Canada Deposit Insurance Corporation
Canada Deposit Insurance Corporation (CDIC) is a
Crown corporationowned by the Government of Canada.
As a federal agency, it provides insurance (up to a $100,000 CAD per person on Canadian accounts only) for financial services provided by chartered Canadian banks and financial institutions.
Insurance is restricted to registered member institutions, and covers only the first $100,000 in very specific categories of accounts.
Credit unions and Quebec’s " caisse populaire" system are not insured federally, because they are created under provincial charters and backed by provincial insurance plans, which generally follow the federal model. Deposits in a foreign currency, not Canadian dollars, are not insured, even when held in a registered CDIC financial institution. GICs with a term longer than 5 years are also not insured. Funds in foreign banks operating in Canada are not covered. Some funds in RRSPs or RRIFs at a bank may not be covered if they are invested in mutual funds or held in specific instruments like debentures issued by government or corporations. The general principle is to cover reasonable deposits and savings, but not deposits deliberately positioned to take risks for gain, such as mutual funds or stocks.
Created in 1967 (under Schedule III, Part 1 of the Financial Administration Act and Canada Deposit Insurance Corporation Act), it is similar to the
Federal Deposit Insurance Corporationin the United States. Since 1967, 43 financial institutions have failed in Canada and all 43 were members of CDIC. There have been no failures since 1996.
The roots of the CDIC can be traced back to the 19th century, such as the Upper Canada’s financial problems of 1866, the North American panic of 1872 and the 1923 failure of Toronto’s Home Bank, symbolized today by
Casa Loma. Historically in Canada regional risk has always been spread nationally within each large bank, unlike the uneven geography of US unit banking, layered with savings & loans of regional or national size, who in turn disperse their risk through investors. Generally speaking, the Canadian banking system is well regulated, in part by the little-known Inspector of Financial Institutions, who can in an extreme case close a financial institution. That, plus Canada’s tight mortgage rules, mean the risk of bank failures similar to the US are slim, but not impossible.
Current financial position
According to the 2007 Annual Report, CDIC has $1.6 billion CAD in assets to meet insurance claims on failures. This amount represents 0.34% of total eligible deposits at member institutions.
The CDIC's assets are insufficient to pay for the failure of any of the 14 biggest banks in Canada (CDIC annual report 2007, p 23), where Canadians have most of their money. In this eventually, CDIC would have to tap the financial markets for additional funds or receive the required additional funds from the Government of Canada. It is not clear whether the Government of Canada is legally bound and obliged to rescue a crown corporation such as CDIC, but there is a tacit assumption that failure to do so would be unfeasible politically.
The CDIC member institutions with the most insured deposits are the Big Five. The 2007 Annual Reports for these banks indicate the following total deposit liabilities, although not all deposits are CDIC insured.
Royal Bank of Canadawith $365 billion in deposits
Bank of Nova Scotiawith $288 billion in deposits
Toronto-Dominion Bankwith $276 billion in deposits
Bank of Montrealwith $232 billion in deposits
Canadian Imperial Bank of Commercewith $232 billion in deposits
List of financial collapses since 1967
*Commonwealth Trust Company 1970
*Security Trust Company Limited 1972
*Astra Trust Company 1980
*District Trust Company 1982
*AMIC Mortgage Investment Corporation 1983
*Crown Trust Company 1983
*Fidelity Trust Company 1983
*Greymac Mortgage Corporation 1983
*Greymac Trust Company 1983
*Seaway Mortgage Corporation 1983
*Seaway Trust Company 1983
*Northguard Mortgage Corporation 1984
*CCB Mortgage Investment Corporation 1985
*Canadian Commercial Bank 1985
*Continental Trust Company 1985
*London Loan Limited 1985
*Northland Bank 1985
*Pioneer Trust Company 1985
*Western Capital Trust Company 1985
Bank of British Columbia1986
*Bank of British Columbia Mortgage Corporation 1986
*Columbia Trust Company 1986
*North West Trust Company 1987
*Principal Savings & Trust Company 1987
*Financial Trust Company 1988
*Settlers Savings and Mortgage Corporation 1990
*Bank of Credit and Commerce Canada 1991
*Saskatchewan Trust Company 1991
*Standard Loan Company 1991
*Standard Trust Company 1991
*Shoppers Trust Company 1992
*Central Guaranty Mortgage Corporation 1992
*Central Guaranty Trust Company 1992
*First City Trust Company 1992
*First City Mortgage Company 1992
*Dominion Trust Company 1993
*Prenor Trust Company of Canada 1993
*Confederation Trust Company 1994
*Monarch Trust Company 1994
*Income Trust Company 1995
*North American Trust Company 1995
*NAL Mortgage Company 1995
*Security Home Mortgage Corporation 1996
* [http://www.cdic.ca/ Canada Deposit Insurance Corporation] Official site.
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