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CCRC

An Unjustifiable Takeover

A Performance Evaluation of Toronto-Dominion Bank and Canada Trust Based on the U.S. Community Reinvestment Act Process

CCRC Position Paper #9

(March 2000)

    Table of Contents

I. Summary

II. Toronto-Dominion Bank and Canada Trust under the U.S. Community Reinvestment Act (CRA): How it Works

III. How a Community Reinvestment Act Would Close Key Gaps in Financial Institution Disclosure, Review, Penalties and Overall Accountability in Canada

IV. Evaluations of Toronto-Dominion Bank and Canada Trust

(V) Recommendations

I. Summary

U.S. legislation entitled the Community Reinvestment Act (CRA) and related measures requires detailed disclosure of financial institutions' lending, investment and service record branch by branch, neighbourhood by neighbourhood across the country. Each institution's record is reviewed and graded regularly by government agencies. Institutions are required to take corrective action if they have a failing grade, and applications to expand, especially by merging with or taking over other financial institutions can be also be denied.

As a result of these laws, more than $1 trillion has been committed by financial institutions for targeted investments in low- and moderate-income, and visibile minority neighbourhoods and communities. Included in the list of financial institutions that have been reviewed, graded and required to take corrective action or denied an application to take over another institution because of a failing grade are Bank of Montreal's subsidiary Harris Bancorp of Chicago, and TD Bank's subsidiary Waterhouse.

Unfortunately, in reviewing the proposed takeover of Canada Trust by TD Bank, Finance Minister Paul Martin refused the CCRC's request that the Department of Finance undertake an examination of the two institutions following the U.S. model, and require corrective action and delay approval until the institutions' improve their service, lending and investment records.

With far fewer resources than the federal government, and without the government's power to require disclosure of information from the institutions, the CCRC undertook to review the institutions' records, and this report is the result (Please see the Table of Contents for a summary of the grades assigned to each area reviewed, and the final Section V: Recommendations for the CCRC's proposed corrective measures).

The disclosure, review and grading requirements of the U.S. HMDA and CRA laws are completely applicable to Canadian banks and other deposit-taking financial institutions. Given our much more concentrated banking sector, however, penalties for failing grades should go beyond denying an application to expand, merge or take over another institution. Other penalties for a failing grade should include the following: prohibition on receiving government contracts, and cancellation of current contracts; requiring the institution to hold public meetings to set out how it will improve its record; and fines and special surtaxes.

In his June 1999 policy paper entitled Reforming Canada's Financial Services Sector, federal Finance Minister Paul Martin has proposed requiring federally regulated financial institutions to disclose some of the information required under the U.S. laws, such as locations of openings and closings of branches, and has proposed setting up a government agency to audit financial institutions' records in customer service, especially to people with low incomes. However, Martin has failed to propose disclosure requirements for lending and investment in business and community development projects, especially affordable housing, on a neighbourhood by neighbourhood level. Martin also failed to propose a review and grading system, or any penalties, for a poor record in lending, investment and service.

If Paul Martin and the federal government do not close these and other gaps in the policy paper's proposals (For details, see below Section V: Recommendations), it will be impossible to hold financial institutions accountable for poor service, or for turning away credit-worthy individual, business and community development applicants for loans and investments. Without these accountability measures in place, financial institutions will have no incentive to serve all Canadians fairly and well.

II. Toronto-Dominion Bank and Canada Trust under the U.S. Community Reinvestment Act (CRA): How it Works

In late spring 1996, TD Bank applied to become a bank holding company in the U.S. and to take over Waterhouse Investor Services (WS) and Waterhouse National Bank (WNB), the bank headquarters for WS in White Plains, New York. WNB is a virtual bank with only one physical office, and at issue was to what extent WNB should be subject to the U.S. Community Reinvestment Act (CRA). TD Bank attempted to limit the effect of the CRA by applying to have WNB designated a "limited purpose bank" which would allow it to serve only specific customers' need (e.g. only affluent customers) and to ignore the needs of others who may want to become customers of the bank.

Community groups, which have the right under the CRA automatically to intervene in the review of the takeover, set out evidence that WNB had not fulfilled the community reinvestment pledges it made in 1994 as required under the CRA when it obtained its banking charter. The bank failed to market products in low- and moderate-income communities, hold training seminars, and offer secured credit cards.

The CRA and related measures require almost all of the 10,000 U.S. banks and other financial institutions and companies to disclose how many people apply for mortgage, small business and small farm loans, how many are approved and how many are rejected. This information is all categorized by the race, gender, income level, and census tract of the borrower. Several states have their own disclosure laws that, in some cases, extend the requirements to other areas as well.

One of the stated reasons for these disclosure requirements is to "assist public officials in distributing public-sector investments so as to attract private investment to areas where it is needed." Under the CRA, financial institutions must satisfy the credit and service needs of the communities in which they are located, in a manner consistent with the safe and sound operation of the institution.

Regulatory agencies periodically review financial institutions' performance in lending, investment and service, taking into account safety and soundness, the size and financial condition of the institution, legal impediments and local economic conditions, as well as the performance of other financial institutions in the same communities. Government and independent reviews of financial institutions CRA activities and the regulatory process have all concluded that the CRA does not require institutions to lend to or serve risky borrowers, or impose any difficult burdens on the institutions. In fact, institutions that are more active in CRA lending have been found to be more profitable.

The failure to register a satisfactory grade in the CRA review process can result in a denial of a request to expand, either by opening additional branches or through a merger or an acquisition. Therefore, the banks have a commercial incentive to meet their CRA targets. Given that federal regulators have only rarely denied an expansion application even if a financial institution has a poor CRA rating, however, many observers conclude that this incentive could be much more effective if the laws were enforced to their full extent.

As a result of the U.S. CRA and related measures, more than $1 trillion has been committed by financial institutions for targeted loans, investments, and service programs in low- and moderate-income, and visible minority neighbourhoods and communities -- commitments that would not have been made if these laws were not in force (More details about the U.S. CRA laws appear in the CCRC's Position Paper #5: An Accountability System for Financial Institutions in Canada: How to Ensure They Meet a High Standard of Performance (December 1997)).

After reviewing Waterhouse's (WNB) record under the CRA, the Federal Reserve Board (FRB) delayed approval until TD Bank and WNB submitted a detailed three-year community reinvestment plan "with time frames for anticipated actions, proposals for monitoring, progress reports" etc. The application was finally approved by the FRB in late November 1996 after TD Bank made several commitments to support the efforts of WNB's full-time CRA officer, its CRA committee, and its board of directors to ensure that WNB performed satisfactorily or better under the CRA. For example, TD Bank set goals for WNB's community development program and procedures for overseeing WNB's CRA program including the following:

    (1) Appointing a TD Bank officer who resides in New York to serve on WNB's CRA committee;

    (2) Providing CRA training to TD Bank's compliance, legal, internal audit, and public affairs departments within three months of the acquisition of WNB;

    (3) Conducting periodic unannounced on-site reviews of WNB's CRA program, the results of which will be reported to TD Bank's board of directors;

    (4) Require monthly reports that measure past performance and detail future plans from WNB's CRA officer;

    (5) Require WNB's CRA committee to file quarterly CRA reports with the WNB and Waterhouse boards of directors, and annual CRA reports with the TD Bank's board of directors;

    (6) Require that each potential CRA investment is reviewed by WNB's CRA officer, WNB's counsel, and TD Bank to ensure that the investment is qualified under CRA regulations; and

    (7) Have the TD Bank and Waterhouse boards of directors review the OCC's CRA evaluations of WNB.

