The government said it intended to implement a comprehensive risk management framework — “a bail-in regime” — for Canada’s systemically important banks.
In the unlikely event that a big bank depleted its capital, it could be recapitalized through the very rapid conversion of certain bank liabilities into regulatory capital, reducing risk for taxpayers, the budget said.
The two-page section of the economic action plan (144 and 145) also talked about consultation with stakeholders and implementation deadlines that allowed for a smooth transition.
With recent bank insolvencies in Cyprus on everyone’s minds, some people assumed they risked losing capital even if their savings were below the $100,000 limit set by the Canada Deposit Insurance Corp.
Last Monday, a reader said she’d heard on CNN that “investors would be on the hook for losses if any Canadian bank were to go under.” Could I check?
Kathleen Perchaluk, press secretary to Finance Minister Jim Flaherty, sprang into action. She sent me an email last Wednesday, denying the rumours.
“The bail-in scenario described in the budget has nothing to do with depositors’ accounts and they will in no way be used here,” she said.
“If a bank is having severe difficulties, the bail-in regime would force certain debt instruments to be converted into equity to recapitalize the bank.”
In a bailout arrangement, taxpayers’ money has to be used to save a failing financial institution, she said by way of background.
In a bail-in arrangement, a failing financial institution has to tap into its own special reserves or assets, which it has been forced to put aside, to keep its operations going. This keeps a bank intact without using taxpayers’ money.
So, there’s no more uncertainty about CDIC-insured deposits. But when Toronto Star columnist Thomas Walkom asked if savings over $100,000 could be at risk, he was told that Ottawa had to consult the banks first.
I doubt there’s any urgency, since the budget proposals are not yet law and the crucial discussions about bail-in arrangements are yet to begin.
But if you have savings, you should know what kind of deposits you have and how they are protected. You can start asking questions right away.
“I have a scheduled appointment at my bank branch,” a reader told me, “and I will be reviewing my portfolio to see if it is protected by CDIC rules.”
When she talked to her bank adviser, she learned she had no money in CDIC-insured deposits, since the return wouldn’t keep up with inflation.
Instead, she learned, her money was in mutual funds marketed by outside fund companies and held in a brokerage account at a bank subsidiary.
So, if the bank went under — as I said before, an unlikely event — her money would be covered by the Canadian Investor Protection Fund (CIPF).
Is your brokerage a CIPF member? You can do a search at the CIPF website.
You can also find out about the $1 million limit for losses caused by a member firm’s insolvency. The CIPF coverage includes securities, commodities and futures contracts, segregated insurance funds and cash.
For credit union savings in Ontario, you are covered for up to $100,000 on eligible deposits by the Deposit Insurance Corp. of Ontario.
Deposits in Manitoba credit unions or their subsidiaries are covered by the Deposit Guarantee Corp. of Manitoba.
Finally, you can find out if your bank is a CDIC member. Call 1-800-461-2342 or check the website, which shows how you can multiply your coverage beyond the $100,000 limitmultiply your coverage beyond the $100,000 limit by holding joint accounts, trust accounts and registered accounts.
Bank bail-ins may be coming, but there’s no need to panic. Consider the budget proposals as a wake-up call to find out how your deposits are insured and to consider spreading them around to get more coverage.
Original Article
Source: thestar.com
Author: Ellen Roseman
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