EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, October 30, 1996

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[English]

The Vice-Chairman (Mr. Lastewka): Could we take our seats, please, and begin?

Pursuant to Standing Order 108(2), the committee will resume consideration of a quarterly review of financing to small business.

I would first of all like to welcome everybody here on behalf of the industry committee and the representatives from the banks. As everybody knows, this is a periodic review of bank lending to small and medium-sized businesses. Let me set out why we are here and what we hope to achieve.

I think everybody realizes that small businesses play a very important part in the Canadian economy and that over the last number of years CBA and the banks have been working together to provide data and information to this committee. Today we will review the quarterly report, which has been made available to everyone.

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Before I begin the introductions of people, I would like to clear up one item of housekeeping that has bubbled up in the last couple of days, and that's the analysis by Industry Canada of the business credit statistics of the Canadian Bankers Association. That was background information for the committee, as the committee tries to learn more and more about banking. That document is just a reference document for the committee.

We will be concentrating our remarks on the books that have been provided by the CBA. I hope the meeting can be productive from the standpoint of not only reviewing the booklets and the statistics but also moving forward. I'm sure that as a result of today's discussions we will be able to prepare for the future even better and hopefully make advances in small and medium-sized businesses working with the banks and other financial institutions.

At this time I would like to welcome John Leckie from the Toronto Dominion Bank.

Mr. Leckie, it's great to have you here. I would ask that you introduce the rest of your partners here today, or you can do self-introduction, whichever you wish, and then we can begin.

Mr. John L. Leckie (Senior Vice-President, Business Banking Services, Toronto Dominion Bank): Okay. Self-introduction is probably safer.

Maybe we'll start with you, Maurice.

Mr. Maurice Hudon (Senior Vice-President, Personal and Commercial Lending Services, Bank of Montreal): Good day. My name is Maurice Hudon. I'm with the Bank of Montreal.

Mr. Derral Moriyama (Vice-President, Independent Business and Agriculture, Bank of Montreal): I'm Derral Moriyama with the Bank of Montreal.

Mr. Dieter W. Jentsch (Senior Vice-President, Canadian Commercial Banking, Bank of Nova Scotia): I'm Dieter Jentsch with the Bank of Nova Scotia.

Ms Kathleen Sullivan (Manager, Business Relationship Standards and Communications, Business Banking Services, Toronto Dominion Bank): Kathleen Sullivan, TD Bank.

Ms Anne Sutherland (Vice-President, Small and Medium-Sized Enterprises, Business Banking, Royal Bank of Canada): Anne Sutherland, Royal Bank.

Mr. Paul A. Toriel (Senior Manager, Small and Medium-Sized Enterprises, Market Management, Business Banking, Royal Bank of Canada): Paul Toriel, Royal Bank.

Mr. Tom Cormier (Senior Manager, Corporate Account Management, National Bank of Canada): Tom Cormier, National Bank.

Mr. William McLaney (Vice-President, Credit, Hongkong Bank of Canada): Bill McLaney, Hongkong Bank of Canada.

Mr. Kelly Shaughnessy (Senior Vice-President, Small Business Banking, Canadian Imperial Bank of Commerce): Kelly Shaughnessy, CIBC.

The Vice-Chairman (Mr. Lastewka): The procedure is to have some opening remarks and comments from some of the banks.

John, I'll begin with you.

Mr. Leckie: Okay. Thank you, Mr. Chairman and others members of the committee.

It's a pleasure to be with you today to provide a progress report on the relationship between Canada's banks and our nation's small business community. As Walt mentioned, I'm John Leckie, senior vice-president of business banking services for TD, and I'm acting today also as the chair of the independent business committee.

We are pleased to be here, because we believe we have a good story to tell today. We've found that our meeting with you has proven to be extremely useful in accomplishing an objective we all share: helping small business to grow and prosper.

First I'd like to review our business credit statistics. As you know, we have been collecting and publicly reporting data on business credit for just over a year and a half. That's not long enough to conduct a trend analysis. Economists tell me it's necessary to have a minimum of a set of data that covers a complete economic cycle for such a trend analysis.

However, a summary of the data to date indicates that the amount of credit authorized to small and medium-sized enterprises in Canada grew by 4.4% over the past year and a half. This is almost twice the rate of growth in the economy overall during that period. That really represents from the first quarter of 1995 to the second quarter of 1996.

Currently there's approximately $62 billion authorized to small and medium-sized enterprises, that is, businesses with credits of less than $1 million. Approximately $42 billion of the $62 billion is outstanding at present.

The number of small and medium-sized business customers who borrow from the banks has increased over this time period by 4.9%. There are now almost 678,000 small and medium-sized business customers borrowing from the banks.

The increase in the number of customers is particularly interesting given the fact that the Canadian economy is shifting from a manufacturing economy to a service-based economy. Firms in the service sector tend to borrow less than manufacturing companies, because they need less capital. This is why, I think, we're seeing more customers borrowing smaller amounts.

I'd also like to point out that the small business lending market is intensely competitive. Not only do all of the banks around this table compete with one another for small business customers; we are also increasingly competing with credit unions, caisses populaires, government lending agencies and other newer players such as Newcourt and GE Capital, as well as leasing companies such as GM and Ford Credit.

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In fact the Conference Board of Canada, in its 1995 report entitled ``Alternative Sources of Debt Financing: for Small and Medium-sized Enterprises'', estimates that domestic banks' relative share of the market for small and medium-sized business debt financing is only 50% - half the market.

So clearly we need more than the statistics produced by the Canadian Bankers Association on business credit extended by the banks in order to get a complete picture of debt financing in Canada. An accurate picture of the availability of credit in this sector would include lending from all sources.

The banks have encouraged non-bank financial institutions and government lending agencies to provide similar statistics to those we have presented to this committee. We are happy to provide the template for these statistics to anyone who is willing to produce the reports for their own organization. In fact the CBA recently gave copies of the template to Industry Canada to assist them in their efforts to encourage all Crown financial institutions to produce these stats.

We are still a long way away from a comprehensive overview of financing available to small business in Canada. The Conference Board is currently updating its 1995 research on alternative sources of debt for small and medium-sized enterprises. The banks are supporting that research, both financially and by providing them with comprehensive data for our industry. Until other lenders to small business also produce these kinds of stats for public scrutiny, it will be impossible to accurately identify any gaps that may exist in the marketplace for small business lending.

The banks have not only measured their financial support to small businesses; we also hired Thompson Lightstone to conduct a survey of the sector. As you recall, Ian Lightstone presented the results of that survey at our last meeting in May.

The purpose of the survey was to have an opportunity to talk to small business operators and gain insight into experiences in attempting to access financing. We have found the survey results to be very useful, not only because they provide us with qualitative information, which stats can never capture, but as we mentioned to you during our meeting last May, the banks are using the survey results for ideas on how they can improve their services for small and medium-sized businesses.

When Thompson Lightstone presented the survey, several members of this committee noted areas where they would like clarification of the results. We've already started work on the 1997 survey.

I'd like to take this opportunity to assure you we are revising the survey to more fully explain a few issues that were of particular interest to you. For example, several members expressed surprise that 44% of small businesses stated they finance their business through credit cards. In this year's survey, we will ask small businesses about the extent of and reasons for their use of credit cards as a source of financing.

As a result of this discussion on personal guarantees at our May meeting, we will also be asking small businesses whether or not they provided a personal guarantee in support of a loan request. As well, we will try to put the question of access to financing into context by asking small businesses to identify the most important issues facing their business.

Finally, in next year's survey we will be gathering information on five key segments of the small business population that are of particular interest to this committee and the banks. These are: home-based businesses, knowledge-based businesses, rural-based businesses, exporters, and businesses primarily involved in tourism. The survey results next year will provide us with information on the loan approval rates for these sectors as well as a measurement of how satisfied these businesses are with their banks.

Clearly the 1996 survey provided us with a lot of valuable information to work with in our efforts to serve the market. We realize there is more to the relationship with our customers than just providing financing. The banks have a unique role to play in developing the skills of small business operators. I expect each bank here today will be able to provide you with examples of how they are working to encourage the growth of small businesses.

While we all participate in programs and initiatives to assist in the skills development of small businesses, we also know it is important to train our own account managers to become more sensitive to the concerns and needs of small businesses and to be better able to communicate and consult with our customers. That is why many banks have implemented extensive in-house training programs for the account managers. The Institute of Canadian Bankers also provides these types of courses.

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The banks are pursuing a wide range of initiatives to support small businesses on many fronts, for the simple reason that the success of this sector is vital to our own success. In fact small and medium-sized business borrowing customers represent over 95% of our total base of business borrowing customers.

In today's competitive marketplace there's obviously no room for complacency. For this reason we welcome this opportunity to discuss with you our most recent data on the support the banks are providing to small business. As always, we look forward to your questions and suggestions as to how we could do it better.

Thank you.

The Vice-Chairman (Mr. Lastewka): Thank you, sir.

Are there any comments from the Bank of Montreal?

Mr. Hudon: At this time we do have a prepared statement I'd like to make, talking a bit about the initiatives taking place at Bank of Montreal.

[Translation]

My name is Maurice Hudon and I am Senior Vice-President for Commercial Lending Services at the Bank of Montreal. I have already had the pleasure to appear in front of your Committee, but such is not the case for the person who is with me today. So I have the pleasure to introduce to you Mr Derral Moriyama, Vice-President responsible for the SME market at the Bank of Montreal.

We have already met several times to discuss measures that we could take together so that small and medium-size businesses could have better access to all types of credits and other forms of capital.

We all know that today the situation evolves rapidly, and in the banking business the SME market changes maybe more quickly than any other. While that market is growing, small businesses, on the other hand, are getting smaller and smaller. The banking services they require, however, are no less complex. Those are some of the reasons why innovation is essential for any institution that does not wish to be left behind.

[English]

Bank of Montreal has a strong history of innovation in banking, and our innovation in small business banking has been among our consistent high points over the last six years, since we made small business a top corporate priority.

Since making the decision to focus on small business in 1990, our SME market share has increased greatly, from 10% to 16%. This is in large part due to our community-based banking structure, which puts bankers and bank executives into the communities they serve. These communities are vital for our business, as today approximately 95% of our business accounts are small business accounts.

If we've had success in small business lending, it's because we recognize that small business people want to control their own financial destiny. They want options and ideas to provide them with the flexibility they need to succeed.

At Bank of Montreal we want to provide the widest possible range of options for our small business customers, and for all our customers, and to give them the ability to tailor their banking services.