TD Bank also committed to work closely with regulators such as the Office of the Comptroller of the Currency (OCC) and the communities involved, and to make adjustments in the bank's CRA program, including quarterly adjustments to funding for WNB's CRA program, as appropriate. In its application, TD Bank also stated that "it has for many years regarded community development as an important element of corporate responsibility." even though it has not been subject to a Canadian statute comparable to the U.S. CRA.

Community groups, who automatically have standing under the U.S. CRA to make submissions in response to an application to take over a financial institution, protested the take over and argued that TD Bank's proposals were inadequate and its commitments too general to be taken seriously.

The regulator concluded that TD Bank's record of operating in the United States and its dealings with federal banking regulators indicated that TD Bank could be relied on to implement fully the programs and policies it has committed to implement.

Since 1996, the investment banking arm of Waterhouse has been very profitable for TD Bank and also helped the bank increase its capital base, especially through the more than $1-billion (U.S.) its initial public offering garnered in spring 1999 which made TD the most profitable Canadian financial institution for the first three-quarters of fiscal year 1999. No further reviews of WNB's performance under the CRA have been undertaken.

In contrast, Canada Trust just began to enter the U.S. market in 1998 with the opening of CTUSA and the Florida Savings Bank.

III. How a Community Reinvestment Act Would Close Key Gaps in Financial Institution Disclosure, Review, Penalties and Overall Accountability in Canada

In researching this report, the CCRC found many barriers to tracking down key information needed to assess whether a Canadian financial institution is serving its customers and communities fairly and well. Most available information is not broken down by financial institution, even though there is no reason why it cannot be reported in this way. Information concerning Canada Trust was particularly difficult to gather, given that it does not participate in the very few voluntary disclosure programs set up by the federal government.

Everyone, from Ministers to regulators to consumer groups, talk about the need and importance of competition in every industry to ensure that customers are served well. But competition only works to create better service if customers can easily compare competing businesses to determine whether one business provides better service than others. In the area of Canadian banking, however, it is clear that lack of information disclosure means that even if an institution served its customers better than the others, it would be only by chance that Canadians would ever find out. Given this situation, what incentive does any financial institution have to serve people better?

Set out in the section below is what one full-time CCRC researcher found over nine weeks of searching through publicly available, relatively accessible sources including: annual reports, banking related web sites and legal databases. It is clear that much of this information and more could be easily and regularly supplied by financial institutions on a systematic, community-by-community basis, as U.S. financial institutions have been doing under the Community Reinvestment Act (CRA) and related laws for over 20 years.

What should be included in a Canadian CRA? The lending, investment and service tests in the U.S. CRA provide a model. In addition, Canadians have expressed concern about certain areas of their relationship with banks. According to a national poll conducted for Maclean's magazine by Northstar Research Partners of Toronto and concerning the 1998 bank merger proposals, a majority of Canadians felt that if conditions were to be attached to any merger approval, the conditions should include the following: a guaranteed level of loans to small business; restrictions on user fees; job protection for bank employees; and restriction on local branch closures.

Taking the U.S. CRA experience and Canadians concerns into account, a Canadian CRA should require banks and other financial institutions avoidance such asd line) e servio do the following (For details, see the CCRCÕs Position Paper #5: An Accountability System for Financial Institutions in Canada: How to Ensure They Meet a High Standard of Performance (December 1997) and Position Paper #8: More Money Down: The Case for a Community Reinvestment Act to Ensure Financial Institutions Help Solve Canada's Affordable Housing Crisis (November 1999)):

Each financial institution's raw data should be provided to Statistics Canada, which would annually release data for each institution by Parliamentary riding, province, region and aggregate national totals, following Statistics Canada guidelines to ensure that the privacy of specific borrowers is protected.

Based on this data, the lending, investment and service record of financial institutions should then be regularly evaluated and graded by the government, after hearings to allow for community input into the grading.

The CCRC proposes that the following sanctions should apply for a financial institution that receives a failing grade for any branch, or overall. First, federal, provincial, territorial and local governments should be explicitly permitted to determine their financial dealings with any financial institution based upon the institution's performance under the accountability system set out above. Second, if a financial institution proposes to expand within its sector (e.g. a trust company taking over another trust company) or outside its sector (e.g. a bank taking over a trust company) the government that regulates the expansion should be explicitly permitted to deny the right to expand if either financial institution has an overall failing grade.

Third, a representative of senior management and a member of the board of directors of a financial institution should be required to give at least two weeks public notice and then hold a well-publicized public meeting in any community where that financial institution's branch has a failing grade. At the meeting, the institution's representatives should be required to take written and oral submissions from members of the community concerning the performance of the branch, and to detail the institution's plans for obtaining a passing grade in the future.

Fourth, the Minister of Finance should have the right to impose the fines specified by the financial institution legislation if he or she believes such action is warranted. Finally, in its 1996 budget the Ontario government imposed a corporate surtax on the chartered banks, combined with a tax credit that could be applied to the surtax for banks demonstrating support for small business. All provinces and the federal government should consider enacting similar legislation as an incentive for financial institutions to maintain a satisfactory rating in their overall performance in the province in terms of serving not just small businesses, but all customers.

IV. Evaluations of Toronto-Dominion Bank and Canada Trust

(A) Bigger Will Never Be Better Without Increased Accountability

At the end of 1994, Canada's Big Six Banks had combined assets of $740 billion and combined profits of $4.26 billion out of combined total revenues of $53.7 billion. By the end of 1999, assets had increased to $1.26 trillion while profits more than doubled to $9.12 billion out of total revenues of $94.7 billion. Has this increased size, revenue and profits resulted in better service overall to most customers?

An initial clue that this has not resulted in better overall service is how four of the Big Six ignored several polls that showed very clearly that Canadians were against the 1998 proposed bank mergers, and continued to push the federal government to approve the mergers for several months. The banks' ongoing practise of ignoring customers' concerns, needs and wants was highlighted in the pro-merger campaigns. In addition, surveys by the National Quality Institute in recent years found that banks rank in the bottom five of 22 industries in terms of customer satisfaction. In contrast, credit unions, which are in almost every case smaller than the banks, ranked in the top five both years.

Through 1998, the Task Force on the Future of the Canadian Financial Services Sector (the Mackay Task Force) commissioned several studies which concluded that Canadians did not receive good overall service from their financial institutions (especially banks) when compared with other countries. For example, a study by McKinsey & Company found that small and medium-sized businesses receive sub-par service because of above-average service charges, fewer product choices than in the U.S., and less accessibility to financing; retail customers also receive sub-par service because of excessive service charges, overall lower quality of service, lack of information about products and services, and fewer providers than in other countries.

These findings, and information gathered in studies by the CCRC and other consumer and small business groups (For details see section (C) below), reveal that while our banks have become bigger in the past five years, they have not become better. TD Bank and Canada Trust have grown over the past five years along with Canada's other big banks, and an analysis of their growth, and their proposed takeover deal, reveals how bigger banks will never be better without the enactment of laws and other measures to increase their accountability to their customers, especially smaller businesses and individuals.

