The year was 1996 and about 2,600 Canadians woke up to their worst nightmare.
Their bank had closed its doors and their savings, a total of $42 million, were not available to them. The deposits were made to Calgary-based Security Home Mortgage Corporation.
“Fortunately, this failed financial institution was a member of the Canada Deposit Insurance Corporation (CDIC) so customers’ eligible deposits were protected up to $60,000, per separate insured category,” reads a ‘Bank Failures in Canada: A history’ post by CDIC.
As a result, automatic payments were made within three weeks of all insured deposits. While the failure of the Calgary-based institution took place more than 25 years ago, CDIC can now make payments within days.
“First of all, it’s super unlikely a Canadian bank would become insolvent,” reads the Wealthsimple Monday newsletter. “Between 2008 and 2012, 465 banks went down in the U.S. In Canada? Zero.”
The reassurance comes following the collapse of California-based Silicon Valley Bank (SVB). One of the top 20 banks in the U.S., SVB was the go-to financial institution for tech startups and venture capital firms. The bank saw its deposits triple to $173 billion in 2022 from $60 billion in 2019, as per its annual report.
What happens if a Canadian bank fails?
Experts point out that the implosion of SVB is unlikely to impact Canada’s Big Six banks, in terms of ripple failures. But if the unthinkable were to happen, that’s when the CDIC would step in.
Since its inception in 1967, the insurance company has tackled 43 failures impacting more than two million depositors. “No insured depositor has lost a single dollar under CDIC protection,” writes CDIC.
Although some things are not protected by CDIC, including stocks, bonds, and mutual funds.
How much do Canadians get back?
The CDIC, as per a statement released in November 2022, safeguards about $1 trillion in eligible deposits at more than 80 member institutions. Meanwhile, the amount Canadians can get back is limited to $100,000 per category of deposit, per financial institution.
Some believe the limit, which was set in 2005, is too low and needs to be updated.
“According to Amir Barnea, an associate professor of finance at HEC Montreal, the only reason he thinks this isn’t being increased is because CDIC is ‘financed by premiums’ from the banks and the banks ‘don’t want to pay’ higher premiums,” writes Naimul Karim for the Financial Post.
“Given the value of money over time … it would make sense to increase that. It’s not high,” Karim quotes Olaf Weber, a senior fellow at the Centre for International Governance Innovation, as saying.
Meanwhile, Finance Minister Chrystia Freeland further assured Canadians in a statement last week that “our financial institutions are stable and safe.”
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