North American Treasury The U.S. – Canada connection Nick Orchard Vice President, Wells Fargo Global Product Management TEXPO, 4 April 2011

Agenda Trade and economics Geography Canadian banking landscape Regulatory environment Clearing systems Payables and receivables What does the future hold? 1

Trade and economics 2

Trade and economics Trade with Canada supports over 8 million U.S. jobs* U.S. and Canada are world’s largest trade partners - $596bn Accounts for 4.4% of total U.S. employment; 1 in 23 U.S. jobs Canada is one of the few developed countries that is a net exporter of energy* U.S. imports 2X as much oil from Canada as from Saudi Arabia U.S. is largest market for Canada agriculture produce* Less than 1% of U.S. companies export – significantly lower than all other developed countries** 58% export to only one country *Government of Canada **U.S. Commerce Department 3

Trade and economics Canada leads all G7 countries in ease of doing business 2009 World Competitiveness Yearbook Canada forecasted to be the #1 place to do business in the G7 for the next five years Economic Intelligence Unit Canada ranks in the top 3 for investment and trade opportunities World Trade Magazine   4

Trade and economics Canada U.S. Growth Relatively strong economic growth; managed to avoid worst effects of global recession Uneven economic recovery; trends are increasingly positive, but some sectors continue to struggle Interest rates Rates moving higher; three 25bp increases in 2010 Low interest rates expected to continue Jobs Strong job creation; employment back to pre-recession levels Unemployment remains high; recovery is sporadic Housing Little impact from recession; strong sales activity and price stability; banks very conservative Construction of new homes and sales of existing homes still depressed Income Household debt to disposable income ratio close to all-time high; low savings rates Income growth remains slow; spending recovering; high household debt Federal debt Federal debt to GDP ratio is half of G7 average Government debt is high and increasing as a consequence of stimulus 5

Geography 6

Geography Canada is the world’s 2nd largest country U.S. Area (sq. miles) 9,984,670 9,161,966 Population 33,487,000 (80% urban) 307,212,123 (82% urban) Population growth 0.817% 0.975% GDP (US$) $1.3 trillion $14.3 trillion Canada is the world’s 2nd largest country Slightly more area than the U.S. Only one tenth of the U.S. population GDP running at around 10% of U.S. 80%+ of Canadians live within 100 miles of the U.S. border A similar proportion of those people lives in the main urban areas of Montreal, Toronto, Calgary, Edmonton and Vancouver Source: Government of Canada and U.S. Census Bureau 7

Canadian banking landscape 8

Canadian banking landscape Highly efficient – same day clearing of paper and electronic payments Progressive – world leader in ATMs, debit cards and internet banking Electronic – 75% of payment transactions in Canada are processed electronically; dominated by debit cards, credit cards, and ACH (EFT) Nationwide – operates across Canada in 6 time zones Stable – one of world’s soundest banking systems Scale – all major Canadian banks have 1,000+ branches 9

Canadian banking landscape U.S. and Canada comparison Over 150 deposit taking institutions; over $2 trillion in assets Over 9,000 financial institutions; $12.6 trillion in assets Top 5 banks control 80% of the assets Top 5 banks control 30% of the assets Centrally regulated by OSFI; 12 direct clearers with direct exchange Federal Reserve Board, OCC, the Office of Thrift Supervision, 50 state regulatory bodies Highly regulated: strict privacy, KYC, AML Check volumes decreasing, 85% of retail transactions are electronic. World’s largest ATM and debit card users. Consumers still issue significant volume of checks, but usage is now decreasing at faster rate than in Canada Cross country network; no processing float Limited interstate banking; processing float 6 Clearing Centers. Consolidated check processing through 2 processors Federal Reserve has single check clearing center Clearing and settlement of checks and low-value payments occurs overnight Specified intra-day clearing times No national image exchange Check 21 image capture and exchange Same day value for CAD deposited items Multiple days for clearing; generally 1–3 days 10

Regulatory environment 11

Regulatory environment Canada U.S. Governance Bills of Exchange Act and Canadian Payments Association Treasury Department; Federal, State and Case Law Governance: electronic items Canadian Payments Association NACHA Central bank Bank of Canada Federal Reserve Market supervision Office of the Superintendent of Financial Institutions (OSFI) Treasury Department; regulatory and supervisory areas of the Federal Reserve Deposit insurance Canadian Deposit Insurance Corporation (CDIC) Federal Deposit Insurance Corporation (FDIC) Anti-money laundering Financial Intelligence Unit (FIU) and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) Office of Foreign Assets Control (OFAC) 12

Anti-money laundering policy in Canada Policy controlled and enforced by Canada’s FIU and FINTRAC Account Opening – Formal identification required for: Account holder Corporate customers and directors Beneficial ownership of companies, and percentage thereof Reporting – FINTRAC reporting required in respect of: Deposits of $10,000 or more in any 24 hour period (15 days) Suspicious activity reporting (30 days from initial detection) Customers making cross-border wire transfers, buying life insurance or money orders over $3,000 Formal policies on transactions for non-clients Source: FINTRAC – Financial Transactions Reports Analysis Centre of Canada   13

Clearing systems 14

Canadian clearing systems Canadian clearing and settlement systems are operated by the Canadian Payments Association (CPA) Automated Clearing Settlement System (ACSS) Low value payments (Checks, ACH (EFT)) Batch processing Large Value Transfer System (LVTS) Collateralized Real-Time Gross Settlement System Wire payments and interbank settlements US Bulk Exchange Next day (ACH Style) settlement of USD items between Canadian banks; positions settled via U.S. correspondents 15