(B) TD Bank's Takeover of Canada Trust: Unenforceable Pledges to Serve People Better

TD Bank offers a full range of financial services directly and through subsidiaries, and has total assets of $208 billion, more than six million customers, more than 900 retail branches as well as telephone banking and Internet banking. It also operates the world's second largest discount brokerage and one of Canada's largest mutual fund companies.

Canada Trust operates in the following areas of personal financial services: daily banking transactions, lending, wealth management (through a stock brokerage service and mutual fund line) and insurance. The company serves more than 3.7 million customers, employs approximately 16,000 people, and operates a network of 431 retail branches, 847 ABMs, EasyLine telephone service and EasyWeb Internet service. At year end 1998, 94% of Canada Trust's corporate assets of $48 billion were located in Canada and 6% outside of Canada (according to email message from Ralph Marranca, Canada Trust head office, December 20, 1999).

Based on these figures alone, TD Bank's proposed $8 billion takeover of Canada Trust is as important to the Canadian financial services industry as the 1998 proposed bank mergers. Yet TD Bank's proposal and the 1998 proposals were made very differently, and as a result the scrutiny they have faced has been markedly different.

First of all, TD Bank first began discussions in December 1998 to take over Canada Trust, then informed Finance Minister of its intentions, and met with Liberal MPs to discuss their concerns, before announcing the proposal. In 1998 the bank merger proposals came without warning to anyone.

Second, in an August 3, 1999 letter to Canada Trust customers from Edmund Clark, President and CEO Canada Trust, the following vague and general commitments were made:

In addition, the following specific commitments were made:

The Chairman and CEO of TD Bank Financial Group, A. Charles Baillie, echoed these general and specific commitments in the bank's August 3rd news release about the proposed takeover, stating among other things that "Together, we will be number one in both customer service and mutual fund advice, giving our customers access to the best financial services firm in Canada," and that "we are strongly committed to ensuring that Canada Trust customers continue to enjoy the hours and quality of service that have been its hallmark." According to TD Bank, the combined TD Canada Trust will not only be the leader in customer service, mutual funds advice, discount brokerage and internet and telephone banking, it will also have the highest number of customers of any financial institution in Canada, 10 million.

In addition, in the three rural communities where TD Bank and Canada Trust both have branches (and likely one of the branches will be shut down), there are at least three competitors in addition to TD and CT that offer similar services. Also, given that Canada Trust is relatively new in the small and medium-sized business financing area, their business customers would gain access to TD much more developed lending division.

Beyond these commitments, when the takeover was approved by Finance Minister Paul Martin on February 1, 2000, TD Bank and Canada Trust ran full-page newspaper advertisements announcing until 2001 staffing levels will not be reduced as a result of the merger and service fees will be frozen at both institutions.

In the 1998 bank merger proposals, similar commitments were first made several months after the proposals were announced, and only at a time when the banks became concerned that they could not win approval without making the commitments.

However, there are many similarities in both the 1998 bank merger proposals, and the proposed take over by TD Bank of Canada Trust. First, in TD Bank's August 3rd news release, all of the above positive commitments are highlighted, while much later in the news release it is mentioned that 4,900 jobs will be lost and 275 branches closed or otherwise affected through "expense savings":

Second, under the heading "Public Policy Considerations" in its news release, TD Bank only raised the following issues: the safety and soundness of the banking system (as compared to the effects of the 1998 proposed bank mergers which, if approved, would have left only three major banks in Canada); the wide range and number of competitors that will remain after the takeover; and that the concentration of business credit decision-making will not be materially affected.

No mention was made in the 1998 bank merger proposals, nor in TD Bank's August 1999 news release, of the issue of whether any bank should be allowed to merge or take over any other financial institution based on a review of their respective records in serving customers and communities. Nor was there any mention that the commitments made by any bank or Canada Trust are unenforceable by anyone at anytime in anyway.

Why is this of concern to the CCRC and many others? First, because the federal government has allowed banks to take over other financial institutions (investment brokerages and trust companies) for several years without raising, let alone answering, the following key questions:

The federal government's wilful avoidance of these issues, and lack of attention to the impacts of takeovers on customers, communities, and the Canadian economy, has resulted in one of the largest public subsidies to any industry in Canadian history. Banks have been able to increase their market power in financial services in Canada, at times with taxpayers' assistance, without any increase in accountability.

TD Bank's proposed takeover of Canada Trust is one more large step in this process, and still the federal government has failed to increase the accountability of Canada's banks in any significant way. Again, none of the commitments made by TD Bank in its proposal are enforceable at anytime by anyone in anyway. The only conditions Paul Martin imposed on the two institutions were suggested by the Competition Bureau, and involve selling 13 branches and Canada Trust's Mastercard credit card division.

TD Bank's record over the past decade does not increase confidence that it will keep its commitments, especially given that the commitments are completely unenforceable and that TD's record points to a pattern of reducing full-service banking, pushing self-service banking on customers whether they want it or not, and cutting jobs all along the way.

For example, TD Bank took over most of the corporate assets and businesses of Central Guaranty Trust (CGT) in 1992 with underwriting by the federal government's Canadian Deposit Insurance Corporation (CDIC). The CDIC put up pledges and loan guarantees worth $3.7 billion to assist TD to buy CGT, and lost $1.3 billion of taxpayers money in the deal. Of Central Guaranty's 154 branches acquired by TD Bank, most were shut down according to The Toronto Star (May 2, 1995).

In July 1996 TD Bank, Royal Bank and Bank of Montreal announced that they were setting up a separate joint venture company to handle data-processing, a so-called "back-room operation." The stated reason for the joint venture was to save money (through job losses) but no commitment was made to pass on savings to the customers. And in April 1999 TD Bank announced it was firing 500 employees and contracting out their deposit-handling jobs to a company owned by CIBC.

Without the enactment of accountability measures, specifically a Community Reinvestment Act (CRA), no Canadian government, let alone a customer, business or community, will ever be able to hold TD Bank or any other financial institution accountable for an unfair, discriminatory, or poor lending, investment or service record, let alone for not keeping commitments made during a takeover or merger process.

(C) The CCRC's Proposed Performance Tests: How TD Bank and Canada Trust Measure Up

As set out in earlier sections, the U.S. Community Reinvestment Act (CRA) and the CCRC's proposed Canadian CRA focus on the performance of financial institutions in their central roles as providers of services for depositors and credit for borrowers. The CCRC is well aware that there are other issues of importance in assessing the operation of financial institutions, such as staff policies (equity in hirings and promotions, progressive maternity and paternity leave policies); sourcing and trading policies (abiding by international human rights, labour and other conventions in sourcing and trading); corporate governance (independent auditing, strict conflict of interest rules and enforcement); and environmental management (reducing waste in internal operations.

EthicScan Canada is one of few organizations in Canada that surveys companies on the above areas, among others, and grades them. According to EthicScan's 1996 book Shopping With a Conscience, TD Bank and Canada Trust were assessed the following grades:

These grades show many areas where both institutions need improvement. In an update of its survey of TD Bank completed in the fall 1999 (using slightly different criteria), EthicScan found that TD Bank had improved in most areas of equity and family issues. However, many of the questions in the area of progressive staff policies were not answered by the bank, and almost no information was provided by the bank in the areas of sourcing and trading; ethical management practices and consumer relations; sensitive business activity; corporate governance; environmental management; environmental performance; employee relations.

To take one example, in the area of employee relations TD Bank provided no information to EthicScan concerning numbers or locations layoffs in the past five years, percentage of production contracted out, formal policies to mitigate effects of downsizing, unjust dismissal cases, employee turnover rate, or company health and safety or training or profit sharing programs.