Our most recent and significant set of options is available through mbanx, a new division of Bank of Montreal. As many of you have heard and seen, mbanx is a new way of banking in Canada. It's a new channel of distribution available to customers throughout North America. It's anytime, anywhere banking.

mbanx can save small business people time and money, two of their most important resources. We believe the so-called SOHO marketplace - small office/home office - will find mbanx particularly attractive. With our fast credit process for small business, a toll-free phone call and a signature are all customers need to apply for a loan of up to $50,000.

Among its attributes, mbanx is an ideal banking service for people with little time during the day and for people living in rural areas who may not be served by any branch of any bank. mbanx makes sense for rural areas. In fact our first commercial account with mbanx was a small business operator in Carnduff, Saskatchewan.

We have with us some mbanx material, and we'd be delighted to share it with you. I left it with the clerk a little bit earlier.

In addition to mbanx, we continue to provide one of the industry's most comprehensive suites of low-cost products and services for the SME sector. With our instabanking plan for small business, SME customers can make 15 electronic transactions for only $5 a month. For an additional $5 a month, customers can add telebanking. We estimate this plan will benefit one in four commercial accounts opened with Bank of Montreal.

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Our small business lending rate, which continues to track below the prime rate, and service fee breaks for start-up small businesses are among the options we continue to provide to this important sector.

[Translation]

Our Bank invests considerable amounts of money in training, and so we want to better understand what are clients do and also help them to know us better and to understand what we do.

One of our most recent initiatives in this area consisted in sponsoring a study entitled "Myths and Realities" on businesses led by women. The study, done by the SME Institute of the Bank of Montreal together with researchers from the Universities of Calgary and Western Ontario and with Dunn and Bradstreet Information Services, revealed that the number of women-led enterprises had increased twice as fast as the average with a rate of 19.7% compared to 8.9%.

But what may be the most fascinating bit of information coming out of this study is that the job creation rate amongst those businesses is four times greater than the average rate for Canada. Between 1991 and 1994, employment in women-led businesses has increased by 13%, while the average growth was only 3.1%.

We are proud of this study and we hope that it will contribute to a better understanding of this important segment of the market in the public as well as in the private sector. We do have copies of that document for those who might be interested.

We contribute to skills development with documents and videos such as the series entitled "Your Business is our Business", brochures on how to start a business in 8 simple steps, or through our participation in "Uniquely Ontario", a program to help small enterprises to market their products for the first time.

I must add that the Bank of Montreal has recently been honored with two prestigious "Mercuriade" awards in Quebec, one for its financial results and one for its contribution to community development.

Communities are very important to us. For that reason, we invest in skills development and in the expertise that our bankers bring to communities everywhere in Canada and share with our clients and with small and medium-size business owners.

I spoke of "investing" for two reasons. We invest in research, training and skills development in order to retain our share of the market in the face of tough competition.

But we also invest in knowledge, and knowledge is good for everyone. By letting our clients benefit from our knowledge, we hope to grow together and achieve financial success.

[English]

Success can also be found in alliances. We have alliances with governments of various levels across Canada, as we do with other private sector companies. For example, we have an alliance with the Newcourt Credit Group, one of the top 10 non-banks in North America, to assist customers with special financial arrangements. We also have a highly successful alliance with Northstar Trade Finance for financing export-oriented SMEs, and Ventures West for venture capital.

As some of you know, Northstar Trade Finance is a partnership including the Export Development Corporation, the provincial governments of British Columbia and Ontario and Bank of Montreal. Since it was launched two years ago, Northstar has committed all of its original $30 million in loan capital, putting it three years ahead of schedule. We recently made available an additional $50 million to Northstar.

When we do not launch an alliance, we launch something ourselves. For example, since its inception less than 12 months ago, Bank of Montreal Capital Corporation has undertaken almost two dozen deals. With BMOCC, as we know it, we go against traditional thinking. Our program is designed to make venture loans from $100,000 to $1 million and beyond. Bank of Montreal will continue to maintain a strong presence in this exciting field.

The Vice-Chairman (Mr. Lastewka): I'm going to have to ask you to conclude.

Mr. Hudon: I'm on the last page.

We're working very hard in small business, but we're the first to admit that one of our key objectives - to gain more market share - requires that we do even more. We have to continue to do things differently and to take every step possible to ensure that small businesses, the job creators of today and tomorrow, get proper attention and financing wherever possible.

Thank you, Mr. Chairman.

The Vice-Chairman (Mr. Lastewka): Mr. Jentsch.

Mr. Jentsch: My trusted colleague has taken all the time.

Some hon. members: Oh, oh!

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The Vice-Chairman (Mr. Lastewka): I hope we can keep it to five minutes. I'll deduct next time.

Mr. Jentsch: Good afternoon. My name is Dieter Jentsch and I have responsibility for Canadian commercial banking as well as the small and independent business sector at the Bank of Nova Scotia.

Scotiabank has a strong commitment to small business, a commitment of which we are very proud. It is this commitment that resulted in a 63% increase in our small business customers over the last three years and a 56% increase in outstanding loans. Of our business banking customers in Canada, 74%, an industry-leading figure, have loans under $100,000. Of our business banking customers in Canada, 96% are classified as small and medium-sized enterprises.

Scotiabank has an important role in helping small business grow and prosper. This role includes access to credit and providing the tools and education to assist small business owners in the successful management of their businesses.

I will now discuss our initiatives in those areas in more detail. First, access to credit. The availability of credit when necessary at an affordable price is, in the opinion of the Bank of Nova Scotia, an integral component in the growth of small business. In this regard, until the end of December, to assist with necessary capital expenditures, Scotiabank is offering Scotia business and Scotia farm improvement loans at rates as low as prime for the first year. This is a similar initiative to what we had in previous years.

As a side note, and of interest to this committee, I might add that notwithstanding an interest rate of prime in the first year and notwithstanding that customers have told us in a recently commissioned Thompson Lightstone & Company survey that we approve nine out of ten applications, relative volumes year over year are down between 20% and 23% throughout Canada.

To support micro-lending, especially in rural communities, Scotiabank, together with the Ontario Association of Community Development Corporations and in close collaboration with Andy Mitchell, MP for Parry Sound - Muskoka, as well as Industry Canada, we recently announced an initiative called the community credit project. We are making available $2 million in wholesale funds at a borrowing rate below prime to eight members of the Ontario Association of Community Development Corporations. This will provide funding to viable businesses that cannot necessarily provide traditional security, with access to much needed start-up capital; $700,000 of the $2 million in funds will be available for character-based micro-loans to a maximum of $15,000.

Our partnership with the community development corporations enables the bank to support micro-lending on a commercially viable basis and to encourage start-ups in high-potential sectors such as tourism in rural Canada.

We recognize that many businesses, especially those in innovation and growth sectors, require credit products tailored to meet their unique needs. For example, often knowledge-intensive small businesses have considerable investment in research and development. To assist with SMEs' working capital requirements in the knowledge-based sector, Scotiabank now offers a unique financing product for those companies on the refundable investment tax credits.

In addition, we've recently entered into two new partnerships to serve the small and medium-sized business market. In late July we announced a strategic alliance with the Business Development Bank of Canada intended to provide a blend of financial expertise and industry knowledge that will lead to more innovative financing solutions.

Our second partnership was announced just last week. Scotiabank and the Saskatchewan Opportunities Corporation established a $5 million venture capital fund for businesses involved in knowledge-based industries in the province of Saskatchewan. This fund will provide Saskatchewan's rapidly growing innovative businesses a reliable source of home-grown capital to ensure their competitiveness in Canada and abroad.

Both of these aforementioned partnerships will work in harmony with Scotiabank's own merchant bank, RoyNat Inc., which places up to some $50 million annually in equity-type investments in small and medium-sized enterprises.

In addition to specific initiatives pertaining to innovation and growth, we continue to give all the product offerings to ensure access to capital for Canada's small exporting companies. In this regard, we have developed numerous products, and we're piloting a U.S. dollar-receivable discounting program, which facilitates the complete management of a company's U.S. dollar receivables.

There are some various other partnerships that we have entered into with the Export Development Corporation as well as the Canadian Commercial Corporation to assist the small and medium-sized companies that are exporting around the world.

A second important role in helping small businesses grow is providing the tools to assist small business owners who are successfully managing their businesses. About a year ago we launched a windows-based software program called Scotia Business Plan Writer. This provides a step-by-step approach to developing a business plan.

Also available through all our branches is a global life skills home and office small business program, a workbook comprised of more than 450 pages focusing on 11 individual areas of expertise, which was developed for people to start and manage small business. This program has been endorsed by several colleges, where it is offered as a credit course.

A third important dimension to our role in helping our small business grow is the education of aspiring existing entrepreneurs as well as our own account managers.

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Women-owned businesses are becoming an increasingly growing percentage of the small business market. Three weeks ago, to help women entrepreneurs develop the business skills and expertise to launch successful ventures, we donated $300,000 to Simon Fraser University to establish a Scotiabank resource centre for women entrepreneurs. This centre will help identify market opportunities and develop closer links to the business communities.

You'll agree that educating our account management to the small business market is also very key to successfully banking our customers, and we're working together to meet their needs.

In the 1995-96 academic year, over half the students enrolled in the Institute of Canadian Bankers education program were Scotiabankers.

On a more philosophical note, and coming to the conclusion of my remarks, Scotiabank's approach to lending to small and medium enterprises is based on two simple principles. First, we're a relationship bank. For us, that means we make an effort to know our customers, to understand their business and their personal goals. Second, we are a community bank. Our branches and staff are involved in supporting the cities, towns and neighbourhoods they're located in. Correct decisions, decisions that impact these communities and businesses, that make them vibrant, are largely made at the local level, made by the people who know and care personally about the business in that community.

This approach has never changed, even when it was out of fashion, because we always recognized its inherent strength. We never forced customers to move from one branch to another. Our customers do business with us wherever they are most comfortable.

In conclusion, then, small business and the entrepreneurial spirit are alive and well in Canada. This sector plays an important role in our economy, and the more ways we find to develop small businesses the more successful we'll be as a country. Thank you very much.

The Vice-Chairman (Mr. Lastewka): Thank you.

I'll go to the Royal Bank now.

Ms Sutherland: Good afternoon, Mr. Chairman, members of the committee. My name is Anne Sutherland.

For many of you this is the third or forth time the Royal Bank has talked to you about some of our initiatives. Given the time constraints, I'll attempt to be as brief as possible and only talk to you about new initiatives that we have engaged in since last May.

