Background on Party Policies and Platforms on Banking Issues

The Liberal's election platform states that, beyond increasing the capital base and lending capacity of Crown financial institutions such as the Business Development Bank of Canada and the Farm Credit Corporation (which focus on small business lending), the Liberals will "facilitate a dialogue between the non-profit sector and financial institutions on concrete ways to promote community economic development, including support for micro-lending initiatives."

Also, at the Liberal's national policy convention last October in Ottawa, priority resolutions proposed by three provincial party associations were passed by over 2,000 delegates from across Canada. The resolutions proposed enacting legislation which would require banks:

• to disclose the number of loan applications received for business start-ups and expansions;
• to disclose the rejection rate and loan-loss and loan-default rates for approved applications, all categorized by size and type and location of the business; and
• to meet the legitimate demands for capital by job-creating small businesses as determined by the disclosure of the above statistics.

This information would allow Canadians and governments to know the actual risk of lending to specific business sectors and communities and therefore to judge whether the banks are meeting the legitimate demand for capital from these sectors and communities.

The NDP's election platform contains similar proposals concerning disclosure of data on bank lending patterns, as well as a pledge to require banks to reinvest in communities and job-creating businesses if the data reveals that banks are not meeting their legitimate demand for capital.

The Conservatives' platform pledges to require banks to publish detailed records on small business lending on a regional basis to "enable Canadians to compare the performance and commitment of their financial institutions to the creation of loan capital for new and small businesses."

The Bloc Quebecois' election platform pledges to introduce legislation that would ensure greater disclosures on all sources of their profits including international operations and investment expenses. They have also pledged to introduce a Community Investment Act (CIA) which would require the banks to provide to the federal regulators data on their lending activities within a particular federal riding.

Legislation which has existed in the U.S. for twenty years is the basis for all these parties' proposals. The U.S. legislation currently requires detailed disclosure of mortgage, small business and community development lending patterns, and requires financial institutions to "meet the credit needs of the communities in which they are chartered." The U.S. legislation also requires that this lending be "consistent with the safe and sound operations of such institutions" which ensures that the banks are only required to meet legitimate demand for credit in any community.

Both the Toronto-Dominion Bank and the Bank of Montreal own bank subsidiaries in the U.S. which are subject to the U.S. legislation, and both banks have projected ongoing profitable returns from their U.S. operations. A 1996 study by the Federal Reserve Bank of Kansas City (part of the U.S. government's Federal Reserve system) which involved a survey of 600 financial institutions across the U.S. found that 98 percent of the institutions that responded reported that their lending in response to the legislative requirements was profitable, and all reported that losses on these loans were comparable to losses on their conventional loans, that the loan default rates were comparable to conventional loans, and that overall their risk level on these loans was manageable.