.9 million over the next two years to help put some funds into this program.
The Chair: What budget are you talking about here?
Mr. Jennings: Budget 2010.
The Chair: Can you refer us to where in Budget 2010?
Mr. Jennings: I do not know whether I have the exact reference to it. It is not in the budget bill, but it is in the budget document. I actually do not have the page number.
The Chair: We would like to see this happen, but it is not law. It refers to the budget.
Mr. Jennings: Funds are identified in the budget for this, and this bill provides for the ability of the National Energy Board and the Canadian Nuclear Safety Commission to establish programs. The source of the funds would be allocated through the budget. Once those funds are there, they can be spent by these two bodies, and the costs would be recovered from industry based on the level of activity that takes place in the coming years.
The Chair: Would you contemplate the agencies recovering this money from an industry that is making an application or participating, and would the funds then go back to the Consolidated Revenue Fund, back to the government, to replenish this $4.9 million?
Mr. Jennings: That is correct. Almost all the activities of the National Energy Board and the Canadian Nuclear Safety Commission are cost-recovered already. We are adding a new program to their portfolio, and it would follow the same principle for cost-recovery.
The Chair: The $4.9 million is an advance against the participatory program.
Mr. Jennings: That is correct.
The Chair: Will the $4.9 million be shared evenly between the two agencies?
Mr. Jennings: No, it will not. Based on our current projections of activity level, the National Energy Board would have the larger part of that allocation, $3.2 million, and the Canadian Nuclear Safety Commission would have $1.7 million.
Again, this is based on anticipated activity. As you know, a number of projects are proposed and will not necessarily proceed. If the funds are not required, they will not be requested from industry, nor would they be used by the two offices.
The Chair: The $4.9 million is over what period of time?
Mr. Jennings: It is over the next two years.
The Chair: Does the law limit the recovery activity of the two agencies to recovering only that amount and not getting more?
Mr. Jennings: They would only have access to that much at that point. They would not be able to recover anything beyond what they are allocated at the beginning of the year.
The Chair: They only have access through a loan from the government to spend that amount of money, but we are giving them a blank cheque to recover without any limit on it.
Mr. Jennings: It is up to that amount.
The Chair: Where do I find "up to that amount"?
Mr. Jennings: Those are the funds they are allocated in the budgets at the beginning of their operating year.
The Chair: I understand.
Mr. Jennings: They would have a limit on how much they can provide to participants based on that limit.
The Chair: That is until they start getting recovery money in?
Mr. Jennings: Those recovery monies all have to be provided back to the Consolidated Revenue Fund.
The Chair: Does everything they recover go back to the Consolidated Revenue Fund, not just the amount they were advanced? Where is that regulation? Where is that stipulation?
Mr. Jennings: It is under the National Energy Board Act and the Nuclear Safety and Control Act. That outlines the cost-recovery mechanism for both of those offices — how they cost-recover from industry — which helps them operate during the year with a number of activities related to staffing and so forth. This is just an additional program that has been established to allow these agencies to provide funding for people to participate in the hearing processes and recover those funds from industry. At the end of day, it is cost-neutral to the federal government and essentially provides the ability for industry through these offices to fund participation by intervenors at hearing processes.
The Chair: Thank you. You saw the line of questioning, Mr. Steedman and Mr. Cameron. Can either of you help us further regarding what you are planning to do and what the restrictions and guidelines are from your agencies?
Robert Steedman, Professional Leader, Environment, National Energy Board: The proposed participant funding program is intended to be modelled closely on the existing Canadian Environmental Assessment Agency. The participant funding program is a modest program. It has a track record of amounts associated with it, and that is the pattern that would be established here.
The details of participant funding for the different agencies would differ slightly because, for example, the National Energy Board considers environment as well as safety and economic issues, so the scope could be slightly different, but the program is intended to be modest and to help directly affected persons and non-profit organizations represent their interests at public hearings for facilities or for major energy projects. The intent is also to foster a collaborative representation of interests. There is a possibility that the public hearing process could not only be made more accessible and timely for the public but also be made more efficient through consolidated presentations, for example.
The Chair: Will you generate some guidelines along the lines of the Canadian Environmental Assessment Agency guidelines, which you indicated you intend to model?
Mr. Steedman: Yes. The terms and conditions are subject to approval by Treasury Board, of course, and then the individual agencies, in the case of the National Energy Board, would establish detailed guidelines very much along the lines of those on the Canadian Environmental Assessment Agency's website.