The importance of small business to the Royal Bank and to the country obviously cannot be underestimated. We at the Royal have over 350,000 small and medium-sized business clients with over $11.5 billion outstanding in loans, an increase of $400 million over the last nine months. Royal Bank is the leading small business and agricultural bank, not only in Canada but in North America. Furthermore, 43% of our business loans are for amounts less than $25,000.

We have been focusing on the small business market as a distinct group of customers for over 25 years. It's for that reason, according to the lending statistics you have in front of you, that we have almost 25% of the lending market amongst banks in this country.

We have three key fronts on which we want to build on our leadership position. They include expanding our relationships and building customer loyalty, continuing to make products easier to access, and improving communication and skill development of our clients and our banking staff.

I would like to update you on a few key initiatives that have occurred since last May. As you may be aware, this September we launched a credit line for small business. It is an innovative product and the first of its kind in Canada. It addresses the financing needs of clients requiring less than $35,000. It's available at any Royal Bank branch and its major features are an easy one-page application, a reply within 48 hours, and no security requirements.

We also launched, in September, a start-up package that gave new businesses the opportunity to have the operation of a current account for free for three months and complementary copies of our business planning software as well as our renowned Your Business Matters series.

This summer we launched a new lending product to assist with the expansion of businesses. It has one of the lowest rates in the country and provides fixed rate financing up to five years.

I would like to provide you with a few examples of where we are working on the skill development of our customers and our bankers. This spring we launched - and it's now been across the country - a program called Working with Entrepreneurs. It is the first of its kind in Canada. Through it bankers spend two to four weeks working in their clients' businesses to get a clear understanding of what it's like to operate a small business. As well, it gives the bank the ability to provide our customers with opportunities for skill development that they might not have.

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In regard to reaching the women's market, the seminars we are providing to all of our account managers across the country, which were developed by a leading expert on women's business issues, are intended to ensure that our account managers and other staff are sensitized to gender issues and recognize the importance of the women's market. The support and creation of this program has been endorsed by our Women Entrepreneurs' Advisory Council, which includes leading businesswomen across the country, academics, and other bankers.

We have entered into a partnership agreement in eight centres across the country called ViaTech, in order to provide banking, legal, accounting and marketing support to new and existing technology businesses. Royal Bank also sponsors Uniquely BC and Uniquely Alberta, which supports and trains micro-entrepreneurs on how to market their products through trade shows.

In short, I could probably list about another ten initiatives this afternoon, but in the interests of brevity I will leave those aside for another day. As you see, while we are serving the whole SME market, we are absolutely focusing a lot of our attention on sectors that are creating the most jobs in this country: start-ups, young entrepreneurs, women entrepreneurs, and the literally hundreds of thousands of businesses in this country that operate from their home.

It is our belief that this sector is very important to the Royal Bank, and obviously to the country, and we will continue to lead the way in this marketplace in the years to come.

The Vice-Chairman (Mr. Lastewka): Thank you. You were almost under five minutes.

Any comments from the Toronto Dominion Bank?

Mr. Leckie: I'll try to save you a few more minutes. If we can consider my remarks read into the record, I'll just make a couple of quick comments.

I'll talk about our initiatives and process versus products. We have something we call Main Street banking, which was an initiative we started 18 months ago. We have 950 branches. Prior to that time we only did small business loans through big commercial banking centres, through about 100 of those across the country. Now all 950 branches service small business.

The proof in the pudding is that in the last nine months alone the number of borrowers has gone up by 11%. However, the amount of borrowings is only up 3%. It doesn't run up in tandem with the number of borrowers coming in and setting up lines of credit. We're happy with both those numbers - 11% and 3% over nine months. It's faster than the economy is growing. I'd like to see the outstandings grow faster. I think it's because TD tends to be an urban bank. We're in a lot of big urban centres and the borrowers tend to be service-oriented companies. Service-oriented companies, as I mentioned in my opening remarks, borrow less than manufacturing companies. So this is an issue I think we should all be watching.

The only other remark I want to make is we're starting something called the First Nations Bank. The CDIC, I hope, will approve this at their board meeting on December 4, and I hope I'm here to tell you a lot about that at our next meeting.

The Vice-Chairman (Mr. Lastewka): Thank you.

We'll now go to the National Bank of Canada.

Mr. Cormier: I welcome the opportunity to provide this committee with information on a few of the projects we've undertaken in the last year. I'll try not to be too exhaustive about some of our past accomplishments, but, as you know, of the banks dealing in Quebec, we manage 45% of the SMEs, so we take this role very seriously.

We have tried to undertake a number of initiatives on a consultative basis to help SMEs deal with the environment they deal with today. In this area one of the initiatives we've undertaken with the BDC is a family succession planning process, where we work with SMEs in helping them deal with the future and passing on their business to their children. In our regional offices across Canada we have conducted over 75 seminars in the last year on such topics as exporting, managing receivables, finding early warning signs of problems in an enterprise, as well as KBI topics for emerging companies, franchising, and how to set up a business.

We continue to work very closely as well with Les Jeunes Entreprises du Québec, which is a mentoring program with students in high school and CEGEP, where they basically set up micro-companies. They get them on their way. We obviously use the tools we have at hand, such as our Planning for Success, which is a PC and paper-based module on how to do a business plan, how to do a marketing plan, and how to process and apply for a loan at the bank.

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In the Ottawa area, the Ottawa-Carleton Economic Development Corporation - and we are a major sponsor in that group - assists small businesses in setting up operations on how to do a business plan, how to do the marketing plan. They also work very closely with the various government agencies that have been downsizing. As such, they have been providing a lot of guidance and counselling in Ottawa for people who are now setting up home-based businesses. Our local people here in Ottawa and in Hull have been heavily involved in that area as well.

For the second year, we have honoured, in each of our 23 regions across Canada, three SMEs of the year. We will have a nationally televised gala in late November to honour these for Canada - gold, silver and bronze.

Our KBIs have been working very hard in this area. We've set up four centres in the last two years. Very shortly, in the next day or so, we will be announcing some major alliances with both provincial and federal agencies for financing emerging businesses in specific areas of KBI.

We are heavily involved, as well, in venture capital groups at the micro-level in each of our 23 regions. So far we have invested in 25 such programs for over $60 million, and we have plans to expand that in the next year or so.

On the international side, through Natexport, an export financing arm, we've done over $88 million of financing in the last year. These are primarily smaller-type environments. We finance as low as $25,000 of exports, which is rather small.

In the master accounts receivable guarantee program, commonly known as MARG, we have 30% of the market in Canada, which is four times our normal market share, and we're advised that over 80% of the deals struck in Quebec were struck through the National Bank. We're very proud of that.

In conjunction with seven strategic partners, we've set up an Asian action group, a corporation set up to help emerging SMEs do exporting business in Asia. It's rather unique. We're very proud of it. So far, they've been able to find investments of over $200 million in Asia. We find it quite an achievement.

On the product side, I won't run down all the products we have for small business - our products are primarily geared towards small business - but in the last few months we've announced a product called Securnat, which helps SMEs sell their products through the Internet. It's brand new, and has only started up in the last year. Obviously, we're involved in electronic banking products, telephone banking products and flat fee operations.

Of note in the last year, we've done a specific training program to assist our account managers in negotiating fees with accounts. The focus has been not on collecting the fees but on making sure the client understands what he or she is paying. I think that's the most important thing in the exercise, and that's why we've focused on that area.

That's all, Mr. Chairman. We're going to continue the work for and with SMEs very exhaustively. Rest assured that we'll continue to be on the alert.

The Vice-Chairman (Mr. Lastewka): Thank you very much.

We'll now go to the CIBC.

Mr. Shaughnessy: Thank you, Mr. Chairman.

A little over a year ago, I appeared before this committee with our president, Holger Kluge, and gave an outline of our new small business strategy. At that time, we noted that implementing such a comprehensive and wide-ranging strategic plan would not be a turnkey operation, and that all the benefits of the strategy would not necessarily be seen in the short term.

The last year has indeed been a year of significant internal change as we have aggressively pursued the implementation of our strategy. Account managers have been through several rounds of training in addition to the independent learning required to re-equip themselves for significantly changed job descriptions.

The entire small business statement has been moved from our commercial banking operation to our branch banking operation. We have created systems to serve all of the needs of the small business person, be they personal or commercial needs. This will result in a better understanding of the small business customer and assist us in helping them achieve their goals.

Finally, we've also begun changing the system and processes we use in approving and monitoring small business loans.

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All this, which represents a significant investment of the bank's resources, we feel will make the CIBC even more competitive in this market in the medium to long term. Unfortunately, our credit market share has declined slightly as we have focused on these internal realignments and changes.

The securitization of a number of franchisee loans has also moved small business loans off of our books, and there'll be more transactions of this nature going forward. This has the effect of removing the loans from the numbers we are permitted to report to this committee, but it brings lower borrowing costs to our small business customers. Rest assured, small business is a market where CIBC doesn't simply seek to be competitive. Indeed, our goal is to be pre-eminent. In the coming months, our customers will begin to benefit more fully from the changes we embarked upon just over a year ago. They have already told us they are experiencing a number of these benefits, which extend far beyond lending.

CIBC has taken a leading role in enhancing the skills of our small business customers. We believe this will make them not only more successful but also better able to access the financing they need to grow their businesses. Through our business seminar series, we have delivered 180 two-day seminars to over 3,500 small business people in Canada, with only one - only one - claiming the money-back guarantee.

This year we are beginning to offer a customized version of the seminar to aboriginal small business people. We are very proud of this seminar series and have recently built upon its success by introducing Business Focus, a software package that guides a small business through the development of a detailed business plan and allows them to do financial modelling around different future scenarios.

Giving our customers greater access to alternative banking channels and placing account managers and branches closer to their businesses has been a major focus in the last year. We introduced ABM telephone and debit-card banking to our small business customers in one package, the business convenience account. Earlier this month, we added PC access at no extra charge and introduced an optional flat-fee pricing structure, which will make access to these alternative channels affordable for even the smallest of businesses and reduce service fees for many of our customers. Our small business customers can now do their day-to-day banking when, where and how they want to.

As mentioned earlier, we have also brought the principles of convenience to our credit process, where our streamlining of the credit application approval and monitoring system will mean faster and more consistent decisions on loan requests. It will also reduce the account manager's paperwork, allowing them to spend more time getting to know their customers' business and personal financial needs.

