First, a question: can our Canadian banks fail?
Response from the Canada Deposit Insurance Corporation (CDIC): “Yes, it is possible. It’s rare, but it’s happened before. And it could still happen. »
In 55 years of existence, the CDIC has had to deal with 43 bankruptcies of financial institutions. Some two million depositors had been affected by these bankruptcies.
The good news ? “Not one of these people has lost a single one of their insured deposits,” says CDIC. This federal government Crown corporation is mandated to protect the insurable deposits entrusted to its 85 member financial institutions in the event of their failure.
The 85 institutions include all major Canadian banks and trust companies. In return for the protection offered, institutions must pay a small premium to CDIC on the deposits they hold.
THOUSAND BILLIONS PROTECTED
How much are deposits protected by CDIC? At the last statement, that of April 30, 2020, deposits insured by the CDIC amounted to 968 billion dollars. Two years later, it is evident that insured deposits exceed 1000 billion dollars.
To “protect” these 968 billion dollars in deposits, know that the SADC has total assets of only 6.4 billion dollars. CDIC’s assets are in fact equivalent to a small fraction of the mass of deposits to be protected, barely 6/10 of 1 percent.
If this can reassure you, know that under the CDIC Actit cannot go bankrupt… even if it were to liquidate all its assets following a hypothetical series of bank failures.
“The CDIC is essential to the stability of the Canadian financial system and the proper functioning of financial services. The SADC is a Crown corporation that benefits from the full guarantee of the Government of Canada. »
This means that the federal government would come to the rescue of CDIC.
BUT… $3,000 BILLION IN UNPROTECTED DEPOSITS
By the CDIC’s own admission, protected deposits represent only 25% of the total deposits held in the 85 CDIC member institutions.
This means that 3000 billion dollars of deposits in said banks and trust companies do not benefit from the protection of the SADC in the event of bankruptcy.
We may be told that the Canadian banking system is one of the soundest in the world, but let’s admit that it is hardly reassuring to note that 75% of our deposits are at risk in the event of bankruptcy.
QUEBEC PARTICULARITY
Although the vast majority of banking institutions (banks, federally chartered trust companies) that have a storefront in Quebec are members of the SADC, this is not the case for the Caisses Desjardins.
Deposits in Caisses Desjardins are protected by the Deposit Insurance Fund of the Autorité des marchés financiers (AMF). The same is true for National Bank Trust, La Capitale, civil service insurer and Caisse Ma Financière Prêts et Placements.
This AMF fund holds assets of $827 million, which represents 8/10 of a percent of the $104 billion in deposits to be protected.
In the event of insufficient financial resources, the Ministère des Finances, with the authorization of the Québec government, may, explains the AMF, make advances to the Deposit Insurance Fund or guarantee the payment of any financial commitment.
WHAT ARE PROTECTED DEPOSITS
■ Chequing accounts
■ Savings accounts
■ Term deposits, such as GICs
■ Money orders and bank drafts
■ Certified checks
■ Foreign currency deposits (US dollars and others)
MAXIMUM PROTECTION PER BANKING INSTITUTION
■ 100 000 $ for all of your personal accounts; for a joint account; for a trust account; for the TFSA; for the RRSP (registered retirement savings plan); for the RRIF (registered retirement income fund); for the Education Savings Plan; for Registered Disability Savings Plan
SPECIAL PROTECTION AT DESJARDINS
An important feature deserves to be underlined here.
While deposits made in branches of a Canadian bank are grouped under the same umbrella, deposits in caisses benefit from full protection on a case-by-case basis.
Covered by the AMF’s Deposit Insurance Fund, the caisses can thus enable Desjardins Group members to increase 100 000 $ protection since each caisse is recognized as a separate entity.
Note that bank customers can also play this game by opening accounts in multiple banks.
UNCOVERED INVESTMENTS
Here are the various investments not covered by the SADC and the AMF
■ Mutual funds
■ Segregated funds
■ Actions
■ Bonds
■ Exchange Traded Funds (ETFs)
■ Cryptocurrencies
■ Objects contained in safety deposit boxes
■ Debentures
■ Mortgage-backed securities
■ Treasury bills
■ Life insurance contracts
OTHER INVESTOR PROTECTION PROGRAMS
Canadian Investor Protection Fund
This fund covers up to $1 million of assets held for you by a Member Investment Dealer in the event of insolvency. This includes balances of cash, securities, stocks, futures, investments in segregated funds.
Assyria
If your life insurance company fails, Assuris will transfer your policies to a solvent life insurance company. Assuris warrants that at the time of transfer you will retain at least 85 % benefits provided by these policies: death benