Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 46 - Evidence - October 24, 2018
OTTAWA, Wednesday, October 24, 2018
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:15 p.m. to examine and report on issues pertaining to the management of systemic risk in the financial system, domestically and internationally.
Senator Douglas Black (Chair) in the chair.
The Chair: Good afternoon and welcome, colleagues and members of the general public who are following today’s proceedings of the Standing Senate Committee on Banking, Trade and Commerce, either here in the room or listening via the web.
We’re under way right on time. A couple of our colleagues will be coming, but we did want to get under way promptly out of respect for the contributions that you will make this afternoon.
My name is Doug Black; I’m a senator from Alberta and chair of the committee. I’ll ask my colleagues to introduce themselves.
Senator Duffy: Mike Duffy, Prince Edward Island.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Tannas: Scott Tannas, Alberta.
Senator Tkachuk: David Tkachuk, Saskatchewan.
The Chair: And, of course, we are ably assisted by our clerk and our analysts at all times.
On October 17, 2017, the Standing Senate Committee on Banking, Trade and Commerce was authorized to conduct a study on issues pertaining to the management of systemic risk in the financial system domestically and internationally. Given it has been 10 years since the global financial crisis, the committee is interested in learning about the measures that have been implemented since that time to manage systemic risk in the financial sector and the efficiency of these measures. In addition, we are interested in your comments with respect to risks you think perhaps we are not in a position to respond to as fully as we would like to, because we are conscious we have a table of experts with us today.
We have with us, from the Canadian Bankers Association, Darren Hannah, Vice President, Finance, Risk and Prudential Policy; from the Royal Bank of Canada we have Jason Drysdale, Executive Vice President, Retail and Commercial Risk; from the TD Bank Group, Kent Andrews, Senior Vice President, Regulatory Risk and Risk Capital Assessment; and from the Desjardins Group we have Antoine Avril, Vice President, Risk, Credit Granting and Special Loans.
I would say that we are extremely appreciative that you are here today because this is an issue that we need to understand, but also that Canadians need to understand, the risks to our financial system. We’re counting on you to help enlighten us on this subject.
I would ask that you all proceed with your opening remarks and then senators will have questions. I thought, unless you have a different plan, that we’d start, in no particular order, with the Canadian Bankers Association, followed by the Royal Bank of Canada, TD and wrap up with Desjardins Group.
Darren Hannah, Vice President, Finance, Risk and Prudential Policy, Canadian Bankers Association: Good afternoon, and thank you for the opportunity to come here today to participate in this committee’s important study on systemic risk.
The financial crisis was an incredible demonstration of the strength and skill of the Canadian banking system, both in the way that banks are managed and the merits of Canada’s principles-based regulatory regime. Despite very challenging financial market conditions that saw numerous banks internationally fail or need equity injections, no Canadians banks failed and none needed to be bailed out. Canadian banks increased the amount of credit authorized to small- and medium-sized businesses each and every quarter of the financial crisis, with authorized business credit for SMEs growing 7 per cent from the beginning of 2007 until the end of 2009.
Since the financial crisis, a great deal of work has been done internationally and domestically to make financial institutions stronger and more resilient to financial stress events. As a result, financial institutions are now better capitalized and more liquid than they would have been 10 years ago. Complementing measures to increase capital have been standards designed to ensure Canadian banks have sufficient liquid assets to meet their business obligations during times of financial stress.
Canadian banks, which were already strong and stable before and through the financial crisis, are now holding even more and better capital than before and have bolstered their resilience even further by holding larger amounts of liquid assets.
One of the lessons that regulators took from the financial crisis was that particular attention needed to be paid to the largest and most interconnected financial institutions, and that ensuring their strength and stability was particularly important given their role in national and international financial systems.
This led regulators to create new designations for large interconnected institutions. Those banks that are the largest and interconnected internationally are referred to as global systemically important banks, or G-SIBs. Designation as a G-SIB brings with it an enhanced set of regulatory requirements to increase financial strength and resilience, as well as enhanced regulatory reporting requirements.
National regulators were also encouraged to designate domestic systemically important banks, or D-SIBs, at the national level. In Canada, OSFI treats Canadian D-SIBs as G-SIBs, requiring them to comply with the same enhanced requirements and subjecting them to more intense oversight.
In addition to implementing measures to improve the financial strength of institutions, processes have been put in place to give regulators greater insight into how large banks would manage through a period of financial turbulence.
The Chair: Excuse me, can you slow down a little bit? We want to catch every word you are saying in both languages.
Mr. Hannah: Regulators have put in place requirements for large financial institutions to develop plans on how they will return to financial health if they were to find themselves in a stress situation. These plans were developed in collaboration with CDIC and reviewed by them on an annual basis to ensure that they are evergreen.
OSFI and the Bank of Canada require D-SIBs to undertake biennial macroeconomic stress tests that simulate an economic shock to measure how a bank’s financial structure would stand up to such an event.
Complementing the resolution planning requirements of banks, regulators have been given new tools to help them resolve a financial institution that is in financial trouble, without having to resort to the ultimate step of closing or liquidating it.
The government formally designated CDIC as the resolution authority for banks in Canada. Furthermore, the Bank of Canada has been designated as the resolution authority for financial market infrastructures, which are the payments clearing settlement systems that underpin the entire financial system.
While much has been done to increase financial strength and stability — and that is certainly an important goal — we need to be conscious of the importance of balancing these measures with the need for economic growth. Requiring financial institutions to hold excessive amounts of capital to backstop their loan book can deter or slow growth in lending, which dampens economic growth and business formation.
Likewise, requiring excessive amounts of liquidity deters banks from putting funds into economically productive uses, such as personal and commercial lending. While this tradeoff has been less visible in Canada because of the strength of the banking system, policymakers from regions with financially weaker banking systems, such as some in western Europe, have voiced concerns that further capital measures will materially dampen economic growth. Balance and vigilance are key.
We also need to be conscious to ensure regulation does not inadvertently cause risk to migrate from the regulated sector to the unregulated shadow banking sector. The intent of post-crisis measures was to reduce overall risk in the system, and in large part they have done that, but we need to be monitoring for signs that risk is migrating from the regulated space to unregulated lenders and service providers, which would be counterproductive.
Thank you for your time and I’m happy to answer your questions.
The Chair: Thank you, Mr. Hannah.
