Canadian Bankers Association

Canadian Bankers Association

March 04, 2010 19:12 ET

Canadian Bankers Association: Reaction to Federal Budget

TORONTO, ONTARIO--(Marketwire - March 4, 2010) - The Canadian Bankers Association (CBA) today welcomed the federal government's continued commitment to reduce corporate tax rates for Canadian businesses big and small as announced in today's federal budget. This is an important measure that will contribute to Canada's economic recovery and job creation.

However, the budget also proposed certain measures and additional regulations that raise concerns for the banking industry. 

"On the one hand, we're pleased to see measures that will help all businesses and contribute to Canada's long-term economic growth," said Nancy Hughes Anthony, President and CEO, Canadian Bankers Association. "Unfortunately, there are some proposed new measures that were introduced today that lead us to question whether they will have the intended benefits for consumers and bank customers."

On the positive side, the government announced that it will introduce legislation setting out a framework for covered bonds. This is good news as it will increase legal certainty for investors in these debt instruments, making it easier for Canadian financial institutions to access this low-cost source of funding. This will also level the playing field for Canadian financial institutions competing for funding in international markets.

The budget also included a commitment to review consolidated tax reporting in Canada which will reduce the administrative burden for businesses.

The following measures raise concerns that the CBA will be discussing with the government to ensure that the proposed measures are in the best interest of all consumers:

Reducing the Maximum Cheque Hold Period from Seven to Four Days

Cheque holds protect the customer. If a cheque is returned, the customer's account will be debited which can cause inconvenience and potential hardship if the customer has already used those funds. Moving to a four-day cheque hold period could create substantial risks that need to be considered. Current cheque hold policies are an important part of the banks' efforts to control cheque fraud. 

Prohibiting Negative Option Billing in the Financial Sector

It is not clear why the government is proposing new measures in this area. The industry already has very strong disclosure standards and has a long-standing commitment to not engage in negative option billing practices. Further discussion with the government on its intentions is required.

Standardizing the Calculation and Disclosure of Mortgage Prepayment Penalties

It is important that consumers have the information they need when making financial decisions, including when to prepay a mortgage. However, banks already have very clear disclosure practices that set out specifically what is required when consumers want to pre-pay their mortgages. 

Creating a Federal Framework for Credit Unions

The banking industry welcomes new competition into the marketplace, but at the same time it is essential that any new type of national financial institution operate on a level playing field with other players in the marketplace. One of the strengths of the Canadian financial services sector is our robust capital and regulatory standards, and it is important that these be maintained for all federally-regulated institutions. This proposal represents a major change to the federal financial services legislative framework and the banking industry will need to work with the government to review the details carefully. 

The Canadian Bankers Association works on behalf of 51 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 263,400 employees. The CBA advocates for effective public policies that contribute to a sound, successful banking system that benefits Canadians and Canada's economy. The Association also promotes financial literacy to help Canadians make informed financial decisions.

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