CDIC: Resolution authority for our members

A computer screen with a digital graphMarch 28, 2018 - For 50 years CDIC has protected the hard-earned savings of Canadians. We do this by insuring the eligible deposits of Canadians in some 80 member institutions. Member institutions range from small trust companies and banks, to federal credit unions, to Canada’s largest and most complex banks (Domestic Systemically Important Banks referred to as D-SIBs). CDIC benefits from a wide array of powers to address a failing member institution—from liquidation and reimbursement of insured depositors, to tools to address a failing D-SIB.

At the operational level, we have internal plans to address these possible failure scenarios, as well as the people and resources required to implement the plans (see article on funding for failure resolution). We also test ourselves regularly to fine-tune our preparedness. We are proud to say that over the course of our history we have resolved 43 member institutions and no depositor lost one dollar of their insured savings.

Serving as resolution authority for Canada’s largest banks

Following the seismic impact of the 2008 global financial crisis, it became clear to countries around the world that gaps existed in the resolution of large (systemic) banks. Today this focus forms a key part of the sweeping financial reform agenda now well underway around the world.

In 2011 CDIC became Canada’s resolution authority responsible for resolving our D-SIBs which has led to changes at CDIC but also in the legislative framework that supports a resolution of these banks.

Powers and tools at our disposal for D-SIBs

One of the key tools we now have is the power of “bail-in.” In a bail-in, CDIC would take control of the bank and recapitalize it by converting bail-in debt into equity, while ensuring that the bank remains open and continues to provide critical services to its customers. This would minimize disruptions to the financial system, reduce taxpayer exposure, and reduce incentives for systemically important banks and their shareholders to take excessive risk. Work on the regulations to support the bail-in regime should be completed this year.

At the same time, we have worked with our D-SIBs on their resolution plans over the past several years—plans ready to be operationalized if the D-SIB were to fail. We received the first bank-authored plans in late 2016. We assessed the plans and have worked with the banks to identify actions needed to ensure we have high quality plans by 2020 so that the banks could be resolved in an orderly manner.

CDIC’s new powers and responsibilities, combined with those of our safety-net partners, align with the criteria set out by the Financial Stability Board’s Key Attributes of Effective Resolution Regimes.

As technology and banking methods continue to evolve, we will continue to adjust the approaches we take to ensure that resolution plans remain actionable in the unlikely event that one of Canada’s largest banks faces severe threats to its viability. This strengthens Canada’s financial system and its position among G20 nations.