Large Value Transfer System (LVTS) RTGS introduced by CPA in February 1999 Facilitates the simultaneous transfer of irrevocable payments in Canadian dollars between participants 15 direct participants Other CPA members connect via a direct participant All payments are final and irrevocable LVTS is a hybrid RTGS Combines real-time payment finality with lower collateral costs of a netting system End of day settlement on books of Bank of Canada 16

Automated Clearing Settlement System (ACSS) ACSS is the retail clearing system through which most Canadian payments are cleared (by volume) ACSS is a deferred net settlement system Clears paper items (checks) and electronic items (EFT) Maximum dollar value limit on checks of $25 million End of day batch process determines the net positions of the direct clearers The 11 direct clearers maintain settlement accounts at the Bank of Canada Posting to direct clearers’ customer accounts occurs overnight; value date given is the transaction date 17

Canadian clearing and settlement statistics 2010 LVTS ACSS Value (Average $ per day) $149,000,000,000 $20,000,000,000 Value (%) 88% 12% Transactions (Average per day) 24,000 24,000,000 Transactions (%) 1% 99% Transaction Value (Average $) $6,200,000 $825 Source: Canadian Payments Association 18

Payables and receivables 19

Payables Canada U.S. Controlled disbursements Not available – overnight check clearing Available Wire payments Checks $25 million limit; No conversion to ACH Unlimited $ value; Check conversion to ARC Positive pay Payee match Emerging ACH/EFT Electronic Funds Transfer (EFT) CAD and USD Remittance information not exchanged Automated Clearing House (ACH) USD only Remittance information available Debit block Emerging (ACH) Account balancing Overnight check clearing; no advance knowledge of clearing amounts 20

Canadian check clearing process Day 1: Date of Deposit Encashing Branch – Bank A Data Centre Bank A – (Symcor or Intria) Day 1: Evening Overnight Processing (Toronto) Data Centre Bank A Data Centre Bank B Bank A receives value for the cleared item when it is delivered from the local Data Centre of Bank A to local Data Centre of Bank B Day 2: Vancouver Drawee Branch Bank B Data Centre Bank B Bank B receives check and forwards to drawee bank branch 21

Receivables Canada U.S. Branch network Nationwide State or regional Lockbox Nationwide lockbox sites: Vancouver, Calgary, Winnipeg, Toronto (primary), Montreal, Halifax Accepts and processes Canadian and US dollar items Mail is delivered to the lockbox once per business day; no weekend activity Imaging available Nationwide lockbox service available Limited availability of foreign currency items Mail is delivered throughout the day, including Saturday Remote capture Truncation and Electronic Cheque Presentment (TECP) initiative cancelled in 2008; No remote capture available Check 21; remote deposit solutions 22

Accounts, liquidity and fraud considerations Canada U.S. Canadian dollar accounts Available Limited availability U.S. Dollar accounts Foreign currency accounts Overdrafts Permitted (as approved) Debit interest charged Not permitted Overdraft fees apply Credit interest Credit interest earned Earnings credits not available Credit Interest not available Earnings credits Cash concentration Notional pooling Zero balancing Sweep accounts Electronic return time Unauthorized B2B PAD with agreement: 10 days Without agreement: 90 days Unauthorized B2C PAD: 90 days Unauthorized B2B PAD: 24hrs Unauthorized B2C PAD: 60 days Check return time Altered item: 90 days Counterfeit item: 24 hours Forged endorsement: 6 years Altered Item, counterfeit Items, forged endorsement: 24 hours* * Note UCC varies from state-to-state so this timeline varies. 23

What does the future hold? 24

CPA payment strategy: Vision 2020 Vision 2020 is the CPA’s strategic plan for the development of the Canadian payments market The plan anticipates that automation and increasing national and international regulations will shape market Focus will be on five key areas Supporting electronic payments Driving payments efficiencies Modernizing the legal framework Enhancing exchange, clearing and settlement technology Expanding value-added services 25

Payment System Task Force June 2010 – Canadian Minister of Finance announced launch of the Payments Systems Review Task Force Mandate of task force is to review: The safety, soundness and efficiency of the payments system Whether there is sufficient innovation in the payments system The competitive landscape Whether businesses and consumers are being well served by the payments system, and Whether the current payments system oversight remains appropriate Task force recommendations expected by end of 2011 26

Check imaging developments Truncation and Electronic Cheque Presentment (TECP) initiative cancelled in 2008 TECP was intended to deliver an image-based nationwide clearing capability in Canada Duration, complexity and continuing emergence of electronic payment options in Canada led to cancellation TECP did deliver consistent cheque formats and standard image capabilities for customer reporting No plans to resurrect the TECP initiative Banks are exploring bi-lateral agreements for exchange and are continuing to introduce image enabled services June 2010: images recognized as legal equivalent of cheques Established legality of images supplied to customers with statements, online, etc. 27

Bill payments Electronic bill payment is an 18-year old industry in Canada with extremely high adoption rate Canada has no online, real-time, end-to-end process to support electronic bill payments Government expressed concerns regarding the efficiency of the electronic bill payment system Bill Payment Task Force created to focus on credit transfers (cleared through the CPAs systems) between two financial institutions resulting from a customer-initiated bill payment to a biller 28

Expectations for the future Continuing migration away from cash and paper Check usage in Canada is very low compared to U.S. Pace of check decline in U.S. is now faster than in Canada Convergence of consumer and business payments B2B payment alternatives, T&E, purchasing cards Online payments for businesses and consumers Online bill payments Online tax payments Increased e-presentment of bills Real-time payments Chip technology for cards Mobile payments 29

Questions? 30