The Chair: They will not be regulations, but they will be guidelines that are made public?
Mr. Steedman: That is correct.
The Chair: Is it the same for the Canadian Nuclear Safety Commission, Mr. Cameron?
Jason K. Cameron, Director General, Strategic Planning Directorate, Regulatory Affairs Branch, Canadian Nuclear Safety Commission: That is correct. The Canadian Nuclear Safety Commission is Canada's nuclear watchdog. We regulate all nuclear activities and facilities in Canada. Some of those facilities do come before a public hearing of the Canadian Nuclear Safety Commission. This participant funding program is meant to augment and assist participation in those public hearing processes. We are following lockstep the process with the National Energy Board in looking at the Canadian Environmental Assessment Agency model and developing guidelines that work for our processes.
To pick up on the chair's point, an important point for this program is that it is capped. The funding for this program is capped. It is not a blank cheque. In the case of the Canadian Nuclear Safety Commission, the maximum that can be collected in the first year is $600,000, and then we are looking at a maximum of $1.1 million for a standard operating year. Perhaps Mr. Khosla can talk more about the appropriations process and the annual reference levels that go through the normal Treasury Board process and how that serves as the stopgap mechanism to ensure that those limits are not exceeded.
Jay Khosla, Director General, Strategic Policy and Planning, Major Projects Management Office, Natural Resources Canada: I do not think I need to talk much about the appropriations process. I assume the committee is well versed in it.
To pick up on what Mr. Cameron was saying, all of the guidelines, et cetera, in the implementation plans need to go before Treasury Board ministers. That is in tow and being worked out. Again, it is not a blank cheque, and guidelines will be in place.
The Chair: In these guidelines you will have a cap. Will the cap be defined so that the public will know what the cap is?
Mr. Khosla: Yes, as per the allocations that have been provided.
The Chair: You can recover through the major participants only the amount that has been allocated through the Treasury Board process.
Mr. Khosla: Yes, for the purposes of this program.
The Chair: That is helpful. Once they are approved, will the guidelines be made available to the public? Will everybody be seeing them?
Mr. Khosla: Much as they are in the case of the Canadian Environmental Assessment Agency, they are public. They will almost be modelled after those and be similar in nature.
The Chair: Do you anticipate that they will be published on your website or sent to the industry somehow?
Mr. Khosla: I do not know the entire communications process, but they will be available.
Senator Ringuette: My first question is in regard to clause 2149, the National Energy Board Act. One of your mandates is to oversee interprovincial energy issues, and that would be under the guidelines of a national energy policy. Am I right?
Mr. Steedman: The National Energy Board operates under the National Energy Board Act, and its mandate is safety, environmental protection and economic aspects of pipelines and power lines that cross boundaries, either provincial or Canada-U.S.
Senator Ringuette: Is that under the guidelines of a national energy policy?
Mr. Steedman: The National Energy Board is an independent regulatory tribunal, court of record, and it operates under the act. It could be described as a creature of statute.
Senator Ringuette: Do you take into consideration a national energy policy?
Mr. Steedman: When they make decisions on regulatory matters, the board members base their decisions on a written record that is collected, for any significant or large project, through a public process. Any evidence that would be placed before the board could form the basis of their decision, and the decision would reference that written record. Intervenors, which can include governments, can put evidence on record, and that then becomes part of the basis for a decision.
Senator Ringuette: You still have not answered my question in regard to a national energy policy.
Mr. Steedman: To answer directly, I would have to say no. The board operates based on the statutes that establish the National Energy Board and on evidence that is placed before it as an independent tribunal.
Senator Ringuette: You indicated that your mandate includes environmental assessment.
Mr. Steedman: Yes, environmental protection, and environmental assessment is one of the early steps in protecting the environment.
Senator Ringuette: How are you tied to the Canadian Environmental Assessment Act?
Mr. Steedman: Most of the National Energy Board's regulatory decisions that affect facilities, for example, trigger a federal environmental assessment to those processes. Basically, the purpose of the Canadian Environmental Assessment Act is to ensure that an environmental assessment is completed before a federal responsible authority takes a decision. All of the National Energy Board's decisions are preceded by an environmental analysis and assessment. The National Energy Board's decisions are always integrated decisions that include environmental matters. Environmental assessment is a planning step and is integrated with safety and economic and societal aspects as well. That environmental assessment is required under the Canadian Environmental Assessment Act and is undertaken often as a partnership involving the proponent and other federal regulators. The environmental assessment is completed before a regulatory decision is taken.
