Banks rarely fail in Canada, but how many billions of dollars would be needed if there's trouble? | CBC News Loaded
Canada Deposit Insurance Corporation funds that are earmarked for protecting depositors when things go awry — and when all other resolution options are exhausted — are not at their target level.
Funding to protect depositors at Canadian institutions currently below CDIC's target
Bank failures haven't happened often in Canada.
The Canada Deposit Insurance Corporation (CDIC), which insures deposits in Canadian banks,last handled onein the mid-1990s, and the Crown corporation has dealt with only43 such incidentssince it was establishedin 1967.
By contrast,the United States has seen more than 500 failures since 2000 — including the collapse of Silicon Valley Bank and SignatureBank last month.
Experts say these kinds of episodes are less likely to occur in Canada, with strict banking regulations and a group of big, well-capitalized banks at the core of the sector.
The federal Department of Finance said in a statement emailed to CBC News that the country has "one of the strongest and most resilient banking systems" in the world,with robust protections for financial institutions, deposits and the financial system itself.
Yet CDIC funds that are earmarked for protecting Canadian depositors when things go awry at member institutions— and when all other resolution options are exhausted — are not at their target level.
How much does that matter?
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Cristián Bravo Roman, a Canada Research Chair in Banking and Insurance Analytics at Western University in London, Ont., said it comes down to the kind of possible, but not probable, eventsthat deposit insurance is meant for.
"It is about risk," he said via email, noting that such reserve funds are built to cover expected losses should abank failure occur.
They are also built assuming such failures are unlikely to happen and that many will not occur at the same time, he said.
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Below the near-term target
The CDIC's deposit insurance is funded throughpremiums from its dozens ofmember institutions, whichinclude the country's big banks, federally regulated credit unions, andloan and trust companies.
The federal agencyhas a near-term target for its deposit protection funding of 85 basis points — or 85/100ths of one per cent — of its insured deposits.
At the end of last year, however, the CDIC's ex-ante fund — which provides for futuredeposit insurance payoutsif needed — totalled $7.9 billion, which represented 73 basis points of insured deposits.
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Bravo Roman said the gap between the near-term target and the gathered funds doesn't mean the CDIC lacks the capacity to deal withabank collapse.
"They will be able to respond," hesaid, noting the the CDICwould seek extra resources as needed in the event of afailure.
The CDICtold CBC News that it is able toaccess more than $30 billioninextra funding — via borrowing and with the approval of the finance minister — if itis needed as part of a resolution following a bank failure.
What if things change?
The federal government, in its recently announced budget, expressed a willingness to expand deposit insurance limitsif need be.
The CDICcurrently provides depositors with $100,000 of coveragefor each of nine categories of eligible accounts, per member institution. Depositors can spread out their money to achievemore expansive protection.