There are several reasons to be concerned about TD Bank's employee relations, among them the fact that the Bank fought all the way to the Supreme Court of Canada, without success, to relieve itself of the obligation under Ontario law to use unionized construction contractors to renovate its branches. As reported in the Toronto Star (June 6, 1998), one of TD Bank's lawyers in that case was Guy Giorno, who went on to become the director of policy in Premier Mike Harris' office and at the time was the Ontario Progressive Conservatives' chief political strategist. After the Conservatives were elected they enacted, through Bill 31, a change to Ontario's labour laws that ended the requirement for non-construction companies to use unionized workers on construction sites.

Not surprisingly, the bank did provide detailed information about its charitable donations under the category of community responsibilities, but no information was provided about its involvement in community development investments, or consultations concerning the impact of the bank on communities or branch closings.

These examples of EthicScan's review and grading system reveal the gaps in tracking performance of Canada's banks in their internal operations, let alone their delivery of products or services. And again, it is important to note that while the internal operation issues are important, an institution that addresses all of these potential internal problem areas well can still be gouging its customers, treating them unfairly, or providing poor service overall.

Without increased requirements to track and publicly disclose detailed information in all of these areas, attempts to assess the performance of banks and other companies in these areas will remain hampered at best, and misleading at worst for people who do not realize that grades are often assigned based on very incomplete information provided only by the bank or company itself voluntarily, not based upon information resulting from legally required independent audits or required disclosure.

Despite the lack of easily accessible information in many areas, the CCRC gathered and assessed all available information concerning the performance of TD Bank and Canada Trust in service, lending and investment, following our proposed model for a Canadian Community Reinvestment Act, with the following results.

(1) Access to banking services

In spring 1998, Ekos Research Associates Inc. conducted extensive polls on behalf of the federal government's Task Force on the Future of the Canadian Financial Services Sector involving 1,800 Canadians in a telephone survey and seven focus groups. Ekos found that 2-4% of Canadians do not have a bank account; 5% among lowest income Canadians; 3-4% of Canadians over 65. Difficulties in obtaining accounts were a reason mentioned by respondents for not having an account. Other national surveys conducted over the past two years have consistently found that 90% of Canadians feel it is a necessity to have a bank account.

What Canadians want in account services was also explored in the polling. Ekos found that 67% agree that it is still extremely important for them to be able to do their banking in-person at a branch (86% of older Canadians, 72-73% with income below $40,000, 74-79% of those living in areas with a population less than 10,000). Ekos also found that 13% total and 38% of older Canadian never use bank or debit cards; 69% never use telephone banking and 89% never use Internet or computer banking (most likely users of telephone and Internet banking are those with annual incomes over $80,000).

Ekos also found that 56% disagree that banks should be able to close any branches they need to as long as Canadians can still access services through new technology. In reasons given for using self-service machines versus full-service in-branch banking channels, Canadians stated that they resisted using self-service banking technology because they were being pushed to use it, and also because they realized that it is not accessible to many Canadians.

Concerning overall information provided by financial institutions about services and products, two-thirds of Canadians feel that the institutions do not inform them adequately. Another Task Force study concluded that Canada is years behind other countries in requiring plain-language information to be provided by financial institutions and other businesses, and as a result a person would need a university degree in order to understand most information currently provided by Canada's financial institutions.

Concerning one central aspect of banking service, cashing cheques and holds on cheques, Ekos found that 18% of respondents had had a hold put on their deposited cheques (8% for government cheques), while 8% had used Money-Mart or another cheque-cashing outlet (16% of younger Canadians, and 15% with incomes below $20,000). Not surprisingly, Canadians who indicated that their financial institution places a hold on their cheques deposited into their accounts were far more likely to report having used a non-financial institution to get their cheques cashed (19% vs. 6% of those who did not have holds put on their cheques). Overall, cheque cashing/fund holding practices by the banks were reported to be inconvenient and problematic for many Canadians.

In February 1997, Canada's big banks pledged in a behind-closed-doors agreement with the Department of Finance to:

Concerning another aspect of service, McKinsey and Company found in a study for the Task Force that both individual and small- and medium-sized business customers of Canada's large financial institutions pay excessive service charges compared to other countries. In 1988, the House of Commons Finance Committee held hearings and issued a report in 1988 on service charges which found among other things that: between 1981 and 1987 the big banks' total revenue from service charges had increased by 17% each year (mostly as a result of the introduction of self-service bank machines); in violation of the Bank Act, two-thirds of 71 bank branches surveyed did not have notices of recent increases in service charges posted prominently in the branch. The result of the Committee's report was a voluntary agreement with the banks to freeze service charges for individual customer accounts for three years or more. Small business accounts were not subject to the agreement, as all the banks refused to cooperate.

In 1996, a consumer group called ACEF-Centre studied the service charges of the seven biggest financial institutions in Quebec (published in Consommation (Vol 7, No. 2, summer 1996). The group contacted financial institution head offices to obtain information on individual account service charges and also told banks that they were going to send people out to open accounts with a set number of transactions and ask which account would be best, including for cashing cheques and using a debit card. If the mystery shopper was told by a teller to open an account different than that recommended by the head office, the group sent a second researcher in to ask for that account so that they could compare the fees. For a month the same transactions were carried out in 20 different accounts, and the group found that for the same activities consumers pay between $10.30 and $23.50 each month, or between $123.60 and $282.00 annually. The range of annual costs for head-office recommended accounts was $123.60 - $184.20; and for non-recommended accounts the range was $144 - $282.00.

In 1998, Industry Canada's Office of Consumer Affairs began to issue an Annual Report on Financial Service Charges, examining the service charges that would be incurred by 10 different customers with five different account-use profiles, in one case with an account balance of less than $1,000, and in the other case with an account balance of more than $1,000. The various account service charges of 17 financial institutions were calculated, as were average charges of the 10 largest institutions in most cases (the 10 largest being, in alphabetical order: Bank of Montreal, Canada Trust, CIBC, Desjardins, Hongkong Bank of Canada, Laurentian Bank, National Bank, Royal Bank, Scotiabank, TD Bank).

As a result of the Task Force polling results, and Industry Canada service charge suvery results, the CCRC determined the following grading scale for Access to Banking Services (branch locations, hours and closures are dealt with in a separate section below):

(a) TD Bank - Substantial Noncompliance

The TD Bank is graded Substantial Noncompliance in the area of Access to Banking Services for the following reasons. In May-June 1999, the CCRC conducted a nation-wide survey of 103 financial institution branches, including 12 TD Bank branches. The results found that only two of TD's branches complied with the February 1997 pledges detailed above on lowering barriers to opening accounts and cashing cheques, especially for people with low incomes.

TD Bank may claim that its donation of expertise, office equipment and teller training to the Wagmatcook Band Council on Cape Breton Island to establish the Wagmatcook Financial Agency to provide personal banking services to the 600 people on the reserve as a reason it should receive a better grade (Canadian Banker magazine, November/December 1999, p. 9). However, beyond the fact that the Agency operates totally at the Band's expense and the TD has a captured market of customers on the reserve, the Agency is an exception that does not deserve equal weight in grading compared to a systematic record of discriminating against people with low incomes.

