Wednesday, February 5, 2003
OTTAWA - Today, testifying before the House of Commons Finance Committee on the bank merger review process, the Canadian Community Reinvestment Coalition (CCRC) criticized the Senate Banking Committee's ill-considered endorsement of bank mergers, and called on the government to close serious gaps in the review process by adding measures similar to what the U.S. has used for 15 years to track and review bank lending and service records.
"The Senate Banking Committee must have had difficulty seeing the public interest through the haze of ties many of the senators have had for years to banks and the financial service industry," said Duff Conacher, Coordinator of Democracy Watch and Chairperson of the CCRC. "The Committee's report failed completely to address the public's serious and valid concerns about bank mergers. The senators should not be allowed to examine banking issues in the future until they disclose all their current ties to the industry, including how much they own in financial institution shares."
Given that every poll conducted in the past decade has shown that Canadians believe banking is an essential service (similar to health care, heat and electricity), the CCRC called on the House Finance Committee to be much more realistic in its review of bank mergers, to examine the U.S. measures seriously and to recommend that the federal government enact similarly strong measures and, as in the U.S., to make the "Merger Review Guidelines" part of the federal banking law so that they are binding.
The U.S. banking review system, under the Community Reinvestment Act (CRA) and related disclosure laws, requires banks and other financial institutions to track and disclose the number of applicants for various loans and investments, the number approved and rejected (with reasons for rejections), the default and loss rate, all categorized by size of loan or investment, and characteristics of borrowers (such as size, type and location of business, and gender). In addition, banks are required to track and disclose details of branch openings and closings, and service to customers.
The data is disclosed community-by-community, and regulators review the data every year or two and require corrective action if a bank has a poor record in any lending or service area. When a bank applies to expand, take over or merge, the regulators hold public hearings and a bank's application can be denied if it (or the institution it is merging with) has a poor record overall.
"Canadians have a right to know all the details about what banks are doing with our money," said Conacher. "The federal government must, finally, catch up and set up a bank lending and service disclosure and review system similar to the U.S. time-tested measures to ensure the government can hold banks accountable for a poor lending and service record, and to ensure, as in the U.S., that banks with poor records are not allowed to get bigger."
Despite repeated requests by the CCRC, then-Finance Minister Paul Martin refused to undertake a CRA-like review of TD Bank's takeover of Canada Trust in 1999-2000. The CCRC submitted to the House Committee its model CRA-like review of the takeover (entitled " An Unjustifiable Takeover"). As the report details, when TD Bank proposed to take over New York-based Waterhouse Investor Services in spring 1996, U.S. regulators conducted a CRA review of Waterhouse and imposed legally enforceable conditions concerning improving service and lending records as part of its approval of the takeover. Also, a CRA review prevented Bank of Montreal's Illinois-based subsidiary Harris Bankcorp from taking over another financial institution in 1994 because of Harris Bankcorp's poor overall record.
"The federal government has been negligent in tracking and reviewing bank lending and service, letting institutions such as TD Canada Trust to merge and increase in size and power while doing nothing to ensure that they are keeping their commitments to improve service," said Conacher.
The federal government has taken some steps in setting up a disclosure system, but there are still key gaps, but has taken no steps to set up a regular review system similar to the U.S. system. The CCRC believes the following steps are needed to have an effective regular, and bank merger, review process:
"The same banks that are losing billions in risky big business lending are saying they want to merge to do more big business lending," said Conacher. "The same banks that admit they lied about the need to merge in 1998 are now saying 'trust us' on mergers now. The government will make a huge mistake if they trust the bankers and fail to protect Canadians from harms that mergers will clearly cause."
For more information contact:
Duff Conacher, Coordinator of Democracy Watch
Chairperson of the CCRC
Tel: (613) 789-5753
Canadian Community Reinvestment Coalition
P.O. Box 1040, Station B, Ottawa, Canada K1P 5R1
Tel: (613) 789-5753
Fax: (613) 241-4758
Copyright 2003 Canadian Community Reinvestment Coalition