Jason Drysdale, Executive Vice President, Retail and Commercial Risk, Royal Bank of Canada: I’m Jason Drysdale. Prior to my position with Royal Bank of Canada, I was head of enterprise risk responsible for assessing the financial resiliency of RBC, including areas like stress testing, capital and liquidity. I’m pleased to be here today and look forward to your questions.
RBC has been meeting the needs of clients in Canada for over 150 years. We have a diversified business model with operations in banking, securities, wealth management, insurance, and investor and treasury services. The bulk of our operations are in Canada with more than 1,000 branches in communities across the country. We employ more than 55,000 people in Canada whose overriding goal — through both our business operations and charitable work — is to help clients thrive and communities prosper.
Outside of Canada, we have a diversified global footprint with key operations in countries like the U.S.,U.K., Europe and Australia.
We have found that our diversified approach, from both the sectoral and geographic perspective, has been an important component to our success.
In March 2013, RBC was designated by OSFI as a domestic systemically important bank, or D-SIB, along with TD, CIBC, BMO, Bank of Nova Scotia and National Bank. As a D-SIB, we are subject to a capital surcharge, enhanced supervision, recovery and resolution planning, and increased disclosure requirements. These requirements are generally consistent with the framework put in place by international regulators, like the Financial Stability Board, for globally systemically important banks, or G-SIBs.
On November 21, 2017, RBC was formally added to the list of G-SIB banks. Given our previous designation by OSFI as a D-SIB, we were well positioned to meet the obligations associated with this designation.
With the recent 10-year anniversary the financial crisis, there has been an opportunity to reflect on the experiences and lessons learned. As many commentators have noted, Canada survived the financial crisis more successfully than many other jurisdictions. Several factors have been identified in contributing to this success, including a strong, national legislative framework for banks; the integrated, well coordinated and highly consultative approach to regulatory oversight in Canada; the structure and oversight of our housing market; and Canada’s economic and fiscal position at the time.
Equally important, however, were more intangible elements like people and culture. Controls are important, but our approach to risk is guided by our culture and commitment to our values. All of our employees have a responsibility for both doing things right and, more importantly, doing the right things. Acting with integrity contributes to our strength and stability.
A conservative and adaptable approach to systemic risk management by both regulators and banks proved effective in proactively identifying emerging risk. This approach compares favourably to the reliance in some other jurisdictions on a more prescriptive, check-the-box approach to regulatory compliance. In the aftermath of the financial crisis, an already strong approach to risk management has been further strengthened. The level and quality of capital held by banks have increased significantly. In addition, new capital buffers and liquidity obligations have been added, stress testing has improved, and robust new recovery and resolution frameworks have been implemented.
Beyond the changes focused on the crisis and its aftermath, regulators and banks have also taken steps to avoid taking a rear-view mirror approach to addressing systemic risks. Systemic risks are not a static concept. Challenges will continue to evolve and steps must be taken in order to avoid complacency. The nature of banking is ever-changing as technological developments accelerate, new players emerge and consumer expectations increase. As banks, we are sensitive to these changes and are committing significant resources to respond, including substantial investments in new technological modalities for understanding and meeting our client needs and monitoring risks.
Regulators are taking a similar approach. Within Canada, extensive new measures have either been introduced or are in the process of being implemented in areas like improvements to mortgage financing rules, modernization of the payments system, and new frameworks to address cybersecurity risks.
OSFI and the Bank of Canada are also proactive in monitoring developments in areas like technological advances and changes in the structure to the financial system to ensure they are in a position to respond. Similar efforts are under way by international regulators, as well as both the Financial Stability Board and the Bank for International Settlements, who continue to identify, monitor and assess risks as they evolve and promote integrated and consistent responses whenever possible.
In closing, I would like to note that both RBC and Canada as a whole have had a positive record in managing and responding to the systemic risks. While this is in large measure due to the specific nature of the frameworks and processes put in place, it’s also due to the people and cultures involved. As systemic risks continue to evolve, these core features of the Canadian framework will provide an important foundation to ensure we can appropriately adapt and respond.
Thank you for your time. I look forward to your questions.
The Chair: Thank you very much.
Kent Andrews, Senior Vice President, Regulatory Risk and Risk Capital Assessment, TD Bank Group: Thank you for the opportunity to appear before the committee on this very important topic. In my current role, I oversee the relationship between TD Bank and our Canadian and non-U.S. prudential regulators. Prior to joining TD in 2011, I worked in Basel, Switzerland, as an adviser to the Financial Stability Board, and prior to that I was the head of large bank supervision at OSFI, before and during the crisis.
The earlier comments from the CBA provide a good outline of some of the key measures deployed by both global and domestic policy-makers to reduce the systemic risk in the financial system following the crisis. In the years leading up to the financial crisis, the banking system became more global and more interconnected. The degree to which this evolution created greater systemic risk in the financial system was under-appreciated by global policy-makers and by many domestic financial-sector participants.
The crisis was a wake-up call to the existence of contagion risk. A primary response to this by policy-makers was higher and better-quality minimum capital standards. Prior to the crisis, Canadian banks were more appropriately capitalized versus their global peers, and this became a primary source of confidence in our system.
One very important area of focus for the Financial Stability Board and global policy-makers post-crisis is the risk posed by banking activities that are moving into the shadow banking sector. In November 2010, the FSB prepared a paper covering lessons learned for supervisors of systemically important banks. In that paper, they caution that having capital levels that are excessive could drive risk to less regulated entities, which might pose new risks to the system instead of eliminating them.
Since that paper was published, both the Bank of Canada and the Financial Stability Board have developed monitoring programs covering the shadow banking sector.
The enhancements made globally and in Canada to expectations around leverage and liquidity have further added to the strength of the global financial system, which is underpinned by a stronger capital regime. For perspective, I would like to outline that in OSFI’s mandate, they say that they should act to protect the rights and interests of depositors, policy-makers, financial institution creditors and pension plan beneficiaries, while having due regard for the need to allow financial institutions compete effectively and to take reasonable risks.
I believe that their work in addressing the systemic risks in the banking system has struck the right balance between safe and sound financial system and the need for banks to take risks within their respective stated risk appetites.
I will conclude by observing that I think the systemic risks revealed by the crisis have been well mitigated by banks and policy-makers, largely through heightened standards and a better understanding of financial contagion risk. Now, the task is to focus on the ongoing good work being done jointly by governments, infrastructure providers and financial institutions covering systemic risks which may have become more prominent recently, including the very material risk presented by cybercrime.