Senator Ringuette: You are saying that in order for your legislation and your board to kick in, you need to have an environmental assessment from the Canadian Environmental Assessment Act before you can proceed with your studies?
Mr. Steedman: The environmental assessment is conducted according to the requirements of the Canadian Environmental Assessment Act. It is done by the National Energy Board. The proponent is a major contributor to the information. Under the act, the National Energy Board is responsible to deliver the federal environmental assessment.
Senator Ringuette: While you are here, I want to go to Part 20, because of what you just indicated to us. Part 20 deals with environmental assessment. It removes environmental assessment of any kind of federally funded project, for example, even a $1 contribution from the Building Canada — Modern Infrastructure for a Strong Canada fund; the Canada Strategic Infrastructure Fund; the Budget Implementation Act of 2009; the Recreational Infrastructure Canada program; the Border Infrastructure Fund; the Canada Mortgage and Housing Corporation fund; or the Municipal Rural Infrastructure Fund.
The Chair: We will be doing Part 20 next. Are any of you remaining here for Part 20, which deals with the environmental aspects, the environmental assessment and the delegation or the transfer of authority?
Mr. Jennings: We can certainly stay here if needed.
The Chair: If Mr. Steedman in particular could stay, we would be interested in hearing from you.
Mr. Steedman: I understand the next panel could answer that in all the detail you would probably need.
Bill C-9 does not involve any change in environmental assessment responsibilities; it simply establishes the ability to offer a participant funding program. The National Energy Board has always conducted environmental assessments under the Canadian Environmental Assessment Act since it was created.
The Chair: Could you stay for the next session when we deal with the environmental side of thing?
Mr. Steedman: Of course.
The Chair: As I understand it, there is a delegation from the Canadian Environmental Assessment Agency to your National Energy Board.
Senator Ringuette: Exactly.
The Chair: It would be helpful to have not only those who had the power that is being delegated from them but also a representative of the receiver of the new power.
Mr. Steedman: It is not actually a new power. It has always existed under the Canadian Environmental Assessment Act. The participant funding is a precondition to do that to the highest possible standard, so no new powers are involved.
The Chair: We will get into that later in the next part, Part 20.
Senator Ringuette: That is why I am highlighting this question.
The Chair: Mr. Steedman has agreed to participate in Part 20, so let us try to keep our questions now to Part 19, which deals with participation by other members of the public.
Senator Ringuette: Okay. Does your mandate also include the Canadian sovereignty of energy that would be submitted to clause 2149 for public review?
Mr. Steedman: The proposed section would allow the National Energy Board to establish a participant funding program for public hearings related to major energy facilities. That would typically involve pipelines and power lines. The policy intent would be to restrict it to those kinds of physical projects where members of the public may be directly affected.
Senator Ringuette: I am supposing, and hoping, that the nuclear safety control people who are here could indicate to us their estimate of public participation in forthcoming issues in the upcoming year.
Mr. Cameron: The workload of the Canadian Nuclear Safety Commission is driven by the industries that it regulates. I can give you statistics for what we would see in a typical year. The commission operates public hearings in an open and transparent manner. They take place approximately every four to six weeks. In the course of any given year, we can have anywhere from 250 to 300 intervenors.
In terms of projections for upcoming years, we do not anticipate any serious differences from what we have seen in the past. That is the scope of the number of hearings we could have and the number of intervenors we could see in any given year.
Senator Ringuette: For instance, I read yesterday that Atomic Energy of Canada Limited, AECL, anticipates the reopening of Chalk River at the end of July. Will you be having public meetings on the safety and control of that facility?
Mr. Cameron: Yes. It has been announced that the Canadian Nuclear Safety Commission will be holding public hearings on June 28 to consider the restart of the National Research Universal, NRU, reactor at Chalk River, which is operated by AECL and which has been down for some time. That will come before a one-day hearing of the commission on June 28. Notices for this hearing were published and posted and are available on our website. They have been distributed to our intervenor community, and we would expect that hearing to occur.
The hearing is simply to consider the restart of the NRU reactor. October 2011 is the expiration date of the site licence for AECL's operations at Chalk River. We will see other AECL hearings in 2011.
Senator Callbeck: As I understand it, Part 19 gives the National Energy Board, in the Nuclear Safety and Control Act, the power to do environmental assessments, which are being done now by the Canadian Environmental Assessment Agency.
