A

Annual Report

A formal report by a corporation that includes a statement about financial performance and includes the current balance sheet and the auditor’s report. For a Crown corporation, like CDIC, the annual report also provides information describing how well the corporation is meeting its corporate mission as mandated by Parliament. CDIC submits its annual report to Parliament through the Minister of Finance. See “auditor’s report”.

Auditor’s Report

A statement in an annual report in which an auditor indicates whether a corporation’s financial statements provide a true picture of its finances. The financial statements in CDIC's annual reports are audited by the Auditor General of Canada. See “annual report”.

B

Bank Draft

A cashable instrument, similar to a certified cheque or money order, that is drawn by a bank against its own funds and payable to the person named in the draft.

Beneficiary

An individual, corporation or organization that has a property interest in a trust account or another asset held by a trustee. See “trust” and “trust account”.

Board of Directors

The group of individuals charged with the overall direction of a corporation or organization, who have the power to appoint senior managers and approve the strategic direction of the corporation or organization.

Bond

A debt investment issued by a government, or by a bank or other corporation. Bonds normally pay fixed interest rates and may be redeemable on demand or at the end of a fixed term.

By-law

A rule put in place by a corporation or organization under authority granted to it by a higher law. For example, CDIC is allowed by the CDIC Act to pass by-laws that apply to its member institutions or others involved in the placement of deposits.

C

Caisse Populaire

A co-operative organization offering banking services, such as the taking of deposits. Caisses populaires are not members of CDIC, so CDIC does not insure deposits made with them. Caisses populaires participate in alternative deposit insurance arrangements under Provincial laws.

Canada Deposit Insurance Corporation Act

The legislation passed by Parliament creating CDIC, specifying its powers, and defining its corporate mission. Abbreviated as “CDIC Act”.

CDIC Member Institution

Canadian banks, Canadian trust and loan companies that take deposits, as well as associations governed by the Cooperative Credit Associations Act that take deposits.

Chequing Account

A deposit account that allows the depositor to write cheques instructing the institution to withdraw funds from the account and pay them to the persons named in the cheques. A chequing account may or may not pay interest. (When accounts both allow cheques to be drawn and pay interest they are sometimes called “chequing-savings accounts”.)

Credit Union

A co-operative organization offering banking services, such as the taking of deposits. Credit unions are not members of CDIC, so CDIC does not insure deposits made with them. Credit unions participate in alternative deposit insurance arrangements under Provincial laws.

Crown Corporation

A corporation set up and owned by a government to fulfill a public policy objective. CDIC is a Federal Crown corporation.

D

Debenture

A debt investment issued by a bank or other corporation. Debentures may pay interest at a fixed rate or a floating (variable) rate and may be redeemable on demand or at the end of a fixed term.

Demand Deposit

A deposit that can be withdrawn at any time. For example, deposits in chequing accounts and savings accounts are demand deposits.

Deposit

A deposit is a balance of money that is held by a CDIC member institution for an individual, corporation or organization. The CDIC member holding the deposit must give credit to the depositor’s account or issue an instrument on which the member is primarily liable.

Deposit Broker

Someone who arranges for a person to make a deposit with a deposit-taking financial institution.

Deposit Insurance Information By-law

A CDIC by-law that requires member institutions to prominently display a CDIC membership sign at all business locations and make the CDIC brochure Protecting Your Deposits available on request.

Deposit Insurance Policy By-law

A CDIC by-law that requires a member institution to provide financial and other information to CDIC each year that is used set the annual premium rate for that member. See “differential premiums”.

Differential Premiums

CDIC assigns each of its member institutions one of four annual premium rates, based on a number of tests such as its level of capital, profitability, asset quality and so on. The better a member institution scores under these tests the lower the annual premium rate assigned to it will be. The differential premiums levied by CDIC from its member institutions annually are applied to CDIC’s operations, as well as its ex ante funding.

E

Eligible Deposits

Deposits that are eligible for insurance under the CDIC Act. In order to be eligible a deposit must be in a certain type of account or product (including but not limited to a savings account, a chequing account, a GIC of 5 years or less), held at a CDIC member institution and held in Canadian dollars. There are other rules that apply as well for the deposits to be eligible.

Ex Ante Funding

The accumulation of a fund to cover deposit insurance claims in case of future need. (Ex ante translates as “before the event”.)

Ex Officio

Holding a second position or office by virtue of being appointed to a first. When individuals are appointed to certain senior government positions (for example, the Governor of the Bank of Canada and the Superintendent of Financial Institutions) they automatically become members of CDIC's Board of Directors.

F

Failure

A failure occurs when an institution business becomes insolvent or is in immediate danger of insolvency. In the case of CDIC’s member institutions, a failure can occur if the institution meets the conditions set out in the Guide to Intervention for Federal Financial Institutions for action by OSFI or CDIC to take control or seek its wind-up.

Failure Resolution

The process of settling the affairs of a failed member institution. This may involve such things as a wind-up by a court-appointed liquidator, creating a company to manage and dispose of certain assets, or arranging the sale of all or part of the institution’s business.

Financial Institution

A corporation in the business of offering financial products or services, such as a bank, trust company, loan company or association.

Financial Products

Any investments or other instruments that have monetary value. Examples include deposits, annuities, stocks and bonds, and mutual funds.

Financial Stability Forum (FSF)

A forum established by the G7 finance ministers in 1999 (in the aftermath of the Asian economic crisis) to foster the exchange of information and co-operation among supervisory authorities, central banks, and deposit insurers.