In 1988, TD Bank was alone among Canada's Big Banks in refusing to agree to a proposed new set of federal government rules aimed at giving individual customers a break on bank service charges, including eliminating charges for closing an account that has been open for a year or more; for maintaining a dormant account; for not maintaining a minimum balance; and for receiving an NSF cheque. All the other banks promised to offer basic no-frills accounts and provide 60 days' notice of increases. Eventually TD-Bank gave in on no longer imposing a service change on individual account holders who received NSF cheques.

According to ACEF-Centre's 1996 study of the service charges of the seven biggest financial institutions in Quebec, TD Bank had one account with a $10.90/month ($130.80/year) account that was suggested by bank staff, and was the second lowest of all accounts surveyed. TD's other account included in the survey cost $12.00/month ($144.00/year), so overall TD offered relatively low-cost accounts.

According to Industry Canada's 1998 Annual Report on service charges, for the 10 different accounts/customers profiled, TD Bank had higher than average service charges in two cases, both for accounts with balances of less than $1,000. This indicates a pattern of charging higher fees for people with low incomes, who are most likely (if they even can open an account at TD Bank) to have an account balance of less than $1,000.

According to the Toronto Star (December 19, 1997), a CFIB survey showed that service charges paid to financial institutions by small and medium-sized businesses rose on average by 12% in 1997, with the 12% increase at TD Bank matching the average.

Overall, TD Bank's lack of innovation, and basic concern, in the area of banking accounts was revealed in 1995 when another bank raised interest rates on a savings account. TD followed the other bank's lead, and when asked why it had not raised its interest rates earlier, spokeswoman Christine Thompson stated "Some customers prefer to earn less interest because they prefer to pay less taxes" (as reported in the Toronto Star, May 16, 1996, p. D3).

(b) Canada Trust - Substantial Noncompliance

Canada Trust is graded Substantial Noncompliance in the area of Access to Banking Services for the following reasons. In May-June 1999, the CCRC conducted a nation-wide survey of 103 financial institution branches, including 11 Canada Trust branches. The results found that none of Canada Trust's branches complied with the February 1997 pledges detailed above on lowering barriers to opening accounts and cashing cheques, especially for people with low incomes.

In 1988, Canada Trust joined TD Bank in refusing to agree to a proposed new set of federal government rules aimed at giving individual customers a break on bank service charges, including eliminating charges for closing an account that has been open for a year or more; for maintaining a dormant account; for not maintaining a minimum balance; and for receiving an NSF cheque. All of Canada's other banks promised to offer basic no-frills accounts and provide 60 days' notice of increases.

According to ACEF-Centre's 1996 study of the service charges of the seven biggest financial institutions in Quebec, Canada Trust had one account with a $11.85/month ($142.30/year) account that was suggested by bank staff, and was the third lowest of all accounts surveyed. Canada Trust's other account included in the survey cost $21.70/month ($260.40/year).

According to Industry Canada's 1998 Annual Report on service charges, for the 10 different accounts/customers profiled, Canada Trust had higher than average service charges in four cases, one account profile with a balance of less than $1,000 and three with balances of more than $1,000. For another four of the accounts profiled, Canada Trust was not included because it does not offer bill payment through self-service machines. As a result, Canada Trust's charges were above average in four of six account profiles.

(2) Branch Operations

As noted in the section above, when Ekos Research Associates Inc. conducted extensive polls on behalf of the federal government's Task Force on the Future of the Canadian Financial Services Sector in spring 1998, Ekos found that 67% agree that it is still extremely important for them to be able to do their banking in-person (86% of older Canadians, 72-73% with income below $40,000, 74-79% of those living in areas with a population less than 10,000). Ekos also found that 13% total and 38% of older Canadian never use bank or debit cards; 69% never use telephone banking and 89% never use Internet or computer banking (most likely users of telephone and Internet banking are those with annual incomes over $80,000).

Ekos also found that 56% disagree that banks should be able to close any branches they need to as long as Canadians can still access services through new technology. In reasons given for using self-service machines versus full-service in-branch banking channels, Canadians stated that they resisted using self-service banking technology because they were being pushed to use it, and also because they realized that it is not accessible to many Canadians.

The results of a national poll conducted for Maclean's magazine by Northstar Research Partners of Toronto in late 1998 found that 45% of respondents visit a bank branch once a week or more often; 34% visit between 1-3 times a month; and 21% visit a branch less often (Maclean's, December 7, 1998, p.36).

Given these survey results, the agenda of Canada's big banks to push their customers to use machines is clearly a bottom-line driven disregard of customers needs and wants made only worse by banks' shamelessly false claims that they are "just doing what customers want."

In addition, the CCRC found it exceedingly and curiously difficult to find information about branch openings and closings. For example, Jennifer Toews of the Canadian Bankers Association Banking Information Centre responded to our inquiries with a message stating that: "We regret that we do not have any information on branch openings and closings, and are not sure who, if anyone tracks this information." Canada Trust's responses were much better, as they listed their branch locations on their website, along with a 10-year trend in their Annual Report, and gave full answers to our inquiries.

Given the above, the CCRC determined the following grading scale for Branch Operations:

(a) TD Bank - Needs Improvement

The TD Bank is graded Needs Improvement in the area of Branch Operations for the following reasons. First, overall figures from TD Bank's annual reports show that in 1993 the bank had 978 branches and 1,858 self-service banking machines, but by 1998 the branch total dropped to 907 while machines increased to 2,124. This represents a clear pattern of withdrawing full-service branch banking and pushing customers to use self-service machines.

According to a targeted study in 1998 by the consumer group Options consommateurs of bank branch closures from 1967 to 1997 in Montreal, Calgary, eastern Ontario and eastern Nova Scotia, all banks are closing branches in low-income, inner-city locations and rural settings and opening branches in suburbs. Following the general pattern, between 1987 and 1997, TD Bank closed 17 branches and opened 9 in the Montreal area; closed 10 and opened 9 in the Calgary area; closed one rural branch and opened one suburban branch in Eastern Ontario; and opened one branch in Eastern Nova Scotia.

In addition, TD closed its branch, the only bank, in the village of Keene, Ontario in early 1998 after 95 years of operation. This left the community of 1,500 without any banking services and having to travel 40 km to the nearest branch. After vocal local protests, TD finally committed to maintaining a bank machine or offering scaled-down services in a local store ("Protest Fails to Save Bank" The London Free Press, March 21, 1998).

Beyond these closures, TD Bank also introduced cashless Wednesdays at some of its branches in 1998. On these days, the branch will not handle any cash, so all customers with cash needs must use self-service banking machine whether they want to or not (The Toronto Star, September 23, 1998).

TD's customers have made it clear that they are dissatisfied with the Bank's withdrawal of full-service, in-branch banking. Of the 683 general complaints received by TD's internal Ombudsman in 1998, 296 (43%) were from customers upset about the Bank's decision to decrease hours of business and teller service in its branches which caused longer wait times, and 91 letters concerning the same issues were also logged on the Ombudsman's tracking system.

Again, as in the area of Access to Banking Services, TD Bank may cite exceptions such as its arrangement with the Wagmatcook Band Council on Cape Breton Island to provide personal banking services to the reserve as a reason it should receive a better grade. However, these exceptions do not outweigh TD's systematic withdrawal of full-service, in-branch banking against its customers' clear wishes. Similarly, TD's opening since 1997 of in-store branches such as in three new Wal-Mart locations in Ontario and Saskatchewan, and in three of Provigo's chain of Maxi&Co supermarkets in Ontario, are inadequate to offset its discriminatory branch closure pattern given that usually such in-store branches do not provide full-service banking, and are often located, again, in the suburbs.