Antoine Avril, Vice President, Risk, Credit Granting and Special Loans, Desjardins Group: Honourable senators, on behalf of Desjardins Group, I want to thank you for inviting me today to appear before your committee. My name is Antoine Avril, and I’m the Vice President of Risk, Credit Granting and Special Loans with Desjardins Group.
First, let me briefly introduce Desjardins Group. Today, Desjardins is the leading cooperative financial group in Canada and the sixth largest in the world, with assets of over $290 billion and seven million members and clients. It’s recognized as one of the safest deposit-taking institutions in the world with one of the best capitalization ratios. Through our caisses, service centres, virtual platforms and branches across Canada, Desjardins Group provides a full range of financial services, from insurance to banking.
We’ll address the subject in three main themes that shape Desjardins’ perspective.
First, geopolitical stability is essential for a healthy financial system. Recently, multilateral approaches based on international trade rules have been called into question. In our view, the rise of protectionism creates a climate of insecurity that can have a significant impact on the entire financial system. The complexity of these multilateral agreements makes it extremely difficult at this time to predict, assess or measure the risks associated with these changes. The renewal of NAFTA through the implementation of the United States-Mexico-Canada Agreement will partially ease the burden of this uncertainty. However this new treaty will have a major impact, in particular on the agricultural sector and its funding ecosystem. We think that the government must act quickly to implement the proper support and compensation measures.
Second, asset valuations are at record highs. Economic indicators have improved significantly since the financial crisis 10 years ago. Equity and bond markets have performed at record levels. This exuberance calls for reflection on issues such as the low returns required in relation to the risks of these assets. In Canada, there has also been a great deal of discussion on the mortgage market and household debt. With this in mind, we welcome the measures implemented to slow down speculative practices. However, our presence across Canada calls for a reminder that each market is specific and that the measures required in Vancouver or Toronto aren’t necessarily adapted to the urban or rural realities in Quebec. Since the financial crisis 10 years ago, we’ve been operating in an environment of historically low interest rates. We believe that a gradual and cautious increase in interest rates is still desirable. As recently as today, we’ve seen the Bank of Canada move in this direction. However, an excessively fast increase in the rates, or even a shock, could negatively affect the economy, given the current debt rates.
Third, the funding and technology ecosystem is changing extremely quickly and is creating new risks that are still difficult to identify. The new technology is giving the financial sector the opportunity to redefine itself and provide better accessibility and services to its clients, or in our case, to our members. However, the emergence of new technological players and the trend toward open banking platforms are revealing new vulnerabilities. Cybersecurity risks, whether they involve data confidentiality or service availability, are a source of concern. We must ensure the integrity of the value chain and ensure that each financial system stakeholder is properly monitored and regulated.
Since the financial crisis, how have we been addressing these risks at Desjardins? Desjardins was designated as a domestic systemically important financial institution in 2013. This status results in additional capitalization and disclosure requirements and enhanced supervision by our regulatory authorities.
At Desjardins, hundreds of risk management professionals work on a daily basis to monitor, quantify and mitigate all the risks that we face. The management committee and board of directors have adopted an integrated risk management framework that serves as a basis for our ongoing reporting. We monitor existing and emerging risk factors. We’re organized to monitor the risk factors by business line, but also on a consolidated basis. This gives us an overview of the risks that we face and the benefits of diversifying our business model. We conduct sensitivity analyses and stress tests on a regular basis while taking into account scenarios based on the main risk factors. The effects of these tests are measured according to several indicators of profitability, capital adequacy and liquidity related to the risk appetite framework. We report these results to Desjardins Group’s board of directors and to our regulatory authorities.
Lastly, we always ensure that we have a solid capitalization base to handle these unforeseen events. All these approaches are reflected in our credit ratings and have earned Desjardins Group fourth place in the “Safest Banks in North America” category, according to Global Finance.
In closing, I wish to thank you again, Mr. Chairman and senators, for inviting me to testify today before you. I look forward to answering questions.
The Chair: Thank you very much, Mr. Avril. That was also very helpful.
We will now move to questions, and we’ll have a conversation where you can help us understand the challenges we are facing.
Senator Tkachuk: Welcome, gentlemen, and thanks very much for your presentations. We hear stories about what happens in Europe. Greece was a big problem, and now we are reading stories about Italy and its financial situation.
I don’t know what the exposure is of Canadian banks to the European Union, but it seems to me that when they are talking about bank failures in Italy that is a serious problem. Do you see risk more in your exposure in foreign countries, or do you see risk more in a breach in the financial system by criminal enterprises or totalitarian regimes? Could you maybe comment on both of those as to how you deal with them?
I was reading a background paper that we were presented with before you got here. It says most jurisdictions, including Canada, are compliant with Basel II standards. The EU, India, Indonesia, Korea, Saudi Arabia and the United States are largely compliant; and the European Union is materially non-compliant with the risk-based capital requirements.
I’m not sure what that means, so I’m going to ask you that.
Mr. Hannah: You asked about, in effect, relative concerns of emerging risks. I think what you have heard from a number of the panellists around here is cyber-risk, which you alluded to. It is at the top of everyone’s mind and it is certainly an issue that institutions spend a considerable amount of resources on. It’s an issue that institutions spend a considerable amount of time on, and it’s something that is a growing focus going forward.
I’ll ask my colleagues if they want to comment on anything about the international aspects or about cyber-risk.
Mr. Drysdale: I can comment about the Italian question.
What I would say is since the financial crisis, through a number of means, banks’ direct exposure to other banks, in a global sense, is greatly reduced. This is through the use of clearing houses, collateral and other ways of disconnecting banks with one another.
I think of greater concern for any of the globally active banks wouldn’t be so much the direct failure of a bank in Italy, but rather what impact that might have on Italy and then ultimately Europe as a whole and contagion to the broader economy where banks might have loan books to commercial and corporate entities in Europe.
I don’t think any of the Canadian banks would have exposure to Europe of such a scale that would present any sort of systemic risk to the Canadian banking system.
Mr. Andrews: It’s an interesting comparison when you think about some of the risks that we are taking internationally versus the cyber-risk. When we are taking risks internationally, those are risks that we actively take and we do that within limits that we set by country and region. That is a risk we are taking consciously and we are monitoring our exposure against those levels of acceptable risk in our institutions.