Foreign Currency Deposit

A deposit held in a currency other than Canadian dollars.

G

Guide to Intervention for Federal Financial Institutions

A document developed by OSFI and CDIC that outlines the intervention steps applied to CDIC member institutions. It describes the mechanisms in place between OSFI and CDIC, summarizes the circumstances under which certain intervention measures may be taken and defines a graduated and progressive set of responses, based on the member institution's particular circumstances.

I

Index-linked rate

An interest rate is said to be index-linked when it is calculated by tracking changes in the price or value of something, such as a stock market index or a pool of investments.

Insolvency

An individual, corporation or organization is insolvent if: 1) they cannot pay their debts as they fall due, or 2) the value of their assets is less than the total of their debts.

Intervention

Steps that are taken by OSFI or CDIC, or both, to address concerns that may arise with CDIC member institutions.

J

Joint Deposit

A deposit made in the names of two or more persons as joint owners. An eligible deposit owned jointly can qualify for separate CDIC insurance.

M

Maturity Date

The date at which a term deposit becomes due.

Merger

CDIC treats two situations as a merger: (1) when two or more CDIC member institutions join together to become a single member, or (2) when one member takes over deposits made with another member.

Money Order

A cashable instrument, similar to a certified cheque or a bank draft, issued by a deposit-taking financial institution or a postal authority and payable to the person named in the order.

Mutual Fund

A financial product that combines the money of many investors to make a variety of investments in products such as stocks and bonds. The investors have a shared property interest in the pool of investments.

N

Note (Promissory Note)

A debt investment issued by a bank, corporation or organization. Notes may pay interest at a fixed rate or a floating (variable) rate and may be redeemable on demand or at the end of a fixed term.

O

Opting-Out

Legislation permitting a bank to take deposits without being a CDIC member institution. Banks that opt out of CDIC are only allowed to take deposits of $150,000 or more.

P

Payout

The process undertaken by CDIC to make deposit insurance payments to the insured depositors of a failed CDIC member institution. CDIC may make a payment of deposit insurance in one of two ways: (1) by issuing cheques to insured depositors; or (2) by providing insured depositors with new demand deposits at another CDIC member institution.

Principal Protected Note (PPN)

A debt investment issued by a bank or other corporation. Instead of paying interest at a fixed rate or a floating (variable) rate, principal protected notes pay interest that is calculated by tracking changes in the price or value of something, such as a stock market index or a pool of investments. A PPN is similar to a term deposit that pays interest at an index-linked rate, but PPNs are not insured by CDIC because they are sold through securities brokers.

Provision for Loss

An accounting term that means an amount set aside on a balance sheet to provide for anticipated or possible loss or expenditure. For instance, CDIC has a provision for insurance losses, because it is always possible that one or more member institutions might fail at some time in the future.

R

Registered Education Savings Plans (RESP)

An RESP is an investment vehicle that allows parents to save towards paying the costs of their children’s post-secondary education. An eligible deposit held in a RESP can qualify for separate CDIC insurance if the RESP is set up as a trust. Interest earned in an RESP is tax-exempt until it is withdrawn. See “trust” and “trust account”.

Registered Retirement Income Fund (RRIF)

A RRIF is an investment vehicle that regularly pays money to a retired person. A RRIF can hold a wide variety of investments. Each year from age 71, a RRIF holder must withdraw a minimum percentage of the total funds held in the RRIF, with the percentage determined by his or her age. Money earned in a RRIF (interest, dividends, capital gains, etc.) is tax exempt until it is withdrawn. Eligible deposits held in RRIFs qualify for separate CDIC insurance. Other types of investments are not CDIC insured.

Registered Retirement Savings Plan (RRSP)

An RRSP is an investment vehicle that helps people save for retirement. A RRSP can hold a wide variety of investments. Contributions to a RRSP are tax-deductible and money earned in a RRSP (interest, dividends, capital gains, etc.) is tax exempt until it is withdrawn. A RRSP must be closed and the funds turned into a source of retirement income, such as a RRIF, by age 71. Eligible deposits held in RRSPs qualify for separate CDIC insurance. Other types of investments are not CDIC insured.

Risk Management

The process of controlling whether a risk will be taken on and responding to the negative consequences of a risk taken.

S

Savings Account

A deposit account that can be withdrawn at any time. Savings accounts pay interest and depositors are not able to write cheques on them. (When accounts both pay interest and allow cheques to be drawn they are sometimes called “chequing-savings accounts”.)

Securities

Financial instruments such as bonds, notes, debentures, Treasury bills, stocks and mutual funds.

Supervisory Authority

A person or organization that regulates financial institutions. In Canada, the Federal supervisory authority is the Superintendent of Financial Institutions (abbreviated as “OSFI”). Provincial regulators supervise Provincial financial institutions, such as credit unions.

T

Term Deposit

A deposit that is due at the end of a fixed term. A term deposit may pay interest at a fixed rate, at a floating (variable) rate or at an index-linked rate. A GIC is a common type of term deposit.

Treasury Bill

A debt investment issued by a government and redeemable at the end of a fixed term - normally, in 90 days, 180 days or 1 year.

Trust

A type of ownership in which a person (the trustee) holds property for the benefit of one or more other persons (the beneficiaries). For example, a trustee may have a deposit account in which they hold money for the benefit of one or more beneficiaries.

Trust Account

A deposit account held by a trustee. An eligible deposit in a trust account can qualify for separate CDIC insurance.

March 3, 2008