"The Senate Standing Committee on Banking, Trade and Commerce"
Check against Delivery
- Thank you for inviting me to provide some views on the Public
Interest Impact Assessment process proposed as part of the approval
process of large bank mergers per Minister Manley's request of
October 24, 2002.
- I understand that you are asking me to help you define the
parameters of the public interest review process, not to give you
an exposition on the pros and cons of large bank mergers at this
time. Obviously if you have questions about where I stand on this
issue, I would be happy to give you my views.
- At a general level, the Government of Canada appears to have
already accepted the legitimacy of large bank mergers. In the June
25, 1999 document "Reforming Canada's Financial Services
Sector: A Framework for the Future", it is noted that 'in
this era of rapid economic change, technological revolution and
globalization, mergers and acquisitions are legitimate business
strategies for growth and success.'
- But lately we have seen some ambivalence creeping in and now it
appears that while large bank mergers have been formally accepted
in principle they are still not accepted in substance. My main
point to you today is that until the Government makes a definitive
statement as to its position, the rest of the discussion is
- However, you have been asked to address the question of the
public interest review process and so let me give you my views on
this element of the debate.
- In announcing the referral to this committee, Minister Manley
referred to some comments I made at a Competition Bureau conference
last year where I called for greater clarity in public interest
- I do not want you to mistake my comments for a call for more
rules. I was simply pointing out that the most destructive force
for an enterprise - for its customers, employees and shareholders -
is ambiguity about how business should be conducted. Clarity does
not need to mean more rules. In fact, the fewer the clearer.
- I would even go so far as to say that when you work through the
current situation logically, it is difficult to find clear grounds
for a public interest review process. In fact it would be the
industry's choice to be treated like any other business and not
have to go through a public interest review process.
- But since there is a requirement for a public interest review
process my recommendation would be to:
- make the area of coverage narrow,
- make the process short,
- don't let it be a first past the post process,
- and either announce that you're genuinely willing to consider mergers now or tell us when you will be.
Make the area of coverage narrow
- Let me start with my first point -- make the area of coverage
- As you well know, the Canadian banking industry is one of the
most highly regulated industries in the country. The challenge is
to identify what problem the public interest tests are trying to
solve that is not addressed by the regulations already in
- I fully understand and appreciate the need to balance the
interests of consumers, the industry and the national economy. I
believe that is what the existing legislation and regulations aim
to do. In fact, many would agree that they squarely address the
concerns identified under the Public Interest Impact Assessment
- I cannot imagine that anyone believes it would be useful to
have two or three sets of overlapping and possibly duplicative
rules managed by two or three sets of arbitrators. The public
interest review process needs to avoid creating such a
- The Office of the Superintendent of Financial Institutions has
laid out rules for safety and soundness and would look at the
specifics of any merger. The Competition Bureau has tests for
determining whether mergers are anti-competitive or not. The
Financial Consumer Agency of Canada has regulations regarding
branch closures, and monitors and enforces other consumer
provisions of the Bank Act.
- Rather than creating a duplicative set of rules, we need to
determine whether the Public Interest Impact Assessment process
should deal with these issues and exempt OSFI, the Competition
Bureau and FCAC from their responsibilities, or simply let those
agencies get on with their jobs. If it is the former, we should
explicitly agree that OSFI, the Competition Bureau and FCAC are
exempt from these reviews.
- Minister Manley suggested that the process should address
questions of access to banking services for people with
disabilities, low-income individuals, businesses and rural
communities, but we have no clear understanding of the intention of
the test and how, if at all, it differs from the intention of other
guidelines already in existence.
- We already have Human Rights legislation regarding access to
service for people with disabilities, and industry initiatives are
under way to make banking services more accessible to our visually
and hearing impaired customers.
- All of the banks have already signed Memoranda of Understanding
with the Government setting out their agreement to provide service
for low income Canadians. On top of this, the Government already
has regulatory authority in this area under the new Bank Act --
should it be required.
- As for the transition issues that naturally flow from mergers
and which may be concerns, such as employment, there are already
labour laws that address employee redundancies, and I believe the
record would show that the banks almost always exceed the legal
- The new Bank Act also created the Financial Consumer Agency of
Canada and provides regulations with which we must and do comply
regarding the appropriate notification of customers in the event of
a branch closure. These specifically address the question of branch
closures in a rural community.
- I think it's important to acknowledge that, imperfect as we
are, all of the Canadian banks are trying to build great
franchises. Here again, I think the record will show that in
building our businesses we are conscious that with or without
specific regulations we must take care of our customers' and
- As an example, while several years ago some suggested that
banks didn't pay enough attention to small and medium sized
enterprises, in fact they were, are and will be an important
element of our business. We are actively working to expand our
services to this segment. In fact, TD has invested significantly in
building a dedicated small business banking group and we have seen
our market share grow by 275 basis points since the merger with
Canada Trust. While there is always room for improvement it is our
responsibility, and it is in our competitive interest, to continue
to survey customers' needs and find satisfactory ways to meet
- The simple fact is that we are in the service business and
we're operating in a very competitive market where the competition
for customers and for top employees is fierce.
- TD's acquisition of Canada Trust is a case in point. The merger
of Canada Trust with TD's retail arm was about more than cost
savings, it was about extending a successful business model and
preserving our customer-centric brand.
- It was from that perspective, rather than any government or
regulatory guidelines, that we made commitments to our customers,
our employees and to the London community - our largest employment
centre outside Toronto.