Cybercrime is different. It’s a risk that actively conspires against you. It is much harder to be able to manage that risk. When you think about a risk management regime, it’s far more difficult to deal with something like cybercrime than it is to deal with active risks you are taking in traditional areas.
Mr. Avril: If I may just add to the points that my colleagues have made, I would claim that the risk in Italy is easier to price in the market, whereas cyber-risk is very difficult to price or we haven’t found a way to price it. It’s therefore harder to manage in that way.
The Chair: I just want to share with our panellists that this committee has done extensive work on cybersecurity and cyber-risk and our report on these matters will be released this coming Monday in Fredericton, New Brunswick. So, standby; it’s something to really look forward to. It will be available Monday and you can see whether you think we got it right or not. I’m sure you will let us know.
Senator C. Deacon: Thank you, chair. I think it’s unfortunate that we are going to miss out on some of the information today. I think this is what we call a “manel” on both sides. We are not benefiting from gender diversity, which is central to making good decisions and greater profitability the data show. It’s something for us all to pay attention to.
I am thinking about a comment made by our finance minister in a recent presentation to this committee about the need to balance the risk of illicit use of technology and innovative use of technology. If we are not balancing that very carefully, we miss out on future economic growth in this country and really economic engagement. Thinking about blockchain cyberassets, blockchain is an area where we are slow to move and risk having a lot of leading developers and business leaving the country if we don’t take a leadership role from a regulatory standpoint and get some of the strongest regulations in the world.
I wonder how you are balancing those issues in your institutions or in the association itself, because there is tremendous global opportunity when we are grabbing hold of these technologies that are changing how supply chains are being managed. Walmart is adopting blockchain to manage their entire supply chain, I think, in vegetables as of January. Transaction processing is affected significantly.
I’m wondering how you are managing those risks in a way that you are allowing innovation to continue, not just within your organization, but within your customers’ and the organizations you work with more broadly.
Mr. Hannah: With respect to balancing the regulatory environment and putting an appropriate regulatory environment in place, we are pleased that the federal government is moving forward to create a regulatory environment for what are referred to as national retail payment systems, nonbank payment services providers. We think that’s a pro-innovation step because it creates a regulatory environment that people can trust and that consumers can have confidence in. We think that’s a positive step in that direction.
On a related note, the Bank Act was recently amended. It included measures to give banks additional flexibility in investing in fintech activities and technology activities to help foster that innovation, and create and foster the kind of partnerships that are important in this area to allow innovation and to help institutions accelerate that process.
I don’t know if my colleagues want to add anything.
Mr. Drysdale: I think it’s important to draw a distinction between the technology that’s emerged underpinning things like blockchain and Ethereum with the assets that can be created with that technology, and we look at them separately. We are investing in blockchain. We are doing quite a bit of research on it both internally, as well as in industry consortiums. We do think it has the promise of improving things like security settlements. So, we are quite involved in that.
When it comes to the assets that technology has allowed the creation of, things like bitcoin, we are much more reserved and have a number of concerns that haven’t been fully addressed. We are not active in the cryptocurrency space, if you will, with concerns around whether or not it’s good value for the clients, transparency in terms of the source of funds and how funds are moved through the system, but we do have a standing committee that is looking at these things and staying close to it as the markets develop. At a point in time when we think the risks have been suitably addressed, we will look at potential business opportunities in that space.
Mr. Andrews: I would say this is not a new problem for banks. We have always had to balance innovation and risk taking. I think what is new is that the innovation is coming at us faster than ever. It’s more dramatic than ever. I think what we have seen in most Canadian financial institutions is that activity has increased; so has the involvement of the risk management governance and oversight regimes.
You are seeing risk management coming to the table far more often than you would in the past because they need to be a partner in these decisions. As time has moved on, that’s a development that is positive for the banks.
Mr. Avril: I would agree with my colleagues. We also invest in technology. We see a number of times that we would rather be partnering with technology companies, in addition to having them only as service providers, in order to make sure that we have interests aligned.
I would agree that due diligence is increasingly important. It’s an area where banks and financial institutions do cooperate in sharing data and information around cyber-events and cybersecurity. That’s very positive and should continue.
Senator C. Deacon: Looking at ways that you are cooperating outside of the banking industry, given that you are at the core of every industry in this country — and there is a blockchain technology coalition, I know, in Canada trying to get industry to work together with governments to set good public policy — what are your efforts outside of the financial sector to make sure you are part of something that will be really good for Canada, not just important for the banking sector? Because you are so central to our economy.
Mr. Hannah: If I can give an example. Banks were integral founding partners in the Canadian cyber-threat exchange that created a national hub for cybersecurity threat information dissemination and investigation.
Senator Wetston: Obviously, we are going to see officials. They have more of a grasp on some of these issues, but I want to take you back to the Financial Stability Board 10 years ago in the face of the financial crisis. I want to talk about systemic risk within our economy and globally. The purpose of this is to get a handle on where Canada is with respect to FSB reforms and what are the emerging systemic risk issues that you have identified not only for Canada but globally.
The reason I ask you that is we know in the last financial crisis only 10 years ago, and everybody has been talking and writing about it, we did not survive the economic issues associated with the financial crisis. We suffered economically, while we did not necessarily directly get engaged by the financial crisis as other countries had.
We have Dodd-Frank Volcker. We have a lot of initiatives here. Do you have a sense among you as to what we have accomplished with respect to the FSB requirements in Canada? You mentioned capital, resolution regimes and stress testing, et cetera. The Royal Bank is now a G-SIB. You others are D-SIBs. We understand that environment.
Can you explore that with the committee? Because I think it would be important to understand where you think we are at and where you think we are going and what we need to identify in the future with respect to systemic risk.
Mr. Hannah: I’ll start at a general level and others can add in.
What we have done is set a foundation. We have set a core set of standards that have brought much of the world up to where we were, which is a good thing.
It’s given us greater comfort, as a nation and as institutions within a nation, that much of the rest of the world has now put in place measures to improve their stability and strength and to make sure the counterparties that institutions work with are well capitalized, have sufficient liquidity, and have thought through issues around resolution and recovery.
In that sense, what it has done is created a much better foundation that everyone can work from. I don’t know if other people want to add to that.
