CDIC’s role as resolution authority

CDIC is the resolution authority for all its members, from small to large. This means that CDIC takes the lead in handling the failure of these member institutions – from smallest to largest – to protect eligible deposits.

Since 1967, we have handled the failure of 43 small or medium-size member institutions, affecting close to 2 million Canadians.

During the global financial crisis that began in 2008, however, governments around the world were forced to rescue very large, complex banks and other financial institutions. These institutions were so large that their failure could damage the functioning of the financial system and the economies of their home countries. Considered “too big to fail,” many were bailed out using taxpayer funds.

Although no Canadian banks failed during the crisis, the failure of one of our largest banks is something we must be prepared to address.

Following the crisis, the Financial Stability Board (FSB) set out the responsibilities and powers that countries should have in place to resolve these large complex banks. These were endorsed by Canada with other G-20 countries and are known as the Key Attributes of Effective Resolution Regimes for Financial Institutions.

The objective of the Key Attributes is to make it possible for authorities to resolve a large, complex bank in a manner that protects eligible deposits, maintains the flow of critical financial services, protects the economy, and minimizes risk to taxpayers.

In Canada, CDIC is the resolution authority for all its member institutions, including the six largest banks, known as Domestic Systemically Important Banks (D-SIBs). We aim to ensure the FSB Key Attributes are reflected in our approach to resolution.

CDIC works with its federal partners and domestic and international stakeholders to strengthen collaboration and planning, so that we are ready in the unlikely event of a large, complex bank failure in Canada.

What is a D-SIB?

A domestic systemically important bank (D-SIB) is a bank that could broadly impact the domestic economy should it fail.

D-SIBs are so important to the functioning of the financial system and the economy that they cannot be wound up under a conventional bankruptcy and liquidation process should they fail without imposing unacceptable costs on the economy.

Canada currently has six D-SIBs.

Royal Bank of Canada (RBC) has also been designated as a G-SIB (see below).

D-SIBs are required to prepare resolution plans, which describe how they could be resolved in an orderly manner, while ensuring the continuity of critical financial services.

What is a G-SIB?

A G-SIB is a global systemically important bank. Each year, the FSB publishes a list of G-SIBs. The methodology for this designation is available for download (pdf).

The FSB identifies G-SIBs as “financial institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity, and are therefore subject to additional capital buffers and increased supervisory scrutiny.”

What is the impact of a G-SIB designation for RBC on CDIC’s role as resolution authority?

We have been working closely with RBC and our other large banks for years to protect depositors in the unlikely event they fail. Canada has held D-SIBs to the same standards as G-SIBs so we do not expect a new or different approach to resolution planning.