Disclosure By Banks Of Business Lending Statistics How to Correct the Flaws in the Current System CCRC Position Paper #3 Summary (November 1997)

Small business advocates have long complained about the lack of access to capital for Canadian small business. Surveys by the Canadian Federation of Independent Business have shown that small businesses consistently rank "access to capital" among their top 10 concerns.

This is an important issue for all Canadians, given that small businesses have created over 80 percent of the jobs in Canada over the past decade.

That's why the CCRC is urging the federal government to enact legislation requiring banks to disclose more detailed information about their lending to business. We need this information so that Canadians can hold banks accountable if they are not meeting the legitimate demand for capital from the small business sector.

Federal Finance Minister Paul Martin and Industry Minister John Manley acknowledged the importance of this information and small businesses in 1995:

"The government feels the banks have a special obligation to provide financing to small businesses, and will be working with the banks to establish benchmarks against which their performance in small business lending will be measured."

Unfortunately, the banks and the federal government developed a lending disclosure system with major flaws. These include the fact that it's a voluntary system with minimal standards about the form in which statistics must be disclosed. Demand for credit is not tracked at all, so we don't know how many loan applicants are being turned down, or why.

As well, Canada is divided into only eight regions for reporting purposes. This geographical breakdown is too broad to be useful in analyzing whether banks are serving the needs of communities across the country.

The CCRC calls on the federal government take the following steps to close the gaps in the current system so that Canadians are fully informed about bank lending practices:

• As in the U.S., banks should be required to disclose the number of loan applications, as well as approvals and rejections, categorized by size of loan (from less than $5,000 to over $5-million), size, type and location of business and gender of the business owner;
• Banks should also be required to disclose reasons for rejections, loan defaults, loan losses and the number of called loans, to track the risk of lending to different sectors and regions;
• As in the U.S., the statistics should be analyzed by an independent government agency (such as Statistics Canada) so that the figures are reported fairly and not slanted in the banks' favour. For each bank, the statistics should be reported by branch, federal riding, province, region, and nationally.
• Other deposit-taking financial institutions (including foreign banks and trust companies operating in Canada) and Crown financial institutions should be required to collect and disclose similar statistics to ensure a level playing field.