Mr. Drysdale: I would say over the last 10 years Canadian banks, and I would argue most global banks, are far better prepared for the next crisis. There have been improvements in the amount and quality of capital, liquidity managements and investments in the ability to aggregate and quickly understand exposures and liquidity positions on a near realtime basis. Those were capabilities no one had 10 years ago.
The capabilities of the risk management departments within banks have expanded greatly and the capabilities are much stronger. One of the challenges in the crisis — and I’m not saying Canadian banks — but the most vulnerable banks that suffered in the crisis, they didn’t know what their positions were. Today banks are far better equipped to understand that.
We are also far better prepared to understand and have analyzed what our options are should we get into trouble. The work around recovery and resolution planning, understanding at what point we would trigger a capital raise because we are concerned, or building liquidity buffers. What are our core and non-core businesses and what are our options should we find ourselves in trouble? That contingency planning is much stronger than before.
As I mentioned earlier, the work around decoupling a little bit of the financial intermediaries through central clearing and those sorts of things has lessened the contagion risk. You could argue it’s concentrated risk in clearinghouses — that may be a different discussion — but it’s loosened the transmission mechanisms we saw within the financial crisis.
Going forward from here, I would say, as it relates to the classic forms of risks that banks deal with — market, credit and liquidity risks — we have come to a point where these are mature and well-developed capabilities from the bank.
Our focus, at RBC and in the industry, is increasingly looking to nontraditional and nonfinancial sources of risk. We have talked about cyber here a couple times. As technology develops, what new risks does that bring into the system? How well have we thought about the mechanisms to protect our institutions from that? The next 10 years of risk management is around nonfinancial risks.
Mr. Andrews: Canada has always been a leader in adopting the suggestions that have come out of the Basel Committee or the Financial Stability Board. We are one of the first countries to adopt Basel III when it came out.
We talked about capital. If you look at the capital ratios, go back from 2013 to today, we were around 9 per cent capital ratio. Today we are up around 11 per cent. Before the crisis, for the minimum capital, in Canada, we had a 7 regime and a 10 regime; so tier 1 and tier 2 capital. Seven per cent was the minimum tier 1 capital. Globally that minimum was 4.5 per cent. Under the Basel III regime, they have moved that 4.5 per cent up to 7 per cent. As Darren said, they are catching up to where the Canadian system was even pre-crisis.
Mr. Avril: I would agree with the comments made. The way that we manage systemic risk is through being prepared, and that involves scenario analysis, stress testing, and we have seen, over the last 10 years, that that got very sophisticated.
The other point is diversification; so making sure that we have diversified business models, be it, in our case, through banking and insurance, which are not correlated. These are probably the two main issues leading back to making sure you have enough capital to address these risks.
Mr. Andrews: If I could just add one more point, because I think it is important. We think about the FSB measures and the measures coming out of Basel and meeting the capital, leverage and liquidity numbers. What really makes our system functional is the relationship we have with our regulators and the principles-based regulation. That is really the thing that underpins it. That was solid before and continues to be solid today.
Senator Wetston: I’m trying to focus on this because I certainly understand what the banking system has done, but capital markets consist of more than banking. You are all involved in the securities industry as well. One of the big challenges that we had is being able to manage the risks associated with the securities along with the issues associated with banking.
You are regulated with OSFI, but not only OSFI. I have a couple of things here.
At some point, Mr. Chair, it would be helpful to get their views or the government’s views on what’s happening south of the border with Dodd-Frank and Volcker.
I’m going to assume none of you are doing any proprietary trading any longer. That’s my assumption. I might be wrong. If you are, then I’m out to lunch. I’ll just put it on the record and see what happens — just because of Volcker, other such legislation and the issues that arose post-financial crisis. I put that on for the sake of it.
We know and understand that the biggest challenge we had was to put framework in place for derivative regulation, both globally and here. It’s taken us a while. Most of that work had to be put in place by securities regulators, not by the federal authorities, for obvious reasons. They didn’t have the authority to regulate derivatives. We have oversight on prudential grounds at OSFI, but the regulatory framework, as you know, had to be put in place from the point of view of regulators.
We don’t have CCPs in Canada so the issue we had to develop is like that in London.
We have clear derivatives — and I understand what you were talking about when you talked about resolution issues — and the FSB has recognized that; it’s one of their priority items. They just met in Ottawa this week. I’m not sure if you’ve looked at the report they just put out, but this is one the areas.
I’m trying to get a sense of what is happening in our markets. We all recognize derivative trading is trillions of dollars in nominal amounts with respect to derivatives. What does the over-the-counter derivative industry look like to you today, versus that which clears through CCPs either south of the border or in London? Do you have any sense of that?
Mr. Drysdale: By way of background, I spent a number of years, prior to enterprise risk, working in market risk. I was actually in the trading room through the financial crisis, so I appreciate your questions.
The derivatives market has changed quite a bit since 2008. The prevalence of exotic and credit-driven derivatives has come down significantly. They were one of the main roots of transmission. So, the trillions of dollars of notional, much of that is in very simple interest rate and foreign exchange contracts.
Typically, in the derivatives portfolio right now, you would see a number of contracts with end users. They could be corporates or funds who are looking for currency hedges or maturity transformation on assets or liabilities. A lot of that volume would be the market risk management of the hedges of those client-driven assets. Those are the ones you see now being standardized and cleared through the central clearinghouses. That active market risk management, where there can be a lot of ins and outs, with the derivatives portfolio, they accumulate. That’s why you see the notionals that are so big.
Unlike a securities, where you buy and sell it, with the derivative you enter into a contract one way and an offsetting contract the other way, which doubles the notional. That’s part of why you see it. But, if you look at the net risks that banks in the system have now, they are much smaller than the notional amounts would imply.
The Chair: Are there any other comments on that?
Senator Tannas: You mentioned non-financial risks. I’d like to talk a little about catastrophic earthquakes, specifically either in Montreal where there is virtually no insurance being taken up by consumers, which I guess then means the government is on the hook and banks are on the hook to the extent that people are underwater with their homes being rubble and owing money.
It’s interesting. I don’t know if you’ve seen it, but Nicholas Le Pan, former OSFI superintendent, wrote an interesting paper on this as a fellow of the C.D. Howe Institute. He talked about how an event of a certain size in either one of those jurisdictions would wipe out the insurance industry and could potentially move a contagion into the banks.
Is this on your radar screen? I’m interested to know what Mr. Avril thinks, because of the concentration of market share he would have in a site like Montreal.
