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ATB Financial Submission in Response to Finance Canada's 2006 Review of Financial Sector Legislation:
Our File: FG-270
8 June, 2005
Mr. Gerry Salembier
Financial Institutions Division
Financial Sector Policy Branch
Department of Finance
20th Floor, East Tower
Dear Mr. Salembier:
ATB Financial welcomes the opportunity to comment on the discussion paper tabled with the February 23rd budget: "An Effective and Efficient Legislative Framework for the Canadian Financial Sector" ("Discussion paper"). This submission consists of 2 parts- part 1 provides a brief background on ATB Financial; part 2 provides observations on the proposals contained in the Discussion Paper. The views presented are not those of the Government of Alberta but do represent the views of ATB's management.
ATB Financial is a $15.2 billion, full service financial institution operating in Alberta. It is the largest deposit-taking institution headquartered in Alberta and the second largest deposit-taking institution headquartered in western Canada. Our organization operates 150 branches and 131 agencies throughout Alberta, and serves over 600,000 Albertans through 225 ABM machines and a Call Centre in Calgary. At December 31, 2004, ATB's retained earnings were $1.1 billion and outstanding loans stood at nearly $13 billion. Our wealth management line of business, Investor Services, has assets under management and administration of approximately $1.3 billion. Key target markets for ATB since inception has been the agriculture and independent business sectors. We are the largest lender to primary producers and independent business in Alberta with about $3 billion in understanding loans.
ATB is subject to its own legislation and provincial laws of general application. ATB operates independently from the Province of Alberta, subject to the Alberta Treasury Branches Act and policy direction contained in a Memorandum of Understanding ("MOU") with the Minister of Finance. The MOU mirrors certain federal policy and regulatory provisions relating to low-cost retail accounts. In addition, the Minister of Finance has approved five regulatory guidelines closely modelled after OSFI guidelines. As a direct clearer with the Bank of Canada, ATB Financial is also subject to the rules of the Canadian Payments Association.
2. Discussion Paper
a. Consumer Initiatives. ATB Financial supports the principle that well-informed consumers can make well-informed financial choices. In recent years, both deposit and loan products have become more complex as financial institutions use derivative instruments to assist in managing liquidity and re-pricing risks for example. Historically, market conduct regulation has been a concern of provincial governments. We believe that it is important that common disclosure rules apply to both federal and provincial financial institutions and recommend that the federal government work with provincial governments to establish common disclosure standards. We believe that the Joint Forum on Market Regulation is the appropriate vehicle to develop disclosure standards. Such standards will need to be flexible in order to allow for the evolution of new products.
b. Electronic Transactions
The Discussion Paper notes that credit and debit card associations have voluntarily agreed to adhere to certain standards including a zero liability regime for credit card losses. We are cognizant that a degree of unease exists amongst consumers regarding the liability and finality of electronic payment. However, we do not believe that there is sufficient concern to necessitate regulation in this area at this time.
c. Residential Mortgages – Loan to Value
This concept of abolishing the 75 per cent loan to value requirement, unless the excess is insured is a novel idea. ATB Financial has $ 5.7 billion of residential mortgages, of which about one-third are insured by the Canada Mortgage and Housing Corporation or private mortgage insurers. The Discussion paper suggests that the cost of home ownership may have increased due to the insurer's premium requirement where a 25 per cent or more down-payment is not feasible. It is our experience that the 75 per cent requirement is a prudent rule for mortgage lenders. In the case of the Alberta economy during the 1980s, housing prices fell by more than 25 per cent resulting in significant losses to lenders. In addition, each province has different regimes respecting lenders' abilities to realize on the personal covenant. This requirement provides some cushion against losses. Where home-owners cannot afford the premium, some financial institutions in effect advance funds to mortgagors to make the premium payment. Further empirical work should be undertaken to determine, unless various stress scenarios what various losses might have been historically had an 80 per cent or higher threshold been in place. Given the importance of CMHC's role in the market and in the securitization market, any change should be well-researched, the transition well thought out and minimize disruptions for the housing and capital markets. Given that most provincial governments have parallel provisions, consultations with provincial supervisors should take place before changes take place. A further complication would be with respect to capital adequacy rules and the Basel II accord since without a minimum down-payment there would be wider variations of risk in a residential mortgage portfolio. We also note that provincial legislation governs a significant portion of financial institution assets, the elimination of this rule will mean that banks and federally-incorporated financial institutions may have an advantage in the competitive mortgage market. Another issue for consideration would be whether financial institutions themselves would be able to self-insure the mortgages and, if permitted, what the capital treatment would be for self-insured mortgages.
d. Cheque Hold periods
As normal prudent business conduct, ATB Financial places cheque holds on customer accounts. Since cheques must be presented to the payor's branch, ascertaining whether there is sufficient funds in the account typically takes at least 2 days from the time the cheque is deposited. With the introduction of cheque truncation and cheque imaging, the required time for a cheque to clear at the payor's branch will be reduced. Until, there has been a period of time to assess the impact of the Truncation and Electronic Cheque Presentment and changes to deposit-taking institution's cheque-hold policies, we think it is premature to consider mandating a maximum hold period.
e. Increasing Legislative and Regulatory Efficiency.
ATB Financial supports in principle policies that facilitate entry into the financial sector as a mechanism to enhance competition and thereby improve efficiency in the financial sector.
f. Consolidation of the Trust and Loan Companies Act.
ATB Financial has certain limited trustee powers consistent with banks and provincial credit unions. We would support the granting of broader trust powers to banks and other financial institutions subject to any requirements of provincial legislatures under the property and civil right head of power (section 92 (13) of the Constitution Act).
g. Canadian Payments System and Cheque Imaging.
ATB Financial participates in the payments system as a direct clearer with the Bank of Canada and has a director on the board of the Canadian Payments Association as well as representation on several standing operational project-related committees. ATB Financial supports fully the initiative to image cheques from all of the financial, environmental, and customer service perspectives.
h. Special Security Regime.
We support the proposal to abolish Bank Act security. With harmonization of provincial personal property security legislation, we agree that there is less need for maintaining separate Bank Act security. By eliminating sections 425 to 436 of the Bank Act, both provincial and federal incorporated financial institutions will have access to the same security registration system. This will improve efficiency and certainty for secured creditors. Furthermore, consumers would also benefit in general from improved legislative uniformity, and lending certainty for financial institutions.
If you have any questions, please contact the undersigned at 780-408-7330 or at firstname.lastname@example.org We consent to this letter being posted on Finance's website.
Robert L. Ascah
c.c. Bob Normand, President and CEO, ATB Financial