What Happens in a Failure


In 2016, Parliament introduced an amendment to the Canada Deposit Insurance Corporation (CDIC) Act to add the “bail-in power” to the Corporation’s resolution tools. This tool is only for domestic systemically important banks (D-SIBs).

NVCC and bail-in

If a D-SIB is determined to be non-viable by the Office of the Superintendent for Financial Insitutions (OSFI), this triggers the conversion of its Non-Viability Contingent Capital (NVCC) (certain bonds which the bank has issued) into common equity. In addition, once in resolution CDIC can request an order from the Governor in Council to convert certain classes of preferred shares and unsecured debt into equity in a process called “bail-in”. Both NVCC conversion and bail-in have the effect of improving the bank’s balance sheet. For depositors and taxpayers, this means that certain creditors of the bank are expected to absorb the bank’s losses.

The bail-in power would allow CDIC to take temporary control through its Financial Institution Restructuring Powers or E-FIRP and convert some of a failing D-SIB’s debt into common shares to recapitalize the bank and help restore it to viability. The bail-in regime builds on CDIC’s existing toolkit and provides another tool for CDIC to keep a failing D-SIB open and operating so it could continue to serve its customers. 

Bank customers’ deposits are not bailed-in and this resolution tool doesn’t reduce the deposit protection offered by CDIC.

This means that customers’ chequing accounts, savings accounts and term deposits such as GICs would not be affected if the bail-in power is used with a failing D-SIB. Losses that arise due to the bank’s failure would be covered by the bank’s shareholders and certain investors, not by taxpayers or depositors.

After the completion of the bail-in conversion and any restructuring necessary to stabilize and return the failing D-SIB to viability, CDIC would return the bank to private control. 

For more information, consult our backgrounder on Bail-in.

Regulations for the bail-in regime can be found here:

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