Resolution tools

CDIC has a number of tools to assist or resolve a failing member institution. Since its creation in 1967, CDIC has handled the failure of 43 of its member institutions.

Which tool is used would depend on the circumstances of a particular situation.

Factors such as the size and complexity of the bank, its franchise value, as well as the current availability of any private sector buyer or other options, would be key considerations in deciding which tool to use.

The tools that CDIC could use include:

Reimbursement of insured deposits:

In certain cases, a failed bank is closed and CDIC launches its rapid reimbursement process so that insured depositors have their money as quickly as possible. This process is automatic and depositors do not have to file a claim.

In these cases, the failed bank ceases to operate, all contracts are terminated and its critical financial services are no longer available, including access to accounts.

CDIC would reimburse insured deposits up to $100,000 (including interest) per insurance category in accordance with the following payment schedule:

  • CDIC would aim to reimburse chequing and savings accounts, joint accounts and mortgage tax accounts within three business days from the date of failure.
  • Deposits in valid trusts are protected to $100,000 per beneficiary. CDIC would contact broker-trustees to inform them of its process to reimburse insured deposits. CDIC would remit payment to broker-trustees within seven business days of receiving wire transfer/payment information. Payment would be based on CDIC calculations and deposit information at the failed institution.
  • CDIC would hold registered deposits in RRSPs, RRIFs and TFSAs for several days while it works with the Canada Revenue Agency to ensure they remain tax-sheltered. CDIC would contact these depositors directly to inform them of next steps.

Depositors with funds that are not protected by CDIC would be able to file a claim with the liquidation firm when it is appointed by the courts.

This is a tool that would likely only be used in the case of small to medium-size banks, not domestic systemically important banks (D-SIBs). 

Forced sale:

When a buyer exists, CDIC can take control of a failing bank for a short period of time to complete its sale, merger or restructuring. The sale would ensure that critical banking operations continue and insured deposits are protected. With the approval of the government, a forced sale would be used when shareholder consent of the transaction is not expected or the time to obtain consent would take too long.

There are two types of forced sales:

  1. All shares are transferred to CDIC and it becomes the sole shareholder to facilitate the sale
  2. CDIC is appointed receiver to sell all or some of the failing bank's assets and liabilities to the buyer

For more info, consult our backgrounder on the Forced Sale resolution tool.

Bridge bank:

A bridge bank is a tool that is available when an institution fails and there is no buyer or private-sector solution on the horizon. It is meant to "bridge" the gap between when an institution fails and when a buyer or private-sector solution can be found. CDIC can use this tool to transfer all or part of the failing bank's business to a bridge bank, which is temporarily owned by CDIC.

Similar to a forced sale, the transfer would ensure that critical banking operations continue and insured deposits are protected. As owner, CDIC would likely appoint to the bridge bank a new board of directors and chief executive officer to handle the restructuring and to stabilize the bank. Once stable, the bridge bank would be sold to the private sector.

For more info, consult our backgrounder on the Bridge Bank resolution tool.

Financial assistance:

CDIC can provide financial assistance to its members, including loans, guarantees, deposits, or loss-sharing agreements or by acquiring shares. CDIC can provide this assistance on a stand-alone basis, to assist in a private transaction, or in combination with any of its other resolution tools.

Bail-in framework:

In 2016, Parliament introduced a bail-in regime to Canada's bank resolution toolkit.

Bail-in is an important tool that would allow CDIC, as the resolution authority for Canada's D-SIBs, to ensure failing institutions remain open for Canadians, which helps protect our economy.

Bail-in allows authorities to recapitalize a large Canadian bank by converting certain long-term debt to common shares while the institution remains open and operating. In the unlikely event of a failure, this would ensure losses are covered by the bank's shareholders and certain investors, not taxpayers or depositors.

Bail-in would not change the deposit protection offered by CDIC