- Those commitments included an 18 month compensation guarantee
for all employees affected by the merger, an extended branch
consolidation period to make integration as smooth and easy as
possible for our customers and employees, a commitment to maintain
existing employment levels in London, and a promise to provide
timely communication to customers and employees.
- I will not claim that the merger went perfectly. But suffice it
to say that had we not made these commitments and created a set of
operating principles at the outset that acted as the litmus test
for any merger-related decision, our challenges would have been
much greater and the outcome much less satisfactory. The first of
our principles was that we would put customers first.
- One of the steps required in the Merger Review guidelines is to prepare a Public Interest Impact Assessment. This is an unusual requirement to which, to my knowledge, no other industry is subject. I would argue that, in effect, through our communications strategies to customers, employees and affected communities, we created our own Public Interest Impact Assessment. I suspect that other financial institutions would do the same in similar circumstances.
Make the process short
- My second point is make the process short. We need to be clear
about the timeframe for the hearings. The commitment of the
Government of Canada to complete the decision stage of its review
within a maximum of five months is useful, but there are paradoxes
in the sequencing of events as they now stand.
- If you agree that duplication should be avoided, then allow
OSFI and the Competition Bureau to do their jobs first and put a
shortened public interest review process at the end rather than in
parallel. The political process would then become a final check.
But this must be done in an environment where the Government is
genuinely prepared to consider major mergers, so we're not going
through this process with the risk of being turned down not on the
merits of the merger, but on a mood change in the country.
- Similarly, a Public Interest Impact Assessment can only really
have legitimacy after OSFI and the Competition Bureau have made
their decisions. As part of a merger application we would be
required to submit a Public Interest Impact Assessment offering
remedial action where we think it is necessary. But if the
Competition Bureau also required remedial actions we would only
hear about them two stages and several months later.
- Divestitures of branches, should they be required, are
difficult to execute to anyone's satisfaction., In its review of
any merger the Competition Bureau could require us to sell branches
and therefore our customers' business, and transfer our employees.
It gives direction as to whom our customers' business cannot be
sold. There have been suggestions that on top of this, there should
be a process of providing direction on who the customers' business
should be sold to. You could imagine an absurd situation where we
offer to keep a branch open in a small town only to be told by the
Competition Bureau that we have to sell it, and where upon selling
a branch to a competitor the competitor closes it down a few months
later. The reality is that the process is difficult to conduct even
under present rules.
- It is illustrative that when, as a condition of our merger
approval, TD and Canada Trust had to sell 13 branches, some of them
in small towns, there was no line up of eager bidders anxious to
snap them up. We found ourselves in situations where we were
required to divest branches that we would have been happy to keep
and our customers would have been happy to stay with us.
- It was not easy for the companies that did ultimately buy the
branches either. This was a transition that was imposed to meet
competitive regulation. Our customers and employees were enraged
that they were subject to decisions that were not of their making.
I don't want to criticize the Competition Bureau in this matter but
it does serve to illustrate once again that the potential for
conflicting interests in this process.
- There are over 200,000 people working in this industry. They read the newspapers and they are left highly uncertain about their sector, their company and their jobs. As well, capital markets are known to have short fuses and are not particularly good at digesting partial information. We need to shorten the process for the sake of employees, customers and shareholders.
Don't let it be a first past the post process,
- My third point is don't let it be a first past the post
decision and denial of any others.
The industry and the Government have inadvertently backed into a position where the Government is responsible not only for the regulation, but virtually for the structure of financial services. This is not a good proposition in the long run because it will only result in Ottawa being constantly bombarded with proposals until one hits the mark.
- In my view, no merger of any of the big five banks that would be subject to review should be approved without the others having the right to apply. Everyone should have the same option. A merger in one part of the sector affects the other parts, and they must be given the chance to respond as they see fit.
Either announce that you're genuinely willing to consider mergers now or tell us when you will be.
- My fourth and final point is that the Government should either
announce that it is genuinely willing to consider mergers now or
tell us when it will be willing.
- I don't know what went on in the last two months between other
banks and the Government but like many Canadians I do read the
newspapers. In Halifax in October Mr. Manley was quoted as saying:
"Banker mergers are legal.
.. and if
somebody wants to make a formal application, they are perfectly
entitled to do so and I will deal with it."
- Subsequent events returned the ambiguity we have been living
with for the last four years. We can't have a situation where
communication of important decisions is left to newspaper scoops.
It is not productive or professional to communicate decisions about
the industry in such a manner. Nor can we continue to have the on
again, off again process that we've seen in the last month.
- It is in no one's interest to have a process that the public
believes is just a matter of talking to the right person on the
- We cannot have a process where there are rumours that a large
insurance company might buy a bank. If it's true, let's get it out
in the open, and give everyone lots of notice so we have an equal
opportunity to compete. We can't operate our businesses effectively
by trying to keep up with the latest rumour or by reading tea
leaves. We need a level playing field in terms of information and a
- We need to remove the ambiguity surrounding the Government's
attitude towards bank mergers as soon as possible. It appears at
the moment that a proposal can be rejected under public interest
concerns before it is even formally submitted. The rules should not
simply be amended to permit a proposal to be subjected to months of
investigation by OSFI and the Competition Bureau only then to be
met with the verdict of the Government on vague public interest
- If the Government is prepared to accept mergers, it should
state so unequivocally now. If it intends to place certain
restrictions then these should be stated now.
- If a clear statement cannot be made fairly quickly on the
Government's position on mergers then the best way to remove the
uncertainty for customers, employees and shareholders alike is to
tell us when you will be ready.
- Then we can all get on with running our businesses, and if and when mergers are deemed to be in the public interest, we will make decisions accordingly.