All these initiatives are based on the principle that if our customers can spend more time on their business and less time doing their banking, their businesses will become more successful.

We have also forged partnerships with other organizations in order to meet the needs of small business persons and budding entrepreneurs. We, along with a number of the banks in this room, are a major sponsor of the Canadian Youth Business Foundation, launched this past spring.

Our focus on young entrepreneurs is also reflected in our continuing lead sponsorship of the Association of Collegiate Entrepreneurs, which offers networking and skill development opportunities to prospective student entrepreneurs at colleges and universities throughout Canada.

Post-secondary small business research and teaching initiatives have also been a priority, with $700,000 to the University of Waterloo, $350,000 to Carleton and $200,000 to the University of Alberta. We have also contributed to micro-lending funds, including one through St. Mary's in Halifax. I can assure you, there will be more.

Another area of focus in the past year has been seeking out partnerships with governments and government agencies and the private sector. These include our recently announced BDC partnership with the .AA industry and the value-added agriculture program we launched earlier this year in partnership with FCC and WED.

This committee has proven to be a catalyst, a catalyst in the formation of such partnerships. Its work has also assisted in bringing better focus to small business among the public, financial institutions and indeed the government. Meanwhile, the government's monetary policy has resulted in the lowest interest rates in decades, which will not only ease the debt service burden on new businesses but will also gradually increase consumer purchases from small businesses.

We believe Canada is on a course of gradual and sustained growth that will benefit the country in general and small business in particular. I feel very positive about the partnership we have forged together and look forward to working further to improve small business access to financing and other financial products and services.

Thank you.

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The Vice-Chairman (Mr. Lastewka): Thank you.

We will now hear from the Hongkong Bank of Canada.

Mr. McLaney: Thank you, Mr. Chairman, members of the committee. I'm here today simply to reiterate that our bank is focused, and will continue to focus, on the medium and small business market. It's basically what we are, what we like to do.

I can talk about a couple of the things we're doing right now. One of them, like my colleague at the Commerce, is to put a very simplified credit approval process in place for the small business sector. Virtually all credit decisions on small business loans are now made in the branch of account. We believe that has improved the service level.

As an international bank we focus to a very large extent on the import and export side of the business. I think our various market share statistics in that area would show we are overrepresented for a bank of our size.

We work closely with the CCC, the MARG program and a number of other programs along that line. Our managers are actively involved in trade finance-type seminars offered to our customers, potential customers and people interested in that particular sector.

We're the agent bank for the overseas Chinese credit guarantee fund, a fund that serves the need of immigrant Asians in Canada who are starting new businesses in this part of the world. So we've seen quite a bit of business from that area.

On a community level, our people are out and active in the community at all times. Yesterday one of my colleagues was at Centennial College in Toronto speaking to the class that is in the Centre for Entrepreneurship, basically outlining from our viewpoint what a small business has to do to get financed in Canada. So we've been very active at the community level there.

We're looking at venture capital. We perhaps don't have the resources some of our colleagues have to bring to bear here, but we are a member, with some of the other banks, of the Atlantic Equity Fund, a venture capital fund in Atlantic Canada aimed at the small business community.

We have an affiliate who does provide venture capital more at the mid-market than the small business market right now, but clearly in that sector, called HSBC James Capel Canada Inc.

Much of our work is trying to keep up with all our colleagues here through the CBA, providing the statistics, getting our systems in place to make sure those are accurate and can be brought to bear in time. We reiterate our commitment to that. We have our statistics included in some of your charts and not in others, but we will be there eventually. We are working at that.

In conclusion, we're a small business bank. We provide a service level that many people tell us is next to the best in the country, and we're very proud of that.

Thank you.

The Vice-Chairman (Mr. Lastewka): Thank you, sir.

We'll now begin questions. Mr. Leblanc.

[Translation]

Mr. Leblanc (Longueuil): The Hongkong Bank of Canada seems to be quite humble in its approach, but the others are saying that the arrival on the scene of these foreign banks is what most scares the long established institutions. I find Mr. McLaney to be very humble in his approach.

Here is the only question that comes to mind. Why is it that Canadian banks, that have been established here for a long time, are so afraid of foreign banks? What is your share? What sets you apart from those Canadian banks that have been here for so long?

[English]

The Vice-Chairman (Mr. Lastewka): Would anybody like to comment?

Mr. Leckie: Who said we were afraid?

Some hon. members: Oh, oh!

Mr. Shaughnessy: I know John said that in jest, Mr. Lastewka, but I don't think any of us are afraid whatsoever of foreign banks in Canada. Hongkong Bank is an excellent competitor for the Canadian banks here, but Hongkong Bank plays in the same playing field as the other banks. We play with the same regulations. We play with the same regulatory environment. The only thing we as a bank would like to see is if foreign entrants wish to enter into the Canadian market, they play by the same rules and the same regulations we do. We would also like to have access to their markets in the same way that they are granted access to our markets here.

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The Vice-Chairman (Mr. Lastewka): Ms Sutherland.

Ms Sutherland: I was simply going to mention, Mr. Chairman and Mr. Leblanc, that I don't think it's fear; it's healthy respect for the very important notion of competition. I would say that certainly Royal Bank and many of my colleagues here believe that the best way to get best service in any industry is more competition, and I think it's a matter of healthy respect for all competitive elements in this marketplace in which we all serve.

[Translation]

Mr. Leblanc: I don't know much about the Hongkong Bank of Canada. Could you tell me more about your links with Chinese businesses in particular, about the advantages you have over other Canadian banks on the international level, and particularly in Asia and the Pacific Region?

[English]

Mr. McLaney: Yes, Mr. Leblanc. We basically use to our advantage our network of banks around the world, and being that our history has been in the U.K. and in Asia, that's where our strongest connections are.

In regard to the one example I gave you of the Chinese Overseas Guarantee Fund, it is a fund that has been set up with offshore money to assist immigrants in North America, Canada and the U.S., to invest in Canada. Most of these people are small business people. It's not a huge program, but it's another little piece of the jigsaw puzzle to make sure that entrepreneurs of all types, whether they've been in Canada for a hundred years or for a few years, have access to capital. They use that in conjunction with many of the other programs available from Canadian government sources, from provincial ones, and the banking industry.

Does that answer your question, sir?

Mr. Leblanc: Yes.

The Vice-Chairman (Mr. Lastewka): Mr. Schmidt.

Mr. Schmidt (Okanagan Centre): Thank you, Mr. Chairman.

I have a couple of observations. First, I want to express appreciation for the work that has been done. I remember when this first started and you said it was impossible at that time to provide us with the numbers we have in front of us. In fact, I have three books here from three different quarters, and you said it was impossible. I thought to myself, man, if a bank can do something that's impossible in nine months, I think that's a commendation; I believe they should be commended for that.

The other thing I've noticed is that something has happened here as well. There is a sensitivity to the small business sector that I didn't detect the first time you appeared. There was an awareness that there are small businesses, and yes, we should be serving that market, and yes, it's a pretty good market and it's a pretty important market. Somehow it seems to me that this has gone from the head to the heart and that some of you actually believe that small businesses are good businesses.

However, I'm wondering exactly how much more small business there is in Canada as a result of all these wonderful services that are being provided. I found it very curious when I looked at this statement, this summary of data, and I discovered that the graphs on the right-hand side indicate that the authorizations for small businesses in the first quarter of 1995, going through to the second quarter of 1996...that would be at the end of June 30. Is that correct? Do I read that correctly?

Mr. McLaney: Right.

Mr. Schmidt: Okay. It indicates that there is a slight - not large, but slight - upward slope on those bars if you connect them with a solid line. When I compared that to page 3 - if you want to look at your numbers - of the three quarters, this is I think a total for all authorization levels. I discovered that as of December 31, 1995, the total authorization was $438 billion. It then went to $432 billion and then to $430 billion. Those numbers are going in the opposite direction to the graphs at the top of your page. Could you explain exactly what is happening here?

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The Vice-Chairman (Mr. Lastewka): Thank you for pointing out the page numbers. I meant to warn people about that. If you're referring to a part of a graph or a page, please identify the page to make it easier for everybody.

Are there any comments?

Mr. Schmidt: Page 3 in this book and then the respective...oh, I'm sorry. This is December 31, 1995, this is March 31, 1996, and this is June 30, 1996. It's page 3 for each of those.

Mr. Toriel: If I may respond, Mr. Chairman, with those data we have restated any mistake that was found, quarter by quarter. What has happened with statistics is that the more we do it - We may have said it's impossible. It's not impossible, but it's difficult. We found mistakes and every time we found mistakes we corrected the data.

In order to provide something that is realistic to you, the CBA has restated all the data, going backwards, so it doesn't show an increase like that when the increase is actually a lot smaller. That's why there is a difference between those figures that you have here and the figure you have in each quarter.

Mr. Schmidt: What really intrigued me was that I kept hearing all these wonderful things in the press about how there's more money available for small business, and I thought why, then, is the total authorization level going down? You've answered it in part, but I still am not quite satisfied that I have a reason for why there is $8 billion less on the authorization level on June 30 than there was on December 31, 1995.

Mr. Toriel: I don't know where you got that. We are looking at this table, right?

Mr. Schmidt: Yes. I could help you out, I think, but -

Mr. Toriel: I don't believe it has gone down. I think it has gone up, but perhaps I will really have to look at the figures you are looking at.

The Vice-Chairman (Mr. Lastewka): Mr. Shaughnessy.

Mr. Shaughnessy: Mr. Chairman, by way of explanation, there might be a misinterpretation of page 3. Page 3 is total business credit in Canada, not only small business credit in Canada. So I think you see the fluctuation -

Mr. Schmidt: Just a minute. Do I read this correctly?

Mr. Shaughnessy: The $430 billion, sir?

Mr. Schmidt: Yes.

Mr. Shaughnessy: That's all business credit in Canada.

Mr. Schmidt: Not small business?

Mr. Shaughnessy: Small business is included, but also included in that figure are the categories of $5 million and over, for instance, and $1 million to $5 million. There you're getting not only the small business statistics, but the large credit statistics. That swing you've seen, I believe, in just quickly looking at these numbers, is in the large corporate end. From quarter to quarter, depending on whether there are a couple of big deals going across through the banks, you can get massive swings.

Mr. Schmidt: I can appreciate that, and I thank you for that answer, but my question also has to do with ratios. It's about the ratios of outstanding loans to authorizations. The curiosity that arose in my mind as I compared these figures was this. Is the way in which the banks lend money to the small business sector related, first of all, to the ratio or is it outstanding to authorization? Which comes first, the amount that's authorized or the ratio?