The Chair: That is Part 20. We have not gotten there yet; we are working at it.
Part 19 is the participant funding program. We are giving the commission the opportunity to raise funds from major participants and applicants to allow intervenors to participate and to give them money to participate.
Senator Callbeck: I will wait until we get to Part 20.
Senator Rompkey: As I understand it, if Newfoundland and Labrador and Quebec were to come to an agreement to develop the Lower Churchill and to wheel power through Quebec to the United States, which would involve changes to the transmission system through Quebec, you would need to have public hearings on that, and there would be a fund whereby intervenors could apply to present their case; is that right?
Mr. Steedman: Yes, there would be a hearing associated with a proposal to build an international power line.
Senator Rompkey: Similarly, if you were to revoke Quebec's licence to wheel its power to markets in the United States, if that hearing were held, there would be funding for participants to present their case as well. Is that the case?
Mr. Steedman: A hearing that involved a facility, particularly under Part III of the National Energy Board Act — that is the intent.
Senator Rompkey: Do you have any other authority with regard to those projects or that particular transmission?
Mr. Steedman: Energy export permits and certificates.
Senator Rompkey: Could you elaborate on that?
Mr. Steedman: Under Part VI of the National Energy Board Act, the board regulates imports and exports of energy. Proponents must apply to the board for a licence or an order to do that; it depends on the time frame, et cetera. Public hearings are held for those kinds of decisions as well.
Senator Rompkey: Is there a power to influence them, apart from having the hearings, or is that at the cabinet level?
Mr. Steedman: I am not sure I can answer that question. The National Energy Board would conduct a hearing for a decision that was under the National Energy Board Act, which, in that case, is primarily related to electrical exports.
Senator Rompkey: In the initial testimony, you mentioned Aboriginal people. Are there any particular provisions or consideration for Aboriginal people?
Mr. Jennings: The funding program established under the Canadian Environmental Assessment Agency does have a specific pot of money that has been set aside for Aboriginal groups to participate. The National Energy Board and the Canadian Nuclear Safety Commission would have the ability to consider such a structure. The intention of the program is for anyone who wants to intervene. We do anticipate an interest in hearings from Aboriginal groups in many parts of the country. This would increase meaningful Aboriginal participation in the hearing processes.
Senator Rompkey: There is a special allocation for Aboriginal groups. Is that right?
Mr. Jennings: The Canadian Environmental Assessment Agency has set aside a special allocation that is part of the larger fund for Aboriginal groups.
Senator Rompkey: I have many more questions, Mr. Chair, but I fear that if I went on, you would perhaps rule me out of order.
Senator Dickson: Following up on what Senator Rompkey said, my question deals with the situation in Quebec and Newfoundland. I assume an international power line exists now; am I right?
Mr. Steedman: I cannot comment knowledgeably on that. However, there are export lines in that part of Canada for sure.
Senator Dickson: Could you check the records at the National Energy Board and get back to us regarding whether that line is an international line? You know the line I am talking about.
Mr. Steedman: There is a line to export; because it crosses the border, we regulate it.
Senator Dickson: Is that an international power line, then?
Mr. Steedman: Yes. I am sorry I did not get there directly.
Senator Dickson: Is the line from Labrador to Quebec an interprovincial power line?
Mr. Steedman: It is, but it is not regulated by the National Energy Board.
Senator Dickson: Why not?
Mr. Steedman: Under the National Energy Board Act, Parliament has handled power lines a little differently than pipelines. Interprovincial power lines must elect to be federally regulated. At the moment, there are none.
Senator Dickson: Is it a decision of federal cabinet?
Mr. Steedman: It is initially a decision of the proponent to request it.
Senator Rompkey: To be clear, with a gas line, you have federal power; you can intervene, you decide. For an electricity line, the proponent has to ask.
Mr. Steedman: A hydrocarbon pipeline that crosses —
Senator Rompkey: Why is there a difference between gas and hydro?
Mr. Steedman: That was Parliament's will in the creation of the act. We administer the act.
Senator Rompkey: Yet there is a federal power. Whether it rests with you or with the cabinet, I am interested in knowing what the federal power is now, whether or not it is exercised. What is the federal power under the National Energy Act?
Mr. Steedman: In the case of an interprovincial power line, it is going to be regulated provincially unless the proponent requests that it be regulated federally.
Senator Murray: This is quite far afield, but I think the federal Parliament has the ability to intervene if, in the export of electricity, a province is discriminating in price or supplies against any other province. That is in the Constitution of 1982. I think I am right; you will correct me if not.
