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Email this12:34 pm
September 5, 2013
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We have a lot of discussions related to CDIC protected deposits. However, the government quietly passed the bail-in regime.
If you read bankers interpretation, then it seems the customer deposits (both unsecured and secured) are not included in the bail-in regime.
http://www.cba.ca/faq-what-is-.....-in-regime
However, Joe Oliver said in the other way:
http://business.financialpost......e0a77ac3ac
Although I know we are OK within the CDIC $100K limit, what kind of protection do we have when a big bank goes down? I guess most of Canadian will still have more than $100K in it, and what steps should we consider to protect ourselves, especially with this bail-in-regime law?
12:59 pm
October 21, 2013
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Why would you think that most Canadians would still have over 100K in a given bank, unprotected?
Diversification never made more sense.
However, in the case of a massive national failure such as in Cyprus, all bets are off, and I doubt anything will save you, not even the CDIC.
The most interesting part of the article from my perspective was the revelation that so many other countries have superior deposit insurance to what we have. It's time ours was increased. I'm sure the banks would howl blue murder over that. Too bad.
1:30 pm
August 4, 2010
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Brimleychen said
If you read bankers interpretation, then it seems the customer deposits (both unsecured and secured) are not included in the bail-in regime.
http://www.cba.ca/faq-what-is-.....-in-regimeHowever, Joe Oliver said in the other way:
http://business.financialpost......e0a77ac3acAlthough I know we are OK within the CDIC $100K limit, what kind of protection do we have when a big bank goes down? I guess most of Canadian will still have more than $100K in it, and what steps should we consider to protect ourselves, especially with this bail-in-regime law?
I think Joe Oliver (in April) was worried that the budget didn't specifically mention unsecured deposit amounts. That was left to the regulations, and a draft of those was published June 16. If you look at "Bank Recapitalization (Bail-in) Conversion Regulations", under "Scope" you will see it reads "The proposed scope does not capture deposits...these instruments would not be eligible for conversion under bail-in".
Deposits over CDIC limits are NOT subject to bail-in. Also note that bail-in only applies to the Big 6 banks (the "D-SIBs").
6:42 pm
April 6, 2013
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No much has changed since the previous discussion about Canadian bank bail-ins.
Deposits were not included in the proposals then. As NorthernRaven points out, deposits are still not included now that the proposals have been passed into law by the royal assent of the Budget Implementation Act, 2016, No. 1 (BIA 1 2016) on June 22, 2016.
6:35 am
September 5, 2013
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Loonie said
Why would you think that most Canadians would still have over 100K in a given bank, unprotected?
....
Well, there are many peoples in this forum are putting more than $100K at least to Tangerine, because they trust it is a bank backed by ScotiaBank
I agreed that diversification is a no-brainer, but sometimes we are lured by high return
6:47 am
September 11, 2013
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Couldn't agree more, Brimleychen, it's always fear vs greed. Also, there's been a bit of "grooming" done, as these promos often apply up to balances up to $500K - they plant the seed of putting more than CDIC limits with them.
6:49 am
September 5, 2013
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Norman1 said
No much has changed since the previous discussion about Canadian bank bail-ins.Deposits were not included in the proposals then. As NorthernRaven points out, deposits are still not included now that the proposals have been passed into law by the royal assent of the Budget Implementation Act, 2016, No. 1 (BIA 1 2016) on June 22, 2016.
This is on the paper. However, $100K is CDIC insured limit per type of account. Bank bail-in scheme highlights shareholders and bondholders will take some haircut by becoming the shareholders.
But so far, the government still remains ambiguous on those customer deposits above $100K purposely. If they are included into bail-in scheme, it will hurt our bank reputation (Canadian Banks are the world’s soundest banks
)
What will happend? Your guess is my guess.
6:57 am
August 4, 2010
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Brimleychen said
But so far, the government still remains ambiguous on those customer deposits above $100K purposely. If they are included into bail-in scheme, it will hurt our bank reputation (Canadian Banks are the world’s soundest banks
What will happend? Your guess is my guess.
You apparently didn't read my post above, with the helpful big black letters. There is no ambiguity, the draft explicitly states that deposits are not part of the bail-in. There is no guessing required, and you misunderstand the bail-in system.
7:10 am
September 5, 2013
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NorthernRaven said
You apparently didn't read my post above, with the helpful big black letters. There is no ambiguity, the draft explicitly states that deposits are not part of the bail-in. There is no guessing required, and you misunderstand the bail-in system.
Then, more than 100K with big six banks will be safe (secured and Insured) anyway. That's the politician way.
It does sound like CDIC is only for small banks. The big banks are too big to fall, and tax payers will bail them out.
7:50 am
April 6, 2013
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Brimleychen said
Then, more than 100K with big six banks will be safe (secured and Insured) anyway. That's the politician way.
…
Excluding uninsured deposits from being converted to common shares does not mean that such deposits are somehow covered.
Bail-in will be used when it is enough to restore the viability of a bank.
When it won't be enough, the regulators won't do it and will issue a wind-up order. CDIC will then buy out all the insured deposits. The holders of uninsured deposits will then stand alongside with CDIC, the new owner of the deposits that it had insured, and other creditors to see what everyone gets after the bank is liquidated. If CDIC ends up recovering 85% of what it bought those insured deposits for, then the holders of uninsured deposits will end up with 85% of what they are owed too.
8:26 am
October 27, 2013
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Norman and Northern Raven have got the scenario well described. I don't understand why others are confused. The ONLY thing that has changed with this legislation, first proposed back in 2013 or so, is the taxpayer demands that equity shareholders and certain debt holders have to give up their lives first on bank viability.....before the regulator declares a bank insolvent, and triggers CDIC action and/or further taxpayer rescue. That is how it should be.
There is no change to deposits, insured or otherwise despite some ridiculous assertions to the contrary over the last 4 years.
The banks started recalling their preferred share issues circa 2014 and re-issuing NVCC compliant issues (meaning convertible to common equity at a 5 to 1 conversion rate) at that time. That is to ensure pref share owners share in the pain to the same degree as common equity owners when market pricing of common equity drops to certain levels.
8:43 am
September 5, 2013
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Norman1 said
...
When it won't be enough, the regulators won't do it and will issue a wind-up order. CDIC will then buy out all the insured deposits. The holders of uninsured deposits will then stand alongside with CDIC, the new owner of the deposits that it had insured, and other creditors to see what everyone gets after the bank is liquidated. If CDIC ends up recovering 85% of what it bought those insured deposits for, then the holders of uninsured deposits will end up with 85% of what they are owed too.
Norman, thanks! So I took it those uninsured deposits will be the last one bail-in-ed.
3:37 pm
September 30, 2017
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An update overdue -
The bail-in power is not retroactive. This means that only instruments that are issued, or amended to increase their principal value or extend their term to maturity, on or after September 23, 2018 will be eligible for bail-in conversion.
Please write your comments in the forum.