CDIC articles and updates

Highlights of Deposit Trends in CDIC’s Membership

CDIC articles and updates

As Canada’s deposit insurer and resolution authority for federally-regulated deposit-taking institutions, CDIC’s ability to deliver on its mandate rests on a sound understanding of key trends and developments in member institutions’ activities and business environment. One critical aspect for CDIC is the manner in which member institutions fund their lending activities. CDIC closely monitors and analyzes available data and information on our members’ financial risk profiles and funding activities to gain a deeper understanding of CDIC’s insurance obligations and risk exposures.

As of June 2019, CDIC’s members reported total deposits of $4 trillion, of which approximately one-quarter were insured by CDIC.

Figure 1: Term deposit as a percentage of total deposits

Shift towards longer maturity deposits

Until recently, member institutions had increasingly relied on demand deposits (compared to longer term deposits) to fund their operations. Following a decline in demand deposits in 2018, longer term deposits, e.g., GICs, experienced some growth. This trend appears to have continued into June 2019. Drivers for this change include uncertainty in capital markets following geo-political tensions and the interest rate environment.

Membership deposits continue to grow at a faster pace than eligible insured deposits

Figure 2: total and insured deposit growth rate (2000-2019)

The faster pace of growth in total deposits is broadly consistent with recent trends and is driven by several factors. In particular, Canada’s larger banks tend to fund their operations with deposit products and deposit-like financial instruments that are not currently eligible for deposit insurance by CDIC. Examples include foreign currency deposits, term deposits with original terms to maturity exceeding five years, and bearer deposits (whose receipts are payable to the bearer rather to a named person). Foreign currency deposits in particular have been growing rapidly and are up 8.9% year over year. Over the past 5 years, foreign currency deposits have grown 68% compared with total deposits, which grew 49% and had a compound annual growth rate (CAGR) of 8.3% (see Table 1). These divergent growth rates are in part attributable to many of Canada’s larger banks expanding deposit gathering activities in foreign jurisdictions, and to foreign exchange movements (which inflate foreign deposit figures when the Canadian dollar depreciates).

Table 1: Deposit Long Term Trends: Canadian and Foreign Currency and Current Value

5Yr Total Growth 5Yr CAGR 10Yr Total Growth 10Yr CAGR Q2/19 Value ($M)
Personal Canadian Currency 30.2% 5.4% 69.1% 5.4% 1,067,755
Personal Foreign Currency* 75.1% 11.9% 208.3% 11.9% 524,894
Non Personal Canadian Currency 38.5% 6.7% 94.8% 6.9% 914,841
Non Personal Foreign Currency* 66.1% 10.7% 152.9% 9.7% 1,442,897
Total Deposits 49.1% 8.3% 114.5% 7.9% 3,950,387
Total Foreign Currency Deposits* 68.4% 11.0% 165.7% 10.3% 1,967,790
*Foreign Currency reported in CAD Equivalent

Overall, insured deposit growth has accelerated somewhat in recent years after several years of moderate growth but continues to lag total deposit growth (see Figure 2).

The combined effect of these factors has been a steady decline in the share of CDIC-insured deposits to total Canadian dollar denominated deposits over the last decade. Eligible insured deposits currently represent about 43% of the total Canadian dollar deposits, compared to 58% in 2000 (see Figure 3). This trend is heavily influenced by Canada’s largest banks, which account for 22% of total insured deposits as a percentage of total deposits.

Figure 3: insured deposits as a share total CAD Deposits (2000-2019)

Canadians continue to benefit from a high level of deposit protection

The declining proportion of eligible insured deposits at some institutions has not translated into less deposit protection for Canadian households. Nearly all personal deposit accounts are fully protected by CDIC, meaning that ordinary Canadians continue to benefit from a high level of protection for their deposit savings. Following a brief rise during the financial crisis of 2008, the share of personal deposits in total deposits has remained relatively stable at approximately 40%.

Change remains on the horizon

Significant changes are on the horizon in virtually all aspects of banking as individual Canadians, financial institutions, and regulators all adjust to the impacts of new technologies and business models that aim to disrupt traditional banking relationships. All this is taking place against the backdrop of changing Canadian demographics, local and global economic uncertainty, and a regulatory landscape that must continually adapt in the face of evolving risks.

In June 2018, the Government of Canada amended the CDIC Act to modernize and enhance Canada’s deposit insurance framework. Changes impacting deposit insurance coverage will come into force on April 30, 2020, with all remaining changes coming into force on April 30, 2022. These changes are designed to modernize and enhance the Canadian deposit insurance framework and extend insurance coverage to support CDIC in the delivery of its mandate, to anticipate and adapt to the changing banking landscape and to meet the needs of depositors.

In preparation, CDIC will amend certain by-laws and administration requirements to reflect the new framework. Member institutions and stakeholders will also need to adjust their operations and systems to ensure that clients benefit from the amended coverage. Once implemented, insured deposits are anticipated to increase in absolute terms and as a share of overall deposits.

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