Mr. Avril: Sure. As you may know, we at Desjardins have a sizeable property casualty insurance business as well. We are number three in Canada, so it is an issue we monitor closely, in Montreal, correct, but also in Vancouver and along the fault lines out West. It is very much on our radar.
When it comes to catastrophic risks, we run stress testing, as well, and we have reinsurance treaties, which would cover us well, from our perspective.
There is also a factor of diversification, which means that an earthquake is not necessarily correlated to other stresses in banking, for example. It’s not correlated to the general state of the economy. So, while a major earthquake would definitely have an impact on the economy, we think there is some diversification there.
It is very much taken into account. We run scenarios; we have run different scenarios this year on earthquakes hitting our portfolios. This is how we assess the necessary levels of capital that we retain and also our reinsurance programs.
Senator Tannas: Do you have reinsurance at the bank level for this?
Mr. Avril: We have reinsurance for our insurance policies, if you will.
Senator Tannas: My understanding is that virtually nobody in Quebec has earthquake insurance, so how would that help you at the banking end if businesses are out of business, homes are rubble and there is no insurance?
Mr. Avril: Not everyone has earthquake coverage. We do try to educate the public as well; we have efforts to educate the public toward the adequate level of insurance, depending on where the policies are.
But, no, you are correct that we, to my knowledge, do not have reinsurance for our banking book. We would have general levels of capital that would take care of the overall risk, and then you are correct in assuming that, at some point, it becomes a government issue as well.
Mr. Hannah: If I can make a suggestion, I think you have CMHC in tomorrow. I believe if you look in their corporate report, in their stress-testing section, one the scenarios they run is a major earthquake in British Columbia and what the implications would be for the housing market, from their perspective. You might want to probe the issue with them.
Senator Tannas: Great suggestion, thank you.
Mr. Avril: On the banking side, we also monitor different geographies. We would be more selective in how we underwrite depending on earthquake risk, either when we underwrite mortgages but also when we deal with partners who underwrite directly in areas that are prone to earthquakes, and we would have different standards as well.
Senator Tannas: You would have mortgage underwriting based on earthquake management?
Mr. Avril: Not necessarily, but, for example, when we have business dealings with credit unions in areas prone to earthquake risk, we would manage our exposure that way as well.
Coming back to the management of our overall exposure to the housing market, we manage that as well on a diversification basis. We are more exposed to Quebec, which is our home market, but we try to ensure we are diversified as well.
Mr. Andrews: When Nick’s paper came out, it didn’t go unnoticed in the industry. It did prompt several discussions within the industry, as well as with our government partners.
Senator Duffy: Thank you all for coming. Looking back, as Senator Wetston did, 10 years ago, the problems in the United States started with subprime mortgages and the industry collapsed from there.
Today the banks have all raised their mortgage rates. The Governor of the Bank of Canada increased the prime rate here in Canada. My concern would be, as the rates now go up in an effort to head off inflation, how many Canadians are we going to see who are not able to pay their mortgages?
I realize this hearing is about systemic risk problems, but for many Canadians today they are saying if this keeps on how long will I be able to continue paying my mortgage? Do you have any data, as rates go up, on what you expect the default rate to be?
Mr. Hannah: I’ll start by saying that the quality of the mortgage portfolios in Canada is incredibly high. The arrears rate right now is 23 basis point, so that means roughly 99.75 per cent of Canadian mortgage holders are paying their mortgages on time. The quality is incredibly high.
Second, starting last year, OSFI put in place a requirement for stress tests whereby new mortgage applicants have to qualify at the greater of the contract rate plus 200 basis points, or the Bank of Canada’s five-year benchmark rate, to deal with the exact scenario you describe, to provide a cushion in case interest rates go up, to guard against that sort of thing.
Mr. Drysdale: The B20 changes that were announced with great fanfare in the most recent round were the last in a series of changes in the mortgage market and some of the requirements for stress testing the mortgage rates were in place before that.
What really changed was the requirement for the most common type of mortgage, which is a five-year fixed, to be qualified at the higher level, but other mortgage products had that requirement built in earlier. So you’ve got that legacy of the five-year fixed that might not have been qualified, but you also have the advantage of time.
We do a lot of modelling, as I’m sure all the banks do, on how our retail customers would respond to rising interest rates and what sorts of options they have as mortgages come up for renewal and the payments go up. What our testing has shown is that it would be a fairly small percentage of our clients that we think might be in trouble and we would look to work with those clients proactively should they find themselves in particular difficulty at the time of renewal.
Senator Duffy: On the broader issue of the economy and stress, the Parliamentary Budget Officer put a report a couple of weeks ago which suggested that the provincial governments have basically maxed out. Their credit cards are full and yet the provinces are reluctant to cut spending or to in any way make meaningful change.
Have you any thoughts on the fiscal capacity of the provincial governments and how serious a threat their continuing problems present to the financial system as a whole?
Mr. Hannah: I’m not going to wade in to lecture the provinces on their fiscal situation, but I would say a couple of things.
First, with respect to the importance of maintaining economic strength and competitiveness, I know this committee just put out a study that spoke exactly to that issue. We need to, as a nation, at both the provincial and federal levels, be conscious of making sure we have economic environment that is strong, that we have a tax environment that is competitive and that we’re able to encourage investment.
We need to make sure we keep our fiscal house in order to do all of that.
Mr. Andrews: There was a recent report by the IMF that raised that exact issue, that there is a concern of capacity at the provincial level. It is not escaping the oversight of some, the World Bank and IMF in particular.
You had a question about the capacity of Canadians. In that same IMF report, they said the macro prudential measures put in place by the government have been effective in bringing the risk down. I was looking at numbers. Household credit growth in 2018 is actually down quite a bit. When we look at just consumer credit, it is down from 6 per cent growth rate to 1 per cent in the last year. So it’s definitely having an impact.
Senator Duffy: Canadians are reigning in their personal spending and, I assume, lines of credit and so on, as rates go up, people will be disinclined to use them.
The Chair: I’m looking at the headlines now, and what you have shared with us is that you feel that we came to the financial crisis in an acceptable way; yet, having said that, we have learned lessons and believe we are in a better place than we were to deal with the risks you deal with in your business.
The external risks you concern yourselves with are the risks around cybersecurity and those issues and, related but somewhat separate, the issues around new technologies — where is that going, how does that look, how does that affect your businesses in the financial system? You concur with that?