A voice: Authorized.

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Mr. Schmidt: So the actual ratio, then, is not the basis on which a bank manager allocates lending. For instance -

Mr. Toriel: Actually, there's no ratio. There is an amount authorized, and then the client uses funds out of that authorized amount and that becomes an outstanding...we don't have a ratio between authorized and outstanding.

Ms Sutherland: Yes, but in some cases, in operating lines of credit, particularly when we are financing certain kinds of receivables and inventory, there is a borrowing base in which we say we will authorize the client for, say, $250,000. How the client draws down on that $250,000 will be a function of what your outstanding receivables and inventory are. That's often why you get the difference between authorized and outstanding.

However, in a term facility, if somebody's borrowing $100,000, they get the full $100,000. In very small credits, those margining requirements typically do not exist. If you need $35,000, you get $35,000, as you see fit, and the client judges the cashflow. As the cashflow in the company goes up and down, that number fluctuates.

The Vice-Chairman (Mr. Lastewka): There's a good example at the front of the book.

Mr. Schmidt, I'm going to conclude your time -

Mr. Schmidt: No, that's not what my question -

The Vice-Chairman (Mr. Lastewka): I'm sorry, Mr. Schmidt, but we're going to go on now. We've given you some extra time. We'll come back to you. We'll allow you to gather your thoughts.

Now we'll go to Mr. Ianno.

Mr. Ianno (Trinity - Spadina): Thank you, Mr. Chairman.

I don't have the three books, Werner. I've got it all on paper here.

I guess there's some good and some not-so-good. I'd like to start off with the good. I think we know the ratio you don't like. Overall I guess the Bank of Montreal is still at 31.7%; CIBC is at 22.59%; the National is at 30.7%; the Royal Bank is at 29.05%; Scotia Bank is at 20.9%; TD is at 22.72%; and the Hongkong Bank is at 18.59%. From a positive, I guess the Bank of Montreal is still doing well at 31.7%, and the National at 30.7% is still maintaining its numbers. I'd like to commend the Royal Bank, which went to 29% from 27%. I think that's very positive, and I like the spirit in which my communications with them have been going.

As for the Hongkong Bank, we didn't have your numbers way back then because it took you awhile to get into the groove with the numbers. But when we started this process three years ago, you were at 40%, with $2 billion small and $3 billion large to constitute 40%, and now you've gone down to $1.5 billion for small and $6.5 billion for large. I can see why Mr. Leblanc was using the term ``humble''. That's unfortunate. I was using you as one of the models. I hope that will somehow come back in due time. Unlike some of my colleagues, I'd love to have the foreign banks in here, but I'd like them to increase their loans to small businesses; otherwise there aren't a lot of them that I'm pushing for that I would see being very happy if they stayed just with the wholesale market.

In terms of the overall numbers, from September 30, 1995, to June 30, 1996, it has gone from - excluding the Hongkong Bank - $39.264 billion in small business loans under a million dollars to $40.942 billion, which is not a whole lot in nine months. Yet for the large business loans, those that are a million dollars or more, it's gone from $110 billion to $116 billion. We understand that. No one is against large business loans, because we know when large businesses are working well it also fuels small businesses.

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The first year and a half we had to go apples to apples. Everybody was complaining about the lack of stats and how some banks were using one set of numbers and others were using different numbers. For nine months we've been using the same numbers. I don't see much improvement, unfortunately.

As Werner has said, I think heart is being put into it. I think people in the banks are taking us more seriously. They're starting to put forward many good programs and they are doing some partnerships out there. This is positive, but I think we are still dealing with more capital requirements.

I deal with the outstanding. I know you like to deal with authorized. What can we do so that in another nine months or 27 months, the numbers for small business loans increase rather than stay the same?

Just to add one more comment, I understand if there is a large loan to be made it may change the ratio. I understand this. I don't have a problem with it. But what I do like to see is the absolute dollars for small businesses increasing regardless, because only then are we seeing your commitment really being fulfilled rather than just - I don't want to use the term - lip-service.

I'm trying to dilute my perspective so it gives everyone an opportunity to work with us, because this is the goal. As we know, with small business the more job creation the better. I believe this is why the Liberal government got elected. I think we have a duty, then, to try to ensure financial institutions have an obligation.

The question is addressed to all of you. What is going to be done to increase the absolute dollars for small businesses? I spoke to a couple of you individually. I know there are programs and it takes some time for the transition, because you've given targets to your account managers. You've left them in the branches, which is also a very positive step for many people in the communities. Could you please answer this?

Mr. Leckie: Maybe I'll start and then let the others jump in. I know, Mr. Ianno, with your ratio analysis you see TD as one of the bad guys. I respect why you've used this ratio. There is good news here, although it is sort of good news, bad news. The good news for us is in the area of small business. My strategy at the moment, by the way, is to concentrate on those under $250,000. We have indeed been growing for the last three quarters in absolute dollars.

Furthermore, we're growing in market share. We are also growing significantly in the number of customers in this category. We're also growing in absolute dollars and market share in both outstandings and number of customers.

I think the good news is what you folks were saying earlier. You caused us to get together. It's like caucus for us sometimes, only it's worse because we're not in the same party. You made us provide the data. When we've all provided the data here, we now have market share. Believe me, big organizations run on market share. It fuels all of us competitively to grow market share.

We've got our people in the field for fiscal year 1997, which starts November 1, all working off business plans to grow market share in small business. The business managers in these areas are compensated on this basis. So I think we're doing a lot of the right stuff.

I think the bad news, just to try to deal with it, is TD didn't buy a broker dealer. We still make big loans to big companies, and those ratios tend to throw us off relative to others in the pack. Relative to our size, we have a big book of big loans. Therefore, your ratio doesn't work well for us. I just don't know what to do about this.

Mr. Ianno: I would just like to leave it on one point, John. In terms of September 30, it was $5.342 billion to small businesses under $1 million.

Mr. Leckie: This was for businesses under $1 million.

Mr. Ianno: On June 30, it was $5.307 billion. So, in absolute dollars, you may go to the $250,000 and less and play with this one. You may say you've increased this one, but in nine months the overall numbers didn't change.

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Mr. Leckie: Let me put it another way. Let me talk about those three recorded quarters. As I said, I'm concentrating on under $250,000. In my mind this is real small business. The SME thing kind of blows me away. A million dollars is neither middle market nor small market. I don't even like the definition. So I'm calling it $250,000 and below. In this area, I'm growing market share. I'm up from 12.49% market share in three quarters to 12.78%.

Let me tell you, in dealing with billions of dollars -

Mr. Ianno: What is the figure for absolute dollars in your 12.4%?

Mr. Leckie: It is just shy of $100 million.

Mr. Ianno: So you're talking $100 million versus the $5.34 billion. What is your figure for absolute dollars in this category?

Mr. Leckie: My absolute dollars is $2.594 billion that grew to $2.688 billion.

Mr. Ianno: Okay.

Mr. Leckie: Then there is market share group. I'm just trying to explain to you -

Mr. Ianno: Do you recall how we got the $1 million classification for SMEs? It was the banks that determined it.

Mr. Leckie: It's an evolution. Let's keep talking about it.

Mr. Ianno: In other words, in the overall numbers system -

The Vice-Chairman (Mr. Lastewka): This is your last question.

Mr. Ianno: Sorry. That's fine. Please let the others answer.

Thank you.

The Vice-Chairman (Mr. Lastewka): Does anybody else want to comment before we go on?

Ms Sutherland: If I am not mistaken, Mr. Ianno, the question was how we can move the agenda forward. There are a couple of things to keep in mind. Given that all of us are very much focusing on market share and growth in our business, the fact that overall industry outstandings haven't gone up is actually surprising.

One of the things we have learned is the banks increasingly have an ever smaller pot of the debt market for SME businesses in this country, and it keeps dropping. Again, as Mr. Leckie mentioned earlier, one of the things we could work together on is trying to expand our pool of data.

This doesn't take away from our responsibility of growing small business loans. I'm not trying to avoid this. I'm also saying that when we're looking at the total financing market for SMEs, I think perhaps we would collectively be saddened by the increasingly diminished role of the banks in this market because of increased competition. This is not competition involving us trading clients. It is, for example, from the Newcourts and the GE Capitals and the credit card companies from the United States. The good news is - I hate to say it - if customers are being served better then they have made a choice.

The other thing to notice is the number of borrowers is going up. This gets into the issue of customers. We should analyse this and look at the smaller pockets, because what this says is there are more people borrowing smaller amounts. If they're mostly in service businesses, we should say this is not necessarily a bad thing.

Anyway, these are just some things to think about to help find other ways for us to increase the outstandings.

The Vice-Chairman (Mr. Lastewka): I want to give Mr. McLaney a chance.

Mr. McLaney: Thank you.

I want to just look at the numbers. I don't know about the earlier numbers because I think what we've adopted lately is the standard approach. You're right in your numbers. We are roughly at about $2 billion authorized, $1.5 billion outstanding and around 19% to 20% as a ratio in your terms.

We thought about why those numbers aren't growing and why our ratio is lower. I think there are many factors, but one that comes to mind is most of our branches are in urban centres. We don't have the reach into some of the smaller communities where many of the community-based industries are, and we are looking -

Mr. Ianno: What does this have to do with it when you had $2 billion? How have you changed? You have gone from $2 billion to $1.5 billion and what has changed -

Mr. McLaney: I'm sorry, but on the outstandings we've been constant at $1.5 billion.

Mr. Ianno: I got the numbers from the people who represented...two and a half years ago.

The Vice-Chairman (Mr. Lastewka): I apologize, but I must go on. We can come back.

[Translation]

Mr. Leblanc.

Mr. Leblanc: Mr. Hudon spoke earlier of alliances with other financial institutions.

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I imagine he was referring to venture capital. An old saying reminds us that it takes money to make money and to create jobs. I wonder how much banks are doing to stimulate the economy and job creation. They still have a very conservative image. Are they still so conservative or do they take new initiatives to help new businesses start up or to allow existing enterprises to develop and, thereby, to encourage job creation? I would like you to tell us a little bit about that aspect of your alliances.

Mr. Hudon: With your permission, I will make a few comments that my colleagues share, I should think. If not, they will certainly correct me.

