Feds Take Significant Step To Expand Role In Financial Sector By Removing Existing Prohibitions On Owning Shares In Banks

Given The Federal Government’s Legislative Authority Over Banks And Insurance Companies And Its Political Influence Over The Rate-Setting Bank Of Canada, The Federal Government Already Has The Ability And Often Acts To Influence The Conduct And Business Of Financial Institutions. However, As Part Of Its 2009 ―Fiscal-Stimulation Budget‖, The Federal Government Appears To Have Signalled A Clear Intention To Take A More Direct And Hands-On Role In The Actual Business And Policy Decision-Making Processes Of Financial Institutions. On Jan. 27/09, The Minister Of Finance Tabled Bill C-10, Being ―An Act To Implement Certain Provisions Of The Budget In Parliament And Related Fiscal Measures.‖ The Bill Contains, Among Other Things, Amendments To The Financial Administration Act (FAA), The Canada Deposit Insurance Corporation Act (CDICA), The Bank Act (BA), And Other Financial Institution Statutes.

The Bill Amends The BA To Provide Authority For Cabinet To Override The Existing Prohibition On Financial Institutions Issuing Shares To The Federal Government If That Is Necessary To ―Promote The Stability Of The Financial System In Canada.‖ The Bill Goes Further, And Provides That, In The Event That Such Shares Are Acquired, The Minister May, By Order, Impose ―Any Terms And Conditions On — Or Require Any Undertaking From — The Bank That The Minister Considers Appropriate, Including Any Terms And Conditions Or Undertakings Relating To (A) The Remuneration Of The Bank’s Senior Officers … And Directors; (B) The Appointment Or Removal Of The Bank’s Senior Officers … And Directors; (C) The Payment Of Dividends By The Bank; And (D) The Bank’s Lending Policies And Practices.

The Steps Initiated By The Feds Could Appear, To The Jaundiced Observer, To Be The First Steps Towards The Effective Nationalization Of Canada’s Financial Institutions.

The Amendments Have A Soft Sunset Clause, Requiring The Minister To Take The Measures Considered Practicable In The Circumstances To Sell Or Otherwise Dispose Of The Shares If After Two Years (Or Earlier, At The Minister’s Discretion) The Minister Determines That The Holding Of Such Shares Is No Longer Necessary To Continue To Promote The Stability Of The Financial System In Canada.

The Bill Also Amends The FAA To Provide Authority To The Minister To Enter Into Any Contract That The Minister Determines Is Necessary To Promote The Stability Or Maintain The Efficiency Of The Canadian Financial System. This Includes The Authority To Enter Into Contracts To Provide Loans Or Loan Guarantees To, Or Provide Credit Insurance On The Financial Assets Of Any Entity That Is Operating In Canada. It Should Be Noted That The Entity Does Not Need To Be Incorporated Under Canadian Laws. The Bill Also Makes Significant Changes To The CDICA By Giving The Cabinet The Authority To Exempt The Canada Deposit Insurance Corporation From The Requirement That It Pursue Its Objects In A Manner That Will Minimize Its Exposure To Loss In Order To Avoid A Situation That May Otherwise Have An Adverse Effect On The Stability Of The Financial System In Canada Or Public Confidence In That Stability.

The Significance Of The Amendments To The Canada Deposit Insurance Corporation Act Becomes Even Greater When One Takes Into Account That The Expenses Of The Canada Deposit Insurance Corporation Are Borne Not The Federal Government But By The Member Institutions.

In Addition, The Bill Provides That, Where Canada Deposit Insurance Corporation Has Been Appointed Receiver Of An Institution, The Minister May Direct The Incorporation Of A ―Bridge Institution And The Cabinet May Exempt The Particular Financial Institution Or The Bridge Institution From Any Of The Requirements Of The Financial Institution Statutes.