There is also the nuclear arm — the declaratory power, if the federal government wanted to declare the line a work for the general advantage of Canada. The declaratory power is in here somewhere in some other set of amendments.
Am I misstating or understating or overstating the case?
Mr. Steedman: I cannot comment knowledgeably on that aspect of it. Perhaps I could be more useful if we dealt with the participant funding aspect of that. If there was any kind of follow-up there, I would be happy to get back to you with that, but I cannot comment on that particular point.
Senator Dickson: I want to come back to the international power line between Labrador, Quebec and the United States. I want to make sure that I understood what you said. You said that is an international power line, correct?
Mr. Steedman: It crosses into the United States and it is regulated by the National Energy Board.
Senator Dickson: It is. That is good to know.
Mr. Steedman: I hesitated before because I do not have the name and details of that at the tip of my tongue.
Senator Dickson: I would appreciate it if you could get back to us in writing. Also, we would like to know who made that request for it to be an international power line. You said the request had been made; did you not?
Mr. Steedman: Only if it is interprovincial — only interprovincial power lines have that discretion. An international power line from Canada to the U.S. is federally regulated.
Senator Dickson: Fine.
The Chair: On behalf of honourable senators, I would like to thank the representatives of Natural Resources Canada, the National Energy Board and the Canadian Nuclear Safety Commission for their participation and for helping explain this. Mr. Steedman, we look forward to your participation when we talk to the Canadian Environmental Assessment Agency.
Honourable senators, we have seven minutes left in our time slot. I have some business I would like to talk to you about from the point of view our committee.
With your agreement, I propose that we proceed with Part 20 on Monday. We have looked at the schedule for Monday, and I think we can handle the rest of this bill from the point of view of government officials on Monday. We are meeting from 1 p.m. until 3:30 p.m. on Monday to deal with Part 9, pensions, and Part 24, Employment Insurance. From 6 p.m. until 8 p.m. we will deal with Part 15, Canada Post, which we already started and will finish, and Part 20, the environmental assessment.
Believe it or not, honourable senators, our first run through this bill will be finished following Part 20. On Tuesday morning, we would normally have a break between doing the first part of government officials and then starting with the outside panels. We will not be quite as free in the time that we have available for each line of questioning, because the panels will be for a defined period of time. We are now working on the panels. They will hopefully start on Tuesday. We are not waiting a week.
Senator Murray: For clarification, is it safe to assume, therefore, that we will meet on June 21, 22 and 23, which I think are scheduled, and then we will be back on June 28, 29 and 30 also?
The Chair: Correct.
Senator Murray: Will we also then be back for July 5, 6 and 7?
The Chair: We can do whole days that week because there are no other activities intervening.
Senator Murray: What do you mean by that? Will the Senate not be sitting?
The Chair: I mean that some of the timing done thus far has taken into consideration other committees that are still sitting.
Senator Murray: There will be no committees, then?
The Chair: My understanding is there will be no other committees.
Senator Murray: Will the Senate be sitting?
The Chair: That is not my choice. We heard Senator Comeau saying that while we are sitting, the Senate will be sitting, but that is all I have heard.
Senator Murray: We are therefore talking about July 5, 6 and 7, or 6, 7 and 8, for sure?
The Chair: Yes.
Senator Murray: Okay.
The Chair: In addition to Bill C-9, we have two supply bills that have to be done by June 30. That is obviously the government priority. Supply to keep them going to generate more of these bills, like Bill C-9, is a priority over this. We will want to ensure they are properly funded to continue to do that good work.
We have a report that forms our study on one of those bills, which is Supplementary Estimates (A). That report has been circulated. Has it been sent around only to the steering committee? When will it go to all the members of the committee?
Adam Thompson, Clerk of the Committee: As soon as you are able to sign off on the proposed changes.
The Chair: Sorry, I had not been briefed on this. There are some changes to it. That could take weeks. When we have a chance to solve this, we will get this report around to you. Then I hope — only hope — we will quickly adopt the report, and then it has to be filed, debated and adopted in the Senate before the supply bills are adopted.
Those are other activities that we must handle in the next two weeks. Is there anything further, Mr. Deputy Chair?
Senator Gerstein: No, sir.
The Chair: Is there anything further from anyone in the committee? Seeing nothing, we will adjourn until Monday at one o'clock.
(The committee adjourned.)