Since 1993-94, it is obvious that our industry has the responsibility and the desire to find ways to give financial assistance or to facilitate access to innovative forms of capital, other than traditional loans. Several banking institutions have put money in venture capital funds. We have done this in different ways. Some have entered into a partnership with the Federal Development Bank; others, like us, have made alliances with private institutions.

I would like to confirm what you have said. As an industry we are aware of the need to penetrate into an area that we had not explored in the past. We have committed $200 million in risk capital programs. That would have been unthinkable three, four or five years ago.

As I was saying, our first year results are better than we had hoped. I think that we are seeing the beginning of a lasting trend. The first indicators are very encouraging. With this type of investment it takes time to see if it is a success. You're quite right to make a link between this kind of investment, job creation and a healthy economy in general.

Mr. Leblanc: I want to add also that chartered accountants and other professionals often offer free services to start-up businesses in the hope to retain them as clients.

You said that you invest in different ways in venture capital, but do banks risk and commit money to finance new enterprises, to keep them going, hoping that they will grow and prosper?

Mr. Hudon: I will speak only for the Bank of Montreal. What we can contribute is mainly knowledge, experience and information that can be useful to entrepreneurs wishing to start or develop their business. We don't feel that we have the necessary skills to help start an enterprise or to give it our attention on a daily basis. That is what an entrepreneur does and brings to his or her business. It's the kind of human capital that we cannot contribute as a large institution. And you need entrepreneurship. That isn't easily passed on. It's not a commodity.

But, as an industry, we do have an obligation to ensure that we make the necessary training and information available to those entrepreneurs who want to develop their business - or even start one - so that they know how to access capital and information, and we do that.

[English]

The Vice-Chairman (Mr. Lastewka): Mr. Schmidt.

Mr. Schmidt: Thank you, Mr. Chairman.

I'd like to move the discussion into a slightly different area, but first a question of fact here. The loans outstanding: do they include credit card loans?

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Ms Sutherland: No.

Mr. Schmidt: I didn't think so.

Now, there has been talk about a business credit card, which will have something to do with establishing business or credit lines and things of that sort. If and when that should develop, would those kinds of numbers be included in these tables?

Ms Sutherland: Yes.

Mr. Schmidt: They would be.

Ms Sutherland: I should say if it is financing or working capital versus being a purchasing card. They are two different things.

Mr. Schmidt: Are there going to be different kinds of business credit cards?

Ms Sutherland: Yes, there are.

Mr. Schmidt: I think this is very significant. If this is going to be a new dimension that the banks or financial institutions generally are going into, then in order for us to understand exactly what is happening here, it's going to require a whole new set of variables that will have to be figured into these numbers.

My question really becomes one of how, then, you will establish the authorization levels. Will they be on the basis of cards issued or will they be on the basis of applications made on the combination of what is available on the cards and the specific credit lines and term loans, if you will?

Mr. Toriel: The authorization is the limit on the card.

Mr. Schmidt: That will be an aggregated number if it appears here. Okay.

Then will it be easier or more difficult for a small business to access capital to run their business?

Ms Sutherland: Obviously we think it will be easier, to some degree. I'll speak for the Royal Bank product, which has already been launched. The issue with the small business market, as you well know, is that it's not homogeneous. What we were aiming at with that card was the people who basically aren't very interested in getting all the wonderful advice and counsel we've been talking about today. There are a lot of small businesses out there that just want to get their money. They have very good credit histories and they just don't want to be bothered with annual reviews and so on and so forth. That's what that card is aimed at.

I can tell you the number of applications received and approved is significantly exceeding our expectations.

Mr. Schmidt: If that's true, then we should see a marked increase in this line in the next quarter, or at least in the next six months.

Ms Sutherland: You'll see it in numbers, but because the average outstanding will probably be somewhere between $5,000 and $10,000 in loans, it will take many of those to start showing billion-dollar increases.

Mr. Schmidt: Sure, but it will show up in the category of zero to $24,000. That's where it will show up. That will be the critical variable to look at.

I really appreciate that very much.

I wonder if we could go into one other area, because I'm very interested in this - I've read about it many times before, but I heard about it in the Canadian context very recently - the business of loan securitization. Will that get into the small business area?

Ms Sutherland: That's a good question.

The Vice-Chairman (Mr. Lastewka): Mr. Shaughnessy.

Mr. Schmidt: Yes, you're the one.

Mr. Shaughnessy: I brought the topic up, Mr. Schmidt, so I'll let one of my colleagues answer it.

Mr. Schmidt: They'll tell you what you're doing.

Mr. Shaughnessy: Seriously, securitization has been used for many types of borrowers. What you're seeing today, and where you're seeing it in the Canadian marketplace, down at the small and medium-sized enterprise, and where I think you'll see it in the immediate future, is for franchisees. Owner-operators of well-known franchises - franchises as a group - have an excellent track record. These loans, when you package them together in a securitization package, represent a very good risk for an investor or a purchaser of paper and things of that nature, and as a result they get excellent credit with the package of loans itself, an excellent credit rating. Therefore you reduce the borrowing cost for the individual franchisee by putting them together in a package.

Mr. Schmidt: Will this increase access to capital?

Mr. Shaughnessy: I don't know if it would increase access to capital, because these people are already borrowing. They're already borrowing at the bank today. What it does is it reduces the cost of capital to them.

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Mr. Schmidt: So it should increase your profitability as a bank.

Mr. Shaughnessy: No, as a bank I'd say it doesn't, because as a bank I have a very low-risk, high-value client on my books today, and those loans tomorrow will be on the street as such, not within the bank. So I don't think it's going to increase the profits to the bank. Very frankly, though, if CIBC or CIBC-Wood Gundy don't do it, the Royal Bank or somebody else will do it. That's why we get involved.

Mr. Schmidt: I think they're all going to do it.

I also want to push it one step further, not just in the franchising area but actually in a variety of small businesses that may or may not be related but in a particular sector could be. Let's say they're a high-tech sector in a particular section within that sector. There might be a group of businesses that together would have borrowings of, let's say, $1 billion, but there are maybe fifty businesses within that area. Would it be possible, out of that pool, to farm that pool out to individual unit buyers? There is today a real difficulty for small investors to get an adequate return on a debt instrument. Would it be an attempt by the bank to free up $1 billion worth of lending capital that would not be securitized through a pool with individual investors buying these units, thereby, first, increasing the return to individual investors; second, freeing up money the bank didn't have before; and third, making it possible for the bank to reap a profit from both levels, both on the securitization aspect and on lending out the new money?

Mr. Leckie: To me it makes a lot more sense than the labour-sponsored funds, which are not being drawn down but aimed way up in the market and are not doing a whole lot of good, because of which a lot of taxpayer money is being wasted. That's just a personal view.

The Vice-Chairman (Mr. Lastewka): Mr. Regan.

Mr. Regan (Halifax West): Thank you very much, Mr. Chairman.

Before I go into a new question, I want to follow up on the one Mr. Schmidt had about the business credit cards. Am I correct in thinking these numbers I have before me reflect capital plus operating credit?

Ms Sutherland: By ``capital'' credit, do you mean term credit?

Mr. Regan: You indicated some business credit cards would be included and others wouldn't, in the figures we're looking at.

Ms Sutherland: I said the difference between the two is whether or not a credit card is being used as a purchasing card. That would not be included. We have created a card-based line of credit - it's not actually a credit card - which is used as an operating line of credit, and that would be included.

Mr. Regan: The reason a purchasing card wouldn't be included is what?

Ms Sutherland: Because to date we have defined lending to small business as operating lines of credit. That was just something we decided on over time. If we decided we wanted to expand that definition, that would be fine.

Mr. Regan: Would the nature of the purchasing card be that you pay it off every month and you're required to?

Ms Sutherland: Typically, yes.

Mr. Regan: Thank you. That answers that question.

I want to ask you about the Canadian banking ombudsman, which was created in the last year or thereabouts.

Ms Sutherland: In the spring.

Mr. Regan: How many SME clients has each bank sent to the Canadian banking ombudsman and how have you gone about doing so? How does that work? It seems to me the public probably has a certain skepticism about the whole idea. They would like to have some reassurance that there actually is some benefit to it. I'd be interested to hear from you what you have to say about it, because my guess would be that small businesses would be reluctant to bother.

Mr. Leckie: Kathleen Sullivan, who works with me at TD, is manager of business relationship standards. We're trying to pull together the whole notion of the ombudsman, the ADR process, and more importantly to me, just to provide customers with alternative financing and go right back to the beginning.

For me, frankly, the ombudsman tends to throw us off a bit. The real, core problems are talking to the customer and trying to rework the loan, when there are these fence-sitters where you could go either way on it. The ombudsman situations - It's a good thing to do, but I sometimes think we're forgetting about the real problem, which is to help small business get a loan from a bank or from some other source that makes sense.

Kathleen, maybe you could answer the question more directly.

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Ms Sullivan: Certainly. I'll just start with our own ombudsman. Our ombudsman's office has been up and running for about a year now. We've had 92 business customers and about 125 customers on our retail side, the personal customers, go to it. Of those, we referred four customers to the industry ombudsman.

The industry ombudsman system is set up as a voluntary system. The banks volunteer to be members. In order to access the industry ombudsman, you must first have presented your problem to the bank's ombudsman so that the bank has had an opportunity to try to resolve the relationship. To date, we've had four cases that have gone through to the industry ombudsman. That's since May or June, since the system has been up and running.

The Vice-Chairman (Mr. Lastewka): Is the report from the ombudsman due in the next month?

Ms Sullivan: I understand it will be released in November. We don't work directly with the industry ombudsman's office, but my understanding is that his report will be out in November and that it will include the results from each of the member bank's ombudsman's offices as well, so you will officially see how many cases have gone through both the banks' ombudsmen and the industry ombudsman.

The Vice-Chairman (Mr. Lastewka): Mr. Regan.

Mr. Regan: Of those four that were referred to the ombudsman, how many were resolved in favour of the client?

Ms Sullivan: I'm not sure if I have that information. At the TD Bank, we found that we were able to resolve 80% of the cases on the business side, either fully or partially to the customer's satisfaction. Of the cases that went to the ombudsman, I believe a number of them are still ongoing. I don't have that information.

The Vice-Chairman (Mr. Lastewka): Would anybody else like to comment?

Mr. Hudon.

Mr. Hudon: This year to date, 77 customers have sought to deal with our ombudsman. The majority of those were resolved. Some of them are still pending, because the cases can typically take two, three or four weeks to resolve. I'm almost certain - subject to confirmation here - that none have been referred to the industry ombudsman.

