Canadians sometimes ask us about how bail-in, a tool for resolving large banks, affects their savings. We think you’ll find our response reassuring.
- What is bail-in?
- I have money in a chequing and a savings account. Would CDIC use any of these personal deposits to fund a bail-in conversion?
- If my deposits are protected and will not be used to bail out a big bank, what money is used during a bail-in situation?
- I bank at a smaller member institution with only a few hundred customers. Would bail-in be used at my bank?
- Further information on this topic
What is bail-in?
Bail-in is a resolution tool that CDIC can use to convert some of a failing domestic systemically important bank’s (D-SIB) debt into common shares in order to recapitalize the bank and allow it to remain open and operating. The bank’s debt does not include deposits. This means that money in a savings or chequing account, or a term deposit such as a GIC, is protected and covered by CDIC deposit insurance and will not be used in a bail-in situation.
Bail-in gives CDIC an additional tool to deal with the unlikely failure of a major bank in a manner that preserves financial stability, reduces taxpayer exposure, increases market discipline and reduces incentives for D-SIBs to take excessive risks.
At a high-level, the process would involve CDIC taking temporary control or ownership of the non-viable bank, executing a bail-in conversion to recapitalize the bank, and undertaking any other restructuring measures necessary to restore the bank to viability.
After the completion of the bail-in conversion and other steps required to restore the bank back to viability, CDIC would return the bank to private control.
I have money in a chequing and a savings account. Would CDIC use any of these personal deposits to fund a bail-in conversion?
No. Deposits in chequing and saving accounts are excluded from bail-in. This means that deposits in chequing accounts, savings accounts and term deposits such as GICs would remain protected by CDIC. The bail-in regime would have no impact on deposit insurance provided by CDIC.
In addition, the bail-in regime gives CDIC a resolution tool to keep a domestic systemically important bank (D-SIB) open and operating, which would allow it to continue to serve its customers.
If my deposits are protected and will not be used to bail out a large bank, what money is used during a bail-in situation?
The bail-in power only applies to debt that has specific features. Deposits such as chequing and savings accounts and term deposits like GICs are not affected.
I bank at a smaller member institution with only a few hundred customers. Would bail-in be used at my bank?
No. Bail-in would only be used to resolve Canada’s largest banks (D-SIBs).