To give another example, TD Bank may cite the fact that they are taking over five Yukon Territory remote location branches from CIBC between December 1999 and March 2000 as evidence that they are meeting the full-service needs of customers across Canada. However, while the CIBC operated the branches without subsidy for the past five years, the Yukon government reportedly will have to pay TD to operate the branches even though TD has a contract with the government to handle its accounts. Handling government accounts are a huge subsidy for any bank because they are large deposits of capital that would be much more costly if the bank raised the capital on financial markets (Whitehorse Star, November 2, 1999).

In summary, TD Bank claims six million customers, of which only 400,000 (6.67%) are registered to use its Internet banking service. And even though they may be registered, clearly not all of these customers are using Internet banking, let alone using it for all their banking needs (Canadian Banker magazine, November/December 1999, p. 34). However, you wouldn't know such a small minority of TD's customers use the Internet based upon the amount of attention TD pays to addressing the concerns of these customers, as opposed to the concern of the majority of customers who want full-service, in branch banking.

TD Bank's senior vice-president of national sales, Brian Haier, may say that "There's an awful lot of evidence to support the idea that people still want to deal face to face in certain transactions." (Canadian Banker magazine, September/October 1998, p. 17). But as with so many statements of Canada's big bankers, there is a wide gap between their rhetoric and the reality of how the banks treat their customers.

(b) Canada Trust - High Satisfactory

Canada Trust is graded High Satisfactory in the area of Branch Operations for the following reasons. According to a targeted study in 1998 by the consumer group Options consommateurs of bank branch closures from 1967 to 1997, Canada Trust opened 8 branches in the Montreal area and closed 4 and opened 9 in the Calgary area (no breakdown was available for Canada Trust in Eastern Ontario and Eastern Nova Scotia).

According to the 10 Year Record in the CT Financial Services 1998 Annual Report, Canada Trust had 317 branches at the end of 1989, and 441 at September 30, 1999. These figures do not track closures, but Ralph Marranca of Canada Trust's head office answered the CCRC's inquiries in detail, stating that the company closed only two branches between 1996 and 1999 while opening 17 branches (in addition to adding 5 branches to its branch network in fall 1999 after purchasing Citibank's three branches in B.C. and two branches in Toronto; all of Citibank's retail branch staff accepted positions with Canada Trust).

The two branch closings took place in Kitchener (a downtown branch that was replaced by a larger branch just one block away) and in Sarnia (a branch that was located in a shopping mall, closed in phases, and replaced with a branch located nearby) (according to email message from Ralph Marranca, December 20, 1999).

(3) Customer satisfaction

The levels of frustration felt by customers of Canada's large financial institutions are very high compared to other industries. In national surveys in 1996-98 of thousands of Canadians conducted by the National Quality Institute, an independent agency, banks ranked in the bottom five of 22 industries in terms of customer satisfaction. In contrast, credit unions ranked in the top five industries both years. The Ekos Research survey conducted for the MacKay Task Force in spring 1998 found that one in ten Canadians had had a serious problem with their financial institution in the previous year, and that 54% felt that their problem was still unresolved.

The records of TD Bank in the above two categories give numerous reasons for customers to be dissatisfied, not that the records of Canada's other big banks would likely be any better. However, since mid-1996, there has been a partial tracking system that allows comparison and grading of how the banks are doing in the area of customer satisfaction, namely the records of banking ombudsmen.

Each of the Big Six banks, and also Laurentian Bank, have had internal ombudsman over the past few years. In addition, in 1996 these banks selected an appeal ombudsman, known as the Canadian Banking Ombudsman (CBO), and since then have funded the CBO's office. It should be noted that the initial board of directors of the CBO was made up of five bankers and three people selected by the banks, and although the board has been changed to six bankers and six so-called independent members the federal government, among many others, has rejected the CBO's structure and operation as being biased in favour of the banks.

Unfortunately, Canada Trust does not participate in the CBO system, despite the flaws of the office, and so no figures were available for its complaints appeal record. Also unfortunately, the CBO only breaks down the number of complaints received bank-by-bank, ignoring the important question of whether the complaints are resolved in the bank's or the customer's favour. Details concerning in whose favour each bank's complaints are resolved would help greatly in comparing banks' records. Fortunately, the CBO will soon be replaced by an much more independent, and therefore much more effective, Canadian Financial Services Ombudsman (CFSO), as proposed in the Department of Finance's June 1999 policy paper, and the CFSO will be open to all financial institutions.

It is important to note that our assessment in this area was based only upon complaints that reached TD Bank's internal ombudsman and the CBO. TD's actual complete record could only be assessed if the banks were required to track and disclose complaints on a branch-by-branch level, something that could be quite easily done by branch managers through an on-line database that the federal government could easily set up and maintain.

Our assessment also included a review of TD Bank and Canada Trust's records in cases that have been decided by the courts. The following on-line legal databases of the Maritime Law Book Review were searched for cases between the institutions and their customers only from the past 10 years: Alberta Reports (1976 to date); British Columbia Appeal Cases (1991 to date); British Columbia Trial Cases (1999); Federal Trial Reports (1986 to date); Manitoba Reports (1979 to date); National Reporter (1977 to date); New Brunswick Reports (1969 to date) and New Brunswick Reports Supplement (1996 to date); Nfld. & P.E.I. Reports (1971 to date); Nova Scotia Reports (1970 to date); Ontario Appeal Cases (1984 to date); Ontario Trial Cases (1996 to date); Saskatchewan Reports (1980 to date); Supreme Court of Canada (Motions for leave to appeal - 1997 to date). As an interesting aside, one case found was TD Bank suing Canada Trustco Mortgage Co. in the Federal Court of Canada in 1992 over the use of the word "green" in association with financial services. The court dismissed TD's case.

Unfortunately, settlements are not tracked by any of the databases. Again, each institution's actual complete record could only be assessed if their legal departments were required to disclose all lawsuits involving bank customers, and in whose favour each suit was settled or decided, and this could quite easily be done by legal departments through an on-line database that the federal government could easily set up and maintain.

Given the above, the CCRC determined the following grading scale for Customer Satisfaction:

(a) TD Bank - Needs Improvement

The TD Bank is graded Needs Improvement in the area of Customer Satisfaction for the following reasons. First, as noted above, lack of detailed disclosure of complaints and lawsuit settlements mean that the grades are not based on complete records from the Bank. TD Bank should do more to track and publicly disclose its record in this area, and the federal government should require such disclosure from all financial institutions.

According to the 1998 Annual Report of TD's Office of the Ombudsman, the number of complaints increased 45% compared to 1997 (from 1,040 to 1,405) and 90% over the two-year period concern personal banking issues. Of these contacts, 683 in 1998 and 500 in 1997 were general complaints that did not need follow-up. Of the 683 general complaints, 296 (43%) were from customers who were upset about the Bank's decision to decrease hours of business and teller service in its branches which caused longer wait times, and 91 letters concerning the same issues were also logged on the tracking system.

The majority of the remaining complaints (87%) were redirected to various divisions of the bank for resolution under a new system. As a result, the number of files investigated by the Ombudsman declined by 50% from 1997 (from 368 to 178). Of these, full agreement was reached in 39% of the personal banking cases (most of which were requests for compensation for poor service), partial agreement in 20%, and no agreement in 41%; and 48% were concluded within 20 days.

For small- and medium-sized business complaints (which were fairly evenly split between credit and non-credit issues), full agreement was reached in 18% of the cases, partial agreement in 34%, and no agreement in 48%; and 48% were concluded within 20 days. At the appeal level with the Canadian Banking Ombudsman (CBO), according to the CBO's annual reports, in 1997 TD Bank had the second highest number of complaints for personal banking problems (13 in total) of the seven participating banks, and tied for second highest number of small business complaints (7). In 1998, TD remained second in personal banking complaints (28) while dropping to fourth in small business complaints (4). For the year to date figures available in the April 1999 CBO report, TD tied for second highest number of personal banking complaints (16 in total) and had one small business complaint.

In addition, of 28 lawsuits between customers and TD Bank in the past 10 years that have been decided by the courts, the bank won 14 and customers won 14.

(b) Canada Trust - Needs Improvement

Canada Trust is graded Needs Improvement in the area of Customer Satisfaction for the following reasons. First, as noted above, lack of detailed disclosure of complaints and lawsuit settlements mean that the grades are not based on complete records from Canada Trust. Canada Trust should do more to track and publicly disclose its record in this area, and the federal government should require such disclosure from all financial institutions.

Second, Canada Trust refused to provide any information about its internal complaint handling record to the CCRC. Third, Canada Trust does not participate in an independent complaint handling system to which its customers can appeal if dissatisfied with the company's handling of the situation.

As a result, while Canada Trust won 27 of the 34 lawsuits between the company and customers in the past 10 years that have been decided by the courts, its overall record clearly needs improvement in this area.

(4) Business financing

The area of business financing is the most important area of banking in terms of impact on the Canadian economy. Given that the Big Six Banks and their trust company subsidiaries control, as of September 1999, 75% (total $576 billion) of all business lending in Canada, the decisions of the banks can literally make or break businesses, and entire business sectors. And there is much evidence that the banks, especially through the 1989-1993 period, did break the backs of various business sectors by arbitrarily withdrawing financing.

These problems continued beyond 1993, as evidenced by a 1996 Canadian Federation of Business membership survey in which 24% of respondents ranked their banks willingness to lend as poor.

Finally recognizing the market power of the banks, and ongoing problems with business lending, the federal government in 1995 negotiated a business lending disclosure system. The system, coordinated by the Canadian Bankers Association, tracks bank-by-bank lending (only, trust companies and other financial institutions are not included) by size of loan and industry sector across eight regions of Canada. Reports are published quarterly.

Still, while the current system provides some useful information, the system does not track key data on demand for loans (number of applicants) and whether banks are meeting legitimate demand (number of rejections and reasons). As a result, if a bank's lending of a particular loan size, type of business or region decreases, the bank can simply claim (and falsely claim) that demand decreased at the same rate. This key data is required to be tracked and disclosed in the U.S.

Also in contrast to the U.S., Canada's system does not track lending on a neighbourhood-by-neighbourhood level, allowing the banks to withhold or withdraw lending in secret from particular neighbourhoods.

In addition, the current system does not track lending by size of business, instead using size of loan as a very rough substitute. While some commentators dispute the necessity of tracking lending by size of business, it is clear that large businesses can have small loans, although the opposite likely does not occur as frequently. Given that self-employed and small businesses are the fastest growing business sectors in Canada, and according to some studies the only net job-creating sectors, it seems to make sense to track financing for these businesses as accurately as possible (ie. directly by size of business).

Beyond these limitations, the current system does not track any other type of business financing in any way, and as a result the banks' investment banking divisions (and other equity financiers), credit card financing, and venture capital divisions invest billions of dollars with little public scrutiny. The federal government has committed to setting up a more detailed system of tracking business financing, but given the lack of specifics in the commitment the system will likely, unfortunately for the Canadian economy, remain incomplete and significantly flawed.

As a result, business financiers such as the banks will continue to escape scrutiny and accountability concerning whether they are supporting a healthy, sustainable Canadian economy, or draining capital from the country or financing industries that do more harm than good.

Given the above, the CCRC determined the following grading scale for Business Financing:

(a) TD Bank - Substantial Non-compliance to Needs Improvement

The TD Bank is graded Substantial Non-compliance to Needs Improvement in the area of Business Financing for the following reasons. First, as noted above, lack of detailed disclosure of business financing means that TD's overall record cannot be reviewed.

Second, according to the Canadian Bankers Association (CBA) business lending tracking system, TD has the lowest percentage of lending to small- and medium-sized businesses (SMEs) of all the banks participating in the system. As of September 30, 1999, only 7.8% of TD's total business lending goes to SMEs. Despite TD's dedicated Main$treet Banking program for SMEs, created in 1997, the percentage of its business lending going to SMEs also decreased in 1999 from September 30, 1998's figure of 8.66% (which was also the lowest of all the banks at that time).

TD Bank may claim that it deserves a better grade based upon surveys such as the one conducted in 1998 by Thompson Lightstone & Company Ltd. for the CBA that found, among other things, that 33% of TD's SME customers have in the past two years or are now considering changing financial institution (below the banking industry average of 35%). However, the fact that one-third of your customers have considered switching to another bank is hardly a record that warrants a passing grade.

Third, according to TD's recent annual reports, its credit and lending focus on media and telecommunications, forestry, utilities and project finance, mining and health care industries through more than a dozen offices in major global markets. It is very difficult, if not impossible, to determine whether TD's major financing focal points adhere to community economic development or sustainable development criteria, again mainly because of lack of detailed disclosure.

However, TD's overall record does not seem positive given some of the areas of focus -- forestry, utilities, mining and project finance -- and the general figures that are available under the September 30, 1999 edition of the CBA's business lending statistics which show that TD's business loans of $5 million and less in Canada total $16.2 billion, of which $1.1 billion goes to finance and insurance businesses, and $219.8 million goes to logging and forestry, mining, quarrying and oil wells. Following its usual pattern of withholding disclosure of key information, the CBA does not break down any bank's business loans of more than $5 million by industry, so it is impossible to know which industries are represented by the 1,724 businesses (1.48% of total TD business borrowers) that receive TD's $95.2 billion in loans of over $5 million (even though these loans represent 85.5% of TD's total business lending). However, given that $57 billion of the $95.2 billion is loaned in Metropolitan Toronto, it is likely that most of that lending goes to the central industry of Toronto, the finance industry.

This conclusion is supported by the fact that TD Bank also has the greatest emphasis of all of Canada's big banks on investment banking, wealth management, and other forms of "paper wealth" financing. TD's emphasis shows an overall lack of commitment to real investments that create real jobs in real communities, economic development that builds sustainable communities instead of only increasing the wealth of stockholders.

In addition, some of the known holdings of TD raise questions concerning its adherence to sustainable development principles. For example, in 1994 Denison Mine owed TD and Bank of America $77 million, and was on the brink of bankruptcy because of the collapsed unanium market. TD Bank kept the company alive by deciding not to demand repayment of its part of the loan. At the time, Denison was attempting to convince government to use taxpayers' money to pay the $100 million cost of cleaning up millions of tonnes of radioactive uranium tailings at the company's Elliot Lake mines, which had closed in 1992.