Mr. Regan: When you say the majority are resolved, what does that mean? Ms Sullivan talked about how many of them were resolved in favour of the customer. What do you know about that?

Mr. Hudon: I'm not sure that I actually have the data here of those that were resolved, as you put it, ``in favour of the customer''. We try to assess whether the customer has been satisfied with the outcome -

Mr. Regan: That's really the question.

Mr. Hudon: - but I would have to get back to you. I'd be happy to get back to you with specific numbers. Otherwise I would just be guessing. There would clearly be some on both sides of the ledger.

Mr. Regan: Of course there would. Thank you.

The Vice-Chairman (Mr. Lastewka): Does anybody else have a comment?

Ms Sutherland: For the record, this sounds unusual, but our numbers are practically the same. To date, we have 80 customers who have seen our own ombudsman. Well over 60% of them have been resolved to the satisfaction of the client. To tell you the truth, I don't know the exact number of those who have been sent on to the industry ombudsman, but I could provide that. I know it's a very small number. It's less than five, but I don't know the exact number.

Ms Sullivan: I'll just add that from our point of view, our objective is certainly to send as few cases as possible to the industry ombudsman's office. We hope to be able to resolve the issues inside the bank and retain those relationships. Ideally, we want that as low as possible. We want to teach our staff how to better manage those relationships and how to manage conflict if it arises - or how to avoid any conflict - so that we can maintain the relationships at a very grassroots level.

Mr. Regan: That was part of my question. On the one hand, I wanted to know from all of the banks what numbers you've been dealing with. But I also wanted to know how a person gets to the CBO. How does a person get to the industry ombudsman as opposed to your own ombudsmen?

Ms Sutherland: As part of the process they are advised that there is that option, right at the beginning. Frankly, by the time they've reached the ombudsman's office within most of the banks, they've already gone through quite a process. I suppose one might imagine so many people would just go to the next step, because that's a fair bit of work, typically with mediation and negotiation, and so forth. They're advised that it is an option for them if they're still not satisfied.

The Vice-Chairman (Mr. Lastewka): Thank you, Mr. Regan.

Mr. Schmidt, do you have any more to add?

Mr. Schmidt: I have another question. I was very curious - This is a very small question at this stage, to Mr. Shaughnessy. I think he mentioned something about partnership with FCC.

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Were you speaking about the Farm Credit Corporation?

Mr. Shaughnessy: Yes.

Mr. Schmidt: Why would the bank go into partnership with a crown corporation, and would the bank consider that it would be better to be in competition with a private organization than with a crown corporation? So the final question would be should Farm Credit Corporation be privatized? Would that be better for the banking business?

Mr. Shaughnessy: There are really two questions there. First, I think I should elaborate on the partnership we have with WED. It's a $100 million high-risk value-added agriculture program we have. The partnership is CIBC and FCC. Each has agreed to put up $50 million for this fund, but WED is contributing an amount to a loan-loss pool. That is the partnership. If a borrower comes in and wishes to borrow $100 in this program, it isn't that we give $50 and FCC gives $50. If it comes through our door, we would give the whole $100. But by having two lenders in it and then WED putting in the loan-loss pool the fund is effectively doubled.

We as a bank are concerned with FCC - we do believe there's a role for it to play - but our only concern with it is that they tend to be direct competitors of ours. They tend to target a number of our very low-risk, very high-value clients and so on. From time to time we find them being a direct competitor, as opposed to somebody who could work in partnership with us to improve the situation of an agricultural client. Our vice-president of agriculture, both wearing the CIBC hat and representing the CBA, has expressed that concern to committees of this Parliament.

Mr. Schmidt: Does that mean you find yourself in a bit of a schizophrenic relationship here?

Mr. Shaughnessy: No, I don't think so.

Mr. Schmidt: It sure sounds that way to me.

Mr. Shaughnessy: As I said, the WED program is a program to bring high-risk capital to companies in western Canada that want to bring value-added to agricultural products. I think that is an excellent role for the partnership, because it is not only FCC, it is WED, and WED, by limiting their role to contributing to a loan-loss pool, can take their funds and leverage them to a very significant extent and bring far more capital to these programs. There are other banks in this room that are participating with WED in other types of funds, targeted at different industries out there.

Mr. Schmidt: I'll rest my case for now, Mr. Chairman. I'll pursue it some other day.

The Vice-Chairman (Mr. Lastewka): Mr. Fontana.

Mr. Fontana (London East): I believe there are regular members of the committee who want to ask a question. I'll wait for them to ask.

The Vice-Chairman (Mr. Lastewka): Mr. Murray.

Mr. Murray (Lanark - Carleton): Thank you very much, Mr. Chairman.

Thank you for being so gracious, Mr. Fontana.

I want to start by thanking all the banks for all the effort you've made over the last year in providing us with these statistics. I recognize it's an awful lot of work and I appreciate the attitude of all the banks and the Bankers Association in doing this.

I'd like to go back to the reason we're here, and go back to three years ago, when all MPs were hearing all kinds of anecdotes about unfair treatment of small businesses by banks. I can tell you those anecdotes have dried up, at least as far as I'm concerned. I was talking to some of my colleagues the other day and - At least in my experience, I don't have the same number of small business people lined up at my door, though I had lots of them in the early days after the last election. So what we're really talking about - and my apologies to the Bank of Montreal here - is we're trying to find out if a bank can change. That's what this is all about.

We're in good times right now. It's a good time for banks. It's becoming a better time for business. You're spending money on things such as training. We've had this litany of new ideas and programs you've told us about. Obviously they're costing some money. What I really want to know here is whether we're talking about structural change in the way you do business, so when we have the next downturn in the business cycle we're going to see banks are still able to keep the line of credit up where it was for the small business, or we're going to see the need to make profits imposing itself once again.

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It's a very general question, but that's what I'd like to hear an answer to.

Ms Sutherland: Actually it's an excellent question, Mr. Murray. I can tell you that for all of us as banks, but certainly for our boards of directors, it's the same question as is posed to us.

In buoyant economic times, let's face it, it's easier to be a friend. The crunch of any relationship is when times turn tough, whether it's a marriage or a bank relationship.

What is very positive in the trends you are seeing is that in the banking industry most of the loan losses in the past have been with the very large loans. I think most of us in the banking industry have recognized that the diversification you see here in the lending statistics is in our best interests as well, to make sure we are maintaining continuity of service programs in this market in good times and bad. In the training we're doing today, the performance mechanisms and so forth, the real test absolutely will be the next downturn, not only in our behaviour with clients but in maintaining credit, working with clients through good times and bad; absolutely.

Mr. Murray: My last question is this whole question of the profitability of dealing with small business. After all the hearings we've had I had the impression that it's not all that profitable to make loans to small business. Unless you can bring in all their personal banking, maybe all their family's banking, you're not going to make an awful lot of money, and you're investing a great deal of effort in each loan, almost as much as you might in a much larger loan. So are we hearing that small business lending really is a profitable business for banks? Is that the message we should be hearing from all of you? It's obviously good business. I'm just wondering if it's profitable.

Mr. Leckie: That's another excellent question. In my bank it's still very hard to see how we're going to be profitable on the lending business by itself, lending to small business as a stand-alone product item through the cycle. We won't know until we hit the cycle. Sooner or later we will hit the wall and we will have losses. Right now as institutions we're making a lot of money, because we have very few losses - but we will have losses. They will go up again. We have to measure it through the cycle.

All in, I think if we could break even on the lending - and we are changing the process to accomplish that - I'd be delighted. I think we can do that. But we need more products. We need the entrepreneur group's RRSPs. We do need a bigger basket of products with that small business client to make it all worth while on a profitability basis in the near term.

However, even with that - this might soothe you a little - we don't get the big mid-market or the big clients if we haven't been there lending to them as small business clients. That's when we really start to make money.

We have as many good anecdotes as you folks have heard bad anecdotes. We have a lot of people staying with us because we met their payroll in tough times. We have tonnes of those kinds of anecdotes, and they're now banking with us as big mid-market clients or even big corporate clients because of those good memories.

Therefore we have to do a good job on small business, for all those reasons.

The Vice-Chairman (Lastewka): Ms Brown.

Ms Brown (Oakville - Milton): Welcome, everybody.

After our last meeting it seemed to me we had a couple of problems. One was the whole problem of public perception and of trying, in encouraging the small business sector, to have a real team approach between and among the banks, the government and the folks out there.

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As for the public perception, it seems to me that in the last year I've seen some much more progressive types of ads that are trying to win the public's approval of the banks. I don't think you're exactly winning yet, but it's coming.

I noticed the big full-page ad in the The Globe and Mail this morning - smack-dab in the middle of the United Way campaign - pointing out to the public the amount of money the banks have contributed to their communities through the United Way. Somebody should be congratulated for that. Those are the kinds of moves that I think are going to begin to pull us together on the banks issue.

I also noted the Royal Bank's one-pager, ``How Does Canada Benefit From a Profitable Bank?'', which was handed out today. If I'd been writing that I think I would have said ``How do Canadians Benefit?'' to try to personalize it for each customer who will probably get one of these as they come into the bank. But these are the kinds of moves that are good.

Just to encourage you as you are trying to recruit public support, some of you may have noticed that at the policy convention held in Ottawa on the weekend there was a grassroots resolution suggesting that the government be really intrusive in its dealings with the banks. If you'd been there it would have curled your hair.

However, interestingly enough, after a very...I wouldn't say it was a good debate; the quality of the debate on that particular issue wasn't great. I think it was three speakers for and three speakers against. You'll be pleased to know that it clearly failed to carry. It was a decisive rejection of that kind of motion by grassroots delegates from across the country. I hope that's a bit encouraging.

The second thing I wanted to talk about was the communication between the banks and the small entrepreneurs. At the end of the last meeting, I thought, somehow or other we have to get these people into each other's shoes. We have to make the entrepreneurs understand what the business of the banks really is and what it is they're dealing with, and we have to make banks have a better understanding of the entrepreneurs.

So I was really interested in all of these what I call ``educational initiatives'', like the seminars, workbooks and software. You're trying to educate the clients as to what they need to do to be successful and you're trying to educate your staff on how to be sensitive to the client. All that stuff is just really tremendous considering where we were about three years ago.

I also like how you're returning the lending back to the neighbourhood banks and away from the commercial banking centres, because I think that at times the centres have been intimidating, particularly for new entrepreneurs.