Are there any other systemic risks that you and your organizations worry about that we should flag?
Mr. Andrews: In my opening comments I talked about the shadow banking sector. There has been growth in that sector. Shadow banking is banking-like activities that are taking place outside of banks, outside of federally regulated banks or regulated institutions. It is sitting outside of that sector. Mortgage investment companies would be an example of that.
Senator Duffy: These are mortgage brokers, as opposed to banks, who deal with private investment funds and make mortgages.
We see banks in supermarkets and these cyberbanks with no bricks and mortar. They mostly seem to be out as a subsidiary of the charter banks. Are they stress-tested like you are?
Mr. Hannah: If they are a chartered bank, they are regulated by OSFI and licensed by OSFI. They wouldn’t be a D-SIB, so they will not have the enhanced requirement, but will be overseen in the same way. They would all be members of the Canadian Bankers Association and proudly so.
The Chair: I want to swing back to shadow banking. So we understand the definition, you are saying it is the provision of banking service but unregulated.
Mr. Andrews: Outside of the normal regulatory perimeter.
The Chair: That worries you as well, where that goes, what the risk would be for the system, but also for consumers.
Mr. Andrews: Exactly. I would say the reason I am worried is that there have been studies that have looked at financial crises in the past and growth in the shadow banking sector has led, in some cases, to financial crisis in the future.
The Chair: That is very interesting. Thank you for that.
Senator Tkachuk: When you say mortgage investing, that would be mean people placing money with this company to invest in mortgages? Correct?
Mr. Andrews: Yes.
Senator Tkachuk: There is no regulation for these people whatsoever?
Mr. Andrews: There is some regulation, but it wouldn’t be the same type of regulation.
Senator Tkachuk: How would they be regulated.
Mr. Andrews: Do you guys have feedback on how a MIC would be regulated?
Mr. Hannah: A broker would be regulated provincially, but the actual financing company —
Mr. Drysdale: I don’t think they would be regulated. In many cases they are small, partnership-type arrangements with pooled capital who are generally providing short-term mortgages to people who would not otherwise qualify.
The Chair: Senator Wetston, is there anything you can add to this?
Senator Wetston: It is a bit of complex topic, as you can imagine and as all our friends here know. This is a focal point of future work of the Financial Stability Board, as is the renaming of it as shadow banking, because not all shadow banking is necessarily in the shadows in the way you describe it. Basically, if I may say, chair, it’s called non-bank financial intermediation; that is the technical term now being used for it.
The way I would categorize the area you would know that falls into this category is hedge funds. That is the most significant area as a non-bank; it’s pretty significant and it’s also a pretty significant area in which interconnectedness between institutions occurs and investment may be worthwhile. I’d like the panel to talk about this a bit; I’m not the witness here, obviously. In some scenarios, they can amplify interconnectedness because of the risky assets that are necessarily part of this particular fund or investment.
You talked about the mortgage side, but that’s not the only area; the biggest part of this — and I think you would agree with me particularly on the market side, Mr. Drysdale — would probably be on the hedge funds side.
We should probably have your general counsel here to talk about the nature of the regulation in this sector, but there is some securities regulation of hedge funds and some regulation in this area, but admittedly not nearly as extensive as this group would have on the prudential regulation by OSFI, which is considerable.
Having said that and following up, you mentioned, Mr. Andrews, that you think shadow banking or non-bank financial intermediation is a challenge for the future. It has been reviewed considerably over the last several years by securities regulators, as well as prudential regulators, and perhaps when we talk to OSFI they will give us some further information on that.
What is the basis for your concern in that area, if I may ask?
Mr. Andrews: You do historically see a correlation between growth in that sector and financial crises in the future, so that’s a concern.
The second thing is that even though we have seen monitoring happen at the Financial Stability Board and the Bank of Canada, when you read the Bank of Canada’s FSR, they do say in there that some of the statements they make are subject to a lack of data in this area. Without that data, I think there are some question marks, as well.
Senator Wetston: Can I follow up?
The Chair: Hold up for one second, because, Mr. Drysdale, I saw you put your glasses on, which is a sign of something.
Mr. Drysdale: Thank you, chair.
It may be useful to the committee to know that the Bank of Canada, in the Financial System Review in December 2016, did publish a piece on shadow banking, and I happen to have it with me today. I recalled a chart here that explains the composition of shadow banking in Canada and, to the senator’s point, the largest component is actually investment funds, and those range from mutual funds to credit funds, money market funds and credit hedge funds.
The Chair: That’s helpful. If you have a document there, perhaps you could leave a copy with us.
Mr. Drysdale: I’d be happy to.
Senator Wetston: Thank you for that, Mr. Drysdale.
I wanted to pick up on Mr. Andrews’s comment. Going back, when I talk about the hedge fund space 10 years ago, it was much less regulated than today, even though it’s not extensively regulated, as you mentioned. Mutual funds are clearly more highly regulated than hedge funds might be, but the source of much hedge fund risk was around derivative trading, so they were a significant source.
As a result of a lot of the derivative activity, that contagion resulted from what you were speaking about a moment ago in that period of 10 years ago, and the FSB and regulators, particularly in the G20 and globally, have moved in to try and deal with those particular areas, and we have talked about that.
I was getting at your point; you may recall that was the source and you did discuss the nature of derivative trading today, notional value or otherwise, and I talked about over-the-counter trading. I was wondering if you have any sense of what that might be in our market today. Maybe OSFI would have a better sense of that.
Mr. Drysdale: I don’t have a great sense off the top of my head about the scale of the activity in Canada, but what I would say when it comes to hedge funds or funds in general is what concerns me the most when we look at relationships with these types of funds, it’s really about liquidity mismatches. It’s the relationship of the liquidity of assets versus the liquidity they’re providing to the unit holders. If they are significantly different, you could end up with a run on the fund that they’re not able to meet by the sale of the assets underpinning that fund, which forces them to sell at distressed prices and accelerates a market downturn.
A point of focus for us in looking at the risks of these funds is always to know the terms of redemption versus the liquidity of the underlying assets. That’s very important.
Senator Wetston: You are talking about OTC now, not those that are obviously cleared through a CCP.
Mr. Drysdale: In terms of underlying assets, it would be OTC in the derivative space, but it could also be illiquid securities like some investment-grade bonds, and certain illiquid equities could also contribute that as much.