Since then, with continued financing from TD, Denison has put the McClean Lake uranium project into production in Saskatchewan in June 1999, and continues to pursue the Midwest uranium project in the northern part of the province. Among other activities, Denison also has a royalty interest in the new oil production at the Villano field in Ecuador.

In addition, in 1989 TD bought 44% of Western Forest Products of B.C. along with the Royal Bank. Although their stake was sold to majority shareholder Doman Industries in 1992, this investment in a forestry company with one of the worst records in environmental management raises serious questions about TD's commitment to sustainable development. Beyond this investment, in fall 1999 TD bought 22% of Skeena cellulose in B.C. (in conjunction with the B.C. government), and TD is also a major shareholder of Repap Enterprises which operates a New Brunswick paper mill.

These large investments in mainly unsustainable industries by TD are contrasted by its treatment of small businesses trying to grow jobs for Canadians. For example, Frida Crafts in downtown Toronto had its account mishandled by four TD loans officers in just seven years. In fall 1990, after 21 years in business without missing a single loan payment, TD refused to extend its credit line to help the store increase its inventory leading up to Christmas, and then called a $20,000 government-guaranteed Small Business Loans Administration (SBLA) loan. Only when the owner of the store, Susan Bellan, obtained front-page newspaper coverage about the BankÕs decisions did TD reverse itself and extend the storeÕs line of credit.

In July 1990, TD Bank demanded that real estate broker Ben Skovsgaard inject $50,000 into his business. Three weeks prior to the due date for the payment, TD cut off SkovsgaardÕs overdraft privileges without notice, thereby causing cheques to bounce and also driving away a group who had already offered to buy his business for $200,000. As a result, Skovsgaard was forced to sell his business for only $25,000. Five years later, an Ontario court ordered the bank to pay $494,000 for the damage it had inflicted on Skovsgaard. The bank lost its appeal and finally paid the damages in November 1995.

Another known example (there are likely many more, but again lack of detailed disclosure means that it is impossible to track down cases), is the case of Argord Industries. A maker of small electric motors and other industrial products, Argord was bought by John Banka in 1978. In 1987-88, TD gave the company a term loan for $250,000, along with a $150,000 line of credit. In 1991, Banka requested a $100,000 government-guaranteed SBLA loan, but TD refused even though Argord had paid off almost half the term loan. Banka had told TD that the company had lost a large customer and was in the process of seeking new clients when TD cut Argord's credit line without notice. Cheques began to bounce, and the company began to go bankrupt. After much media attention, a buyer was found for Argord and it continues today to employ over 40 people.

(b) Canada Trust - Insufficient Information

Canada Trust is graded Insufficient Information in the area of Business Financing for the following reasons. First, Canada Trust does not participate in the CBA Business Lending Statistics program, and therefore does not disclose enough information to assess its record.

As a result, while Canada Trust claimed in late September 1999 that it had surpassed the $1 billion mark in approved credit for small businesses, and planned to lend $300 million more before the end of 1999, there is no way to verify this claim.

Canada Trust does appear to be flexible in its small business lending, claiming that it extends loans of up to $50,000 without requiring business financial statements, and usually within one hour. However, these claims are also unverifiable without detailed tracking and disclosure of number of loan applicants, number approved and rejected, and reasons for rejections, for all business loans.

(5) Community Development Financing

As in many other areas, there is a lack of key information needed to assess each financial institution's record in Community Development Financing. To give one example, in the area of affordable housing, the Canada Mortgage Housing Corporation (CMHC) unfortunately does not keep statistics on each financial institution's participation in the "first-time home buyer" program, let alone for other types of CMHC guaranteed housing development.

The CCRC used the following grading scale for Community Development Financing:

(a) TD Bank - Insufficient Information

TD Bank is graded Insufficient Information in the area of Community Development Financing because not enough information is provided in its annual reports or through any other means to assess its record in this area.

(b) Canada Trust - Insufficient Information

Canada Trust is graded Insufficient Information in the area of Community Development Financing because not enough information is provided in its annual reports or through any other means to assess its record in this area.

(6) Operations Outside Canada

As in many other areas, there is a lack of key information needed to assess each financial institution's record in Operations Outside Canada. To give one example, under Guideline D of the Office of the Superintendent of Financial Institutions, along with the generally accepted accounting rules for chartered accountants in Canada, Canada's financial institutions do not have to provide details of their profit/loss record in any country outside Canada, let alone other details of their activities in other countries. As a result, unlike other companies which are required to provide details, results from outside Canada are usually grouped together and reported under the heading "Foreign".

Given that all of Canada's big banks have operations in the U.S. which are subject to the relatively high standards of disclosure and review under the U.S. Community Reinvestment Act, the CCRC followed the CRA example in developing the following grading scale for Operations Outside Canada. There is no reason why all of Canada's financial institutions should not meet these requirements in all their operations in Canada and abroad:

(a) TD Bank - Substantial Noncompliance

TD Bank is graded Substantial Noncompliance in the area of Operations Outside Canada for the following reasons. First, not enough information is provided in its annual reports or through any other means to assess its record in this area. From annual reports and other sources, it appears that TD is active in general international banking, credit cards and cross-border banking through its main subsidiaries in the U.S., the United Kingdom, Hong Kong, the Middle East, Australia and Barbados, along with offices in Mexico, Chile, Bermuda, Ireland, Holland, Singapore, China and Japan.

Second, what evidence that is available shows significant areas of concern. For example, TD Bank extended loans to banks in Chile under Pinochet, in the Phillippines under Marcos and to Brazilian companies when Brazil was a dictatorship. TD was also active in apartheid South Africa, and likely did not pull out following any principles, but only because it did not have many investments in the country, and the bad publicity those investments were receiving were costing the Bank more than it was worth to maintain the investments.

In addition, in the fall of 1999, TD Waterhouse (the world's #2 discount brokerage and #3 Internet brokerage) announced that it was setting up a joint venture (with a 49% stake) with India's Tata Group to offer discount brokerage and eventually on-line stock trading. This plan was widely recognized as a move to undercut local brokers, hardly an initiative that will support community economic development in the country.

(b) Canada Trust - Insufficient Information

Canada Trust is graded Insufficient Information in the area of Operations Outside Canada because not enough information is provided in its annual reports or through any other means to assess its record in this area. It appears from annual reports and other sources that Canada Trust is only active abroad through its new subsidiary CTUSA FSB based in Naples, Florida. Given that this operation is so new, its record is insufficient to be assessed.

(V) Recommendations

The federal government should ignore the past ties of key public officials with TD Bank and other financial institutions (for example, Prime Minister Jean Chrétien was on TD's board in 1989) and undertake the following actions concerning TD Bank's takeover of Canada Trust and future takeovers by banks and other financial institutions of any other financial institutions:

Further, in order to close other key gaps in Finance Minister Paul Martin's proposed changes to financial institutions legislation (set out in the Department of Finance June 1999 policy paper), and by so doing ensure financial institutions meet the other credit and service needs of individuals, businesses and communities across the country, the CCRC recommends the following:

Beyond the measures set out in Paul Martin's June 1999 policy paper, all of the above measures are necessary to ensure that that financial institutions fulfill their role in helping solve the crisis, and generally serve the needs of Canadians fairly and well.

Canadian Community Reinvestment Coalition
P.O.Box 1040, Station B,
Ottawa, Canada K1P 5R1

Tel: (613) 789-5753
Fax: (613) 241-4758

Email: cancrc@web.net

Copyright 2000 CCRC