One of the new sets of statistics that Canadians should be interested in is this business about our exports. While the numbers are very good, they're still too heavily based on natural resources and on the automotive sector. We're not doing as well in the high-tech, knowledge-based industries. The statistics also show that small and medium-sized enterprises are not represented in the stats the way they should be when compared to their percentage of the economic activity in the country.

I like this Asian action group to help people get exports to the Pacific Rim countries. Do any of the other banks have anything going with their SME clients to teach them how to export? That's one question, but I'd like to finish my questions and then let them answer.

The Vice-Chairman (Mr. Lastewka): You have two minutes.

Ms Brown: Yes, but when you wait a long time you get a little more.

The Vice-Chairman (Mr. Lastewka): I want to advise the committee that there will be a bell at 5:30 p.m. and a vote at 5:45 p.m.

So you have a total of two minutes, Ms Brown.

Ms Brown: Okay.

Does anybody have an initiative through which they counsel some of their clients, whom they perceive to be leaning a little too heavily on that credit card - for buying stocks or whatever it is - how to get out of it? I think it's become the natural thing to do. I met some young entrepreneurs who seem to do just everything on their credit cards. I was appalled. They're not going to listen to me - I'm not a business person - but I'm wondering if you could get at these people and switch them from the credit card into the proper loan.

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The only complaint I'm hearing recently is about the downgrading of credit: somebody whose line of credit has turned into a demand loan or that kind of thing and where the interest rate is upped when they're in the middle of a relationship with you.

I have those three questions.

The Vice-Chairman (Mr. Lastewka): Maybe I could ask Mr. Leckie if it's possible to give a general answer, because we've taken up all the time.

Mr. Leckie: If you do the credit card piece, I'll do the quick comment on the trade for small business.

Again, it's a personal view and I can't back it up, but I think we have to be very careful about this knowledge-based stuff. I know it's not in vogue to say that, but any manufacturer today will not survive if they're not in some way quasi-knowledge based. Walt worked in the automotive industry. Anybody who can supply windshield wipers to Magna, which supplies to General Motors, now has to be on the leading edge of engineering. I think we have to be very careful we don't get all hung up on software stuff when in fact the true knowledge-based stuff is often happening in a plant factory.

Ms Sutherland: On credit cards, just so you know, Ms Brown, we believe we have a very high responsibility for consumer education, collectively as a banking industry and certainly as the Royal Bank specifically. In communities across the country we certainly work with municipalities and so forth on credit support and helping people who run into problems with credit. Our people in our branches have materials to help them give that kind of advice. Obviously with all new credit cards, for instance, we give people brochures that say how to manage your credit responsibly.

We also work with a number of universities, community colleges, and junior achievement across the country, and part of the education process on which we work in partnership with the communities is teaching people how to handle credit responsibly, of course working in conjunction with parents as well. We do that in time and money.

The Vice-Chairman (Mr. Lastewka): We'll now go to Mr. Fontana, who has waited patiently. I don't want to get penalized at the bottom of the national caucus list.

Mr. Fontana: It's not a problem, Mr. Chairman.

I'm sorry to be a party-pooper, spoiling the love-in here, but I'm here representing the majority of my caucus, who say the small businesses in their constituencies continue to have some problems with access to finance. Over the summer I've had the opportunity to speak to most of you, if not directly then to some of your banking officials. I would agree some of the products I've heard about tonight are absolutely fantastic and they're going to make it easier for those start-up businesses: the loans under $50,000 that you can't do the due diligence on, which takes time and resources. I understand that. The trends are very positive. But the big picture out there, as I see it - and your statistics have essentially borne it out - is that from the second quarter of 1995 to the second quarter of 1996, for all intents and purposes your outstandings have been exactly the same. They've been flat. You've had more customers, more approvals and applications, yet the amount of money or the credit availability is still there. When I look at authorizations at close to $62 billion, and in fact the outstanding at $41 billion, the fact is that $21 billion is sitting out there and you say it's not being borrowed because small businesses don't need it.

I don't know what the answer is. The fact remains - I know you've said this - that small business creates jobs. I've been to a number of small business conferences across this country, in many communities. Maybe your small businesses are telling you something different from what they're telling us, but their number one concern is access to capital.

I understand that every business is entirely different, like every individual. They have different needs. They might need risk capital. They might need term loans. They might need a whole host of different products you're all trying to strive to get there.

I'm not here to chastise, because I believe the trend lines are promising and some of the products are good, but there is a need out there for additional credit, and there is a need for partnerships, as you are creating with other institutions.

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If you look at this economy, if you're in the trade business you're doing well, but the domestic economy is still in the pits. Consumer spending and consumer confidence are still at an all-time low. Hence job creation...albeit the economy has created 700,000 new jobs, the fact is that we still have a 1,500,000 people out there. But a lot of entrepreneurs want to start new businesses. Look at those people, who are prepared to invest in themselves, who don't look for even a nickel or a dime from you and are prepared to stake their severance payments or their pay-outs because of the downsizing that's going on all over the place. I want to know from you what government needs to do to be your partner in new instruments so we can jointly provide access to capital in varying forms.

I like that securitization thing. We did it with mortgage-backed securities as a way of raising a pool of funds, now $80 billion or $100 billion, to fund social housing at one time. Maybe securitization in business is another way.

You tell us what we need to do as a government in order to provide you with a little more of a comfort level. You're not in the risk business - many of you have told me you don't want to be in the risk business - so tell me what we need to do so you can put the money out, or somebody else can, because other competitors are out there who want to get into the game or to make it possible.

The small businesses I hear from - and so do the majority of members of my caucus - say they need more capital in order to grow and create those jobs. I'm asking you to help us. Give me some ideas.

Mr. Leckie: I'll throw out a kind of wild card idea that is near and dear to me, because when I worked in the States I saw a lot of ``angel'' financing, if everybody knows what that means: patient capital provided by wealthy individuals. I don't know whether they have more wealthy individuals or the wealthy individuals are more liquid. You can analyse that to death.

I think the new kind of economy we have now needs patient capital, because they can't afford to service the debt. Too many swings are going on. It's just like the government: 35% of the tax money it collects now goes to servicing the debt. As a small business person, you can't back yourself into a corner of having a lot of debt to service. So they need patient capital that doesn't need to be serviced.

How do you get more of that? One wild card idea, and I know it would be tremendously difficult to sell politically, is to drop the capital gains tax. A lot of wealthy Canadians are sitting on old money, so to speak. They just don't want to cash in the stocks because they're going to have to pay one hell of a big whack of tax. If you gave them a break on that they would liquefy that stuff. They would have new capital to play with. You would have more angels. You would have more patient capital to invest in business.

Canada needs more equity seed money, and that's the way I would do it. But I know it would be one hell of a thing to sell to the public.

Mr. Fontana: But about your contribution...and again, I meant to paint a picture of building these partnerships - I agree totally with what you've said so far about capital gains. I don't think that's in the cards. I'm not sure Mr. Martin is about to change the direction of this government in the next year or two while he's trying to balance the budget. So I'm not sure that's -

Mr. Leckie: No, I know that.

Mr. Fontana: Even though I think that is a positive - It might be a tax target when we have a balanced budget. That's not a problem.

About outstandings to authorizations and trying to get more small loans or some new ideas on your side, is there anything more we can do on that basis?

Mr. Jentsch: There were some amendments to the Small Business Loans Act, some refinements to move away from pure capital expansion towards some of the working capital needs. That's a refinement. I believe Industry Canada is looking at that and it's going forward. That's something that would help us move on the small business loans program, Mr. Fontana.

The other issue, and I think you've addressed it properly, is one of confidence out there. We certainly have faced it. We look at our numbers, and even though we take pride in where they may be vis-à-vis our colleagues at the table, we also don't see the people coming to the branches any more the way they did a year ago.

You hit the nail on the head. We were quite concerned about that; what the issues were, why loan activity and applications were dropping notwithstanding a prime rate loan sale, so to speak, notwithstanding a track record of nine out of ten approvals. What do you have to do? Primes are at one of the all-time lows. What do you have to do?

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Certainly we saw businesses fundamentally operating differently. We saw businesses saying they learned from the 1980s and let's find some other ways to access the capital. Let's just hold back and see what happens with the economy. You're absolutely right. In June and July, business bankruptcies were still at an all-time high. Things are looking pretty good for 1997 and hopefully we'll see a swing in this.

Certainly we saw a lot of cutbacks in some areas. There were things that were necessary in this country to restructure. The confidence wasn't there and businesses weren't borrowing. What are we as an industry doing? There is only so much you can do at the end of the day by making it more accessible in terms of borrowing costs and education processes.

Mr. Fontana: You've got $21 billion of difference between authorization to outstandings. Yet you're trying to figure out why they don't want to borrow at the best rates we've had in this country in 40 years. I'm trying to figure out if you put this money out what kind of activity it would create for the small business. Only you can give this answer. We don't know what is happening.

Mr. Leckie: Was it done in the working group?

The Vice-Chairman (Mr. Lastewka): I need to get to the conclusion or else the whip and everybody else will have my neck.

Maybe this is a good reason to have a smaller group work on this specific question and have some of the items brought up today go forward. This is something we could come back and discuss at our next meeting.

I was to give thirty seconds for Mr. Bodnar.

Mr. Bodnar (Saskatoon - Dundurn): Thank you.

I have just one comment to make. We've discussed leveraging of money, such as CIBC has done with the agriculture value-added, in what I would think is a high risk by the banks. It may not be a high-risk industry. The Royal Bank of Canada is involved in the biotech industry. Again, this is what the banks consider to be a high-risk industry, but it is not necessarily a high-risk industry because it's so productive.

It's now a matter of the government educating the banking industry, because the banking industry is so slow to move in those areas. We have areas that have to be looked at by the banks in planning for the future. If you talk to foreign governments, the area of the future is telecommunications, which is right now, and the financing in that area. The next big area is the environmental industry. I just hope the banks look at these areas to prepare themselves for financing. We don't want to have to go through a re-education process and slow down Canadian business so it will not be competitive internationally.

The Vice-Chairman (Mr. Lastewka): I want to make a short comment before we conclude. It might be along the lines of what Mr. Fontana was getting at.

The bubbling up of small businesses is a concern to me, because if there isn't a lot bubbling up, there will be less moving on. We need to do some additional things and think about how we could continue to have this bubbling-up process.

I need to conclude the meeting by saying thank you to everybody for their patience and for their work today. This meeting will now be adjourned until Thursday, October 31, 1996, at 10 a.m. in room 308, which is here. We will resume the review of science and technology and the innovation gap in Canada.

Thank you very much.

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