Are Bank Runs Headed For Canada? Freeland-Sponsored Budget Bill Seeks To Amend Deposit Insurance Law

Canada has not seen a bank run in 38 years. But with the recent bank collapses in the United States, eroding faith in the industry and leaving depositors shaken on their certainty of their assets, Ottawa wants to address the issue ahead of its potential spread across the border.

A bill sponsored by Deputy Prime Minister and Minister of Finance Chrystia Freeland is currently being debated in Congress. The Budget Implementation Act, also known as Bill C-47, intends to fulfill several of the government’s significant objectives in Budget 2023.

The government said it “is continuing to help make life more affordable for Canadians” with Bill C-47. The legislation includes a number of measures aimed at making life more affordable for Canadians, such as advancing the new Canadian Dental Care Plan, cracking down on predatory lending and house flipping, increasing student support, strengthening the Canada Workers Benefit, and doubling the tradespeople’s tool deduction.

However, Bill C-47 also plans to amend the Canada Deposit Insurance Corporation Act, allowing the cabinet to guarantee deposits in case of a bank run.

“The Canada Deposit Insurance Corporation (CDIC) may administer any contract related to deposit insurance entered into by the Minister of Finance and to allow the Minister to increase the deposit insurance coverage limit until April 30, 2024,” the text of the bill said.

Federal insurance currently covers individual deposits to a $100,000 limit, but there have been calls to increase that coverage. CDIC deposit insurance fully covers approximately 97% of all eligible deposit accounts at member institutions.

“The thinking is that given the current situation and the banking turmoil we saw in the US and Switzerland, it was a prudent thing to do,” testified Rachel Grasham, senior director with the department of Finance. “The purpose of that is to really allow the minister and the government to bring forward a temporary measure under extreme circumstances, just to help promote financial stability and safeguard public confidence in the system.”

During the Commons Finance committee hearing discussing the bill, New Democrat MP Daniel Blaikie questioned why the Trudeau government “feels those authorities should be granted.”

“There are some extraordinary powers being conferred to the minister of Finance in respect of the Canada Deposit Insurance Corporation,” said Blaikie. “Why?”

He also asked what kind of circumstance might trigger the use of the proposed augmented power by the finance minister with respect to deposit insurance.

“In the event there was instability, concerns around potential bank runs as we saw in the United States, the minister would be poised to be able to step in,” replied Grasham.

The bill is currently at its second reading in the House of Commons.

As a precaution against any COVID-related panic, the parliament authorized the cabinet the authority to nationalize any bank, credit union, trust, or insurance firm “if necessary” in 2020. The previous measure was never implemented and expired on September 30, 2020.

Since the 1985 fall of Alberta’s Canadian Commercial and Northland banks, which cost the Deposit Insurance Corporation $608 million, Canada has not suffered a bank run. The Bank of British Columbia and Continental Bank, both in trouble, merged with stronger rivals.

From 1983 to 1987, the failure of 36 mortgage and trust companies, including 17 federally-controlled entities, resulted in a $1.25 billion debt for the organization. The fall of the Home Bank of Toronto in 1923 was Canada’s last uninsured bank failure.

Overall, the CDIC has dealt with only 43 such incidents since it was established in 1967. In comparison, the United States has had over 500 bank failures since 2000, including the recent collapses of Silicon Valley Bank and Signature Bank.

According to experts, such incidents are less likely to occur in Canada, which has rigorous banking laws and a core group of large, well-capitalized banks. If a CDIC-member bank fails in Canada and deposit insurance funds are needed to pay impacted depositors, the federal agency affirmed that any losses “would be recovered from its member institutions through premiums.”

However, many steps would have to be taken prior to that in order to deal with a bank failure.

“As Canada’s resolution authority, CDIC’s resolution tools are not confined to reimbursing insured deposits,” the CDIC explained in an email. “Other tools include the ability to support a transaction with another financial institution, create a bridge bank or provide various forms of financial assistance. These options would ensure the member would remain open and depositors would continue to have access to their savings.”

The bill comes after Freeland announced the appointment of Leah Anderson as the President and Chief Executive Officer of the CDIC.


Information for this briefing was found via CBC, Western Standard, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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