Global economic uncertainty hasn't halted the flow of credit to B.C.
According to Terry Campbell, president of the Canadian Bankers Association, the country's banks authorized more than $27.2 billion in commercial financing in B.C. last year. About 44% of it was loaned to small and medium-sized businesses.
But the flow of credit could be narrowed in the future depending on how new international banking standards and rules get implemented in Canada.
Campbell shared with Business in Vancouver some of the industry's concerns and the key issues facing banks in B.C. during his first speech to the Vancouver Board of Trade since becoming CBA president last year.
Q&A
Q: What are your concerns with increasing international financial regulations?
A: The challenge is the sheer volume of rules that we're having to contend with. I'm posing questions because we are still in the middle of implementation. But one always has to worry about the law of unintended consequences.
The volume of regulation affects banks of all sizes. Clearly it's an issue for the large banks, but it has a disproportionately large impact on smaller banks. In the effort to put these very complex rules in place, are we making it more difficult for smaller institutions to compete? If that's the case, do we run the risk of potentially lessening competition in the marketplace?
Q: If Canadian banks have remained the strongest in the world, aren't the regulatory standards that we have in Canada enough?
A: We have one of the strongest regulatory and supervisory systems in the world, but even in Canada we had lessons to be learned. Policy makers and regulators have come to the view, not unreasonably, that standards right across the board, in terms of capital levels, or liquidity measures, and other things, had to be increased, so Canada has had to up its game as well.
Q: The Office of the Superintendent of Financial Institutions Canada (OSFI) recently told banks they need to do more to confirm a person's income and so on. Does that suggest they weren't doing as much as they should have?
A: We have maintained strong, prudent lending in Canada. What's happened here is that the Financial Stability Board, an international body, put out a set of guidelines and requested individual countries to take those guidelines and put them into place. That's what OSFI has done. It's translated that international guideline into domestic guidelines. There's a draft in Canada, and we're still in discussions with OSFI about some of the technical details.
Q: Chip and pin debit and credit cards have improved payment security, but what about fraud associated with paper cheques?
A: Cheque fraud is an issue. It's one of the reasons why we have hold periods and a whole series of internal checks and balances. But it's something we need to continually focus on.
There was a federal task force that looked at the issue of business-to-business payments and where it can be moved from paper-based cheque systems to a more electronic exchange. An awful lot of work is being done on that now. You have to have standards to deal with identification and authentication, so work is being done at the federal government level, through the Canadian payments system and by individual banks. I can't tell you right now what the specific timelines are, but everybody is very mindful of the desirability of a move toward a more digital and electronic system.
Q: Is there any concern about how the slowdown in the B.C. housing market will affect the solvency or profitability of Canada's banks?
A: From our perspective, we continue to lend carefully. Before the crisis, after the crisis and now. One of the most significant measures of the bank's housing portfolio is the mortgages in arrears statistic. In Canada, mortgages in arrears have been less than 0.5%. That's an extraordinarily low number, and it's been steady for the longest time. What that says is that banks are careful lenders and Canadians are very careful borrowers. •