The Chair: Coming back to the question, which was the additional risks that we might worry about, you identified shadow banking. Is there anything else that panellists would think about that we should be considering?
Mr. Hannah: If I can add one, it relates to cyber but not in the way we just described it.
One of the issues we have been conscious of in the industry and have talked about at some length is the need to ensure that there are cyber standards over critical systems outside of the banking industry. Banks are not islands; we are interconnected in this world and we rely on telecommunications firms and power companies and so forth, all of which have their own technological systems.
We think there is value and utility in creating a set of standards that all of the vital cyber systems should be meeting and reporting on, because everybody is interconnected and there is a mutual reliance in there.
The Chair: That’s a very good point. We have heard this from others and perhaps it will be reflected on Monday.
Is there anything else? That’s the universe, as far as you are concerned?
Mr. Hannah: Today.
Senator C. Deacon: I wanted to keep on the track of new technology, new factors coming into the market and the notion of disruption.
There are a lot of high-value products that our banks sell, of which a disruptor in the marketplace could increase the value received by highly profitable, standard long-term products in our banks that the banks have had in place for a long time. New players in the market could come in and start to disrupt that dominance of our major banks and take away some high-margin product lines.
We have seen early indications of this in fintech companies and in the U.K. the growth of money into fintech investments has been accelerating at an incredible rate, which means your competitors are getting stronger and faster in bringing new products to market.
That is a threat, but there is also a great opportunity, so I want to hear more about how you are engaging with that risk. If you are not disrupting, you are being disrupted. That’s the world we now live in and it’s not comfortable for institutions that are stable in how they run things, as are our great Canadian banks who have done so well over time.
I want to hear about how you are managing that. I view it as a significant risk because of the amount of money being invested and how I have seen other industries completely disrupted. Publishing is a great one to go to. It has been completely transformed in a decade and we don’t want that sort of thing to happen to our Canadian banks.
I want to understand how you are approaching the risks associated with fintechs, in particular, but how you are looking at some of these new technologies and how they might affect your highest-margin product lines.
Mr. Drysdale: Your point on risk is an important one. We have talked about capital buffers and liquidity buffers, but a healthy bank’s earning stream is a significant source of buffer to systemic risks. When we do our stress-testing, a big part of our financial resiliency is from that earning stream.
So, I would agree with you that the disruption is a tremendous source of risk. I would also agree it’s a tremendous opportunity. We look at the types of interactions and services that we might be able to deliver to clients through the use of some of this new technology. We see tremendous opportunity there as well.
We are very active in the fintech community. We have innovations labs set up. We invest in many fintechs. We see the risk of disruption, but we also see the opportunities, as you pointed out, of transforming and improving banking and payment services for Canadian customers.
Mr. Andrews: A trend we have seen is that it used to be adversarial, as you were talking about. But the trend we’ve seen over time is that it’s become more of a partnership. The banks see the value in fintechs and the fintechs see the value in banks. They realize that the partnership approach might be a better way.
I think there is more of that type of discussion now happening versus the “they win or we win” sort of thing.
Senator C. Deacon: I’m thrilled to hear that. I’d love to get some of the stories and examples through the clerk — some anchor points we could point to — of evidence of that change in culture, because I think that’s crucial to where we’re going.
I have a supplementary question in relation to open banking. I think that’s an issue we are going be looking at here.
The Chair: Yes.
Senator C. Deacon: It’s a question about just how important it is to the growth of the fintech industry and growth of opportunity for consumers. Where do you stand on that question, and what efforts are you putting in regarding that question?
Mr. Hannah: It’s an international trend. The Department of Finance has signalled they’ll be doing a consultation on the topic. We look forward to being part of that. It has a lot of potential. It has some challenges. From our point of view, it’s something that needs to be approached with an appropriate risk management lens to look at the opportunities and risks to see what we can learn from other markets as we go along.
We have to take a stepwise approach, make sure we are doing this in a way that is safe, well structured and meets the needs of Canadians without exposing them to undue risk. It’s an evolution.
The Chair: You will undoubtedly be back when we kick off our study on open banking. Senator Deacon, I think we should wait on that, and then we can have you all back with lots of notice that we will want to know your point of view on open banking, if that’s satisfactory to you.
Senator C. Deacon: I will ask a new one unrelated to open banking. In these new areas — blockchain is an example, as is the one we just spoke about — there is an opportunity for us in Canada to take a lead in regulation in areas where geography is so crucial to regulation. That makes it very tough to operate internationally. But the tremendous opportunity we have before us is that we have proven to the world that we really run our financial institutions really well. You have demonstrated why that’s the case in this meeting, but the opportunity we have — just recent GDPR privacy regulations in Europe have moved up the standards that every company is working under, even though those are just regulations in Europe. Everybody has moved up to those global standards.
I’d like you to look at the opportunity for Canada to take a leadership role specifically in blockchain technology. We have a coalition already wanting to work on that, to keep the bad actors out and to protect consumers — all the things the Canadian banks want. There is an opportunity to always lead with our major corporations and younger, more nimble organizations to work together with government to make sure that with the regulations we are not falling behind; we are leading the way.
I really respect the approach you are suggesting, Mr. Hannah, but we have to be a bit bolder and not wait and see, not follow. If we follow, we are going to lose the business opportunities for our innovative industries that are so important to the future of our economy.
Senator Duffy: Just picking up on what Senator Deacon just said, and for our audience at home, it’s very easy and popular sometimes to pick on the banks. But when you actually look at what happened a decade ago and how we come through compared to our neighbour to the south and other countries around the world, we were very well served by a combination of the integrity of our banks and the foresight of those who were banking regulators going back 50, 60 and 100 years. It worked very well for Canada.
With the technology you have to offer, no other country that I know of in the world operates coast to coast over such a big geographic area, does it profitably and was so early in getting automated electronic banking into every corner of the country. You can go to a bank machine thousands of miles from the bank’s head office and get instant access to your account. Now, of course, it’s online through the web, but this started long before the web was even a big deal.
Congratulations on what you have done. I encourage you to take Senator Deacon’s invitation to now help us take this solid background and move it the next step looking forward as we go into the future.
Mr. Hannah: Thank you, senator. We really appreciate that.
The Chair: As I promised you, we’d have a lively discussion, and I think we had. We have taken a great deal from this today. This has been very helpful to us, because we are just getting under way. We are indebted to you. Thank you very much, and I hope we have the opportunity of seeing you back at some other point.