What Happens in a Failure

Reimbursement

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So that insured depositors have their money as quickly as possible, CDIC would automatically launch its rapid reimbursement process. This means that:

  • Insured depositors do not have to file a claim.
  • CDIC would reimburse insured deposits up to $100,000 per insurance category.
  • Payments to the depositor would be completed via cheque.

The reimbursement process varies according to the relationship the depositor has with the failed member institution. In many cases, depositors have a direct relationship through “demand deposits” which is money held by a Member Institution that the depositor can withdraw at any time on demand (e.g. savings, chequing accounts, joint accounts and mortgage tax accounts). Payouts for these types of deposits would be executed within days from the date of failure.

Deposits in valid trusts are protected to $100,000 per beneficiary.

In the case of brokered trust deposits, CDIC would contract broker-trustees to inform them of the specific reimbursement process, including payment instructions. CDIC would then remit insurance payments to broker-trustees within seven days of receiving the required information. Payment would be based on CDIC calculations and deposit information at the failed institution.

CDIC would temporarily hold registered deposits in RRSPs, RRIFs and TFSAs 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 including how to transfer insured registered deposits to a new institution without negative tax consequences.

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.

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

Overview

In certain cases, a failed member institution is closed and CDIC launches its reimbursement process so that insured depositors have their insured deposits as quickly as possible. This process is automatic and depositors do not have to file a claim. The payments are based on CDIC deposit insurance rules and coverage limits as well as the information contained within the member institution’s records at the time of failure. Payment is automatic, and depositors do not have to file a claim with CDIC. Of the 43 member institution failures handled by CDIC, 24 were resolved in this way and no one lost a dollar of deposits under CDIC protection. For more information, consult our FAQs.

How it works 

Reimbursement of insured deposits is CDIC’s baseline option when there is no other resolution option that minimizes CDIC’s exposure to loss and when closing the institution poses no risk to Canada’s financial stability.

CDIC is required to effect a reimbursement of insured deposits when a winding-up order is issued.

CDIC may elect to effect a reimbursement of insured deposits in certain specific circumstances including:

  • If the member institution is unable to make a payment in respect of deposits to customers by reason of an order of the court or of any action taken by a supervisory or regulatory body (e.g. if the Superintendent of Financial Institutions takes control of the member institution and prevents it from making such payments); and
  • if CDIC cancels or terminates the member institution’s deposit insurance policy. CDIC can take steps do this when one or more of the following events occur:
    • a breach of the CDIC Act, the CDIC By-laws or a condition of the member institution’s deposit insurance policy;
    • in CDIC’s opinion the member institution is or is about to become insolvent;
    • the member institution has ceased to accept deposits; or
      • the member institution has not collected deposits within two years from the date it became a member institution.

CDIC’s role

CDIC must reimburse insured deposits in a prompt and timely manner once a reimbursement is set in motion. 

Then CDIC legally “steps into the shoes” of depositors in the liquidation process to recover, over time, as much of these funds as possible through the sale of the remaining assets of the failed member institution.

The process can be divided into four stages:

reimbursement-processPreparationLiquidationReimbursementRecovery

Preparation

If CDIC believes that it would be in the best interest of both depositors and CDIC that preparations be made to make a reimbursement, CDIC would act in accordance with the Guide to Intervention and conduct examinations of the member institution’s books and records in order to develop a detailed understanding of the member institution’s deposit information and accounting systems and processes. This assists CDIC in developing cost estimates and operational activities for a payment to depositors.

A review of the member institution’s assets may also be undertaken to estimate CDIC’s potential losses in liquidation relative to other resolution options.

Reimbursement

Once a reimbursement is triggered, CDIC electronically receives deposit data from the failed member institution, and balances and reconciles the data to ensure that all depositor accounts have been identified and insurance is calculated correctly.

Member institutions are required to keep accurate and complete records of deposits and quickly provide them to CDIC to enable a fast determination of deposit insurance and payment.

CDIC would communicate directly with insured depositors and send payment based on the address information in the failed member institution’s records.

Funds for the reimbursement would come from CDIC’s primary funding sources, our ex ante (insurance) fund and our statutory borrowing authority, and not from taxpayers.

In the case of uninsured deposits, depositors with funds not protected by CDIC would need to file a claim with the liquidation firm when it is appointed by the courts to participate in the liquidation of the failed member institution.

Liquidation

Upon making the reimbursement, CDIC would have an unsecured claim against the member institution in the winding-up proceedings and would typically be the most significant creditor in the liquidation. CDIC would prepare and file its proof of claim with the liquidator for reimbursement of its deposit insurance payments and costs.

CDIC would be involved in the oversight of liquidation management process. CDIC (together with any other significant creditors) would be a member of the failed member institution’s estate creditor committee which would consider and approve the liquidation and sale of the member institution’s assets. The liquidator would be responsible for administering the sale and disposal of the assets of the failed member institution.

Recovery

In this final phase, distributions are made to creditors based on the realization of asset value. As assets are sold, the liquidator would manage the claims process and reimbursement to creditors according to their priority ranking. In the case of uninsured deposits, depositors with funds not protected by CDIC would need to file a claim with the liquidation firm when it is appointed by the courts. As a significant creditor, CDIC would continue to be involved in claims issues that arise during the estate management process, including disputes, and outcomes of any forensics investigations and litigation which could result in further recoveries.

For more information about the reimbursement process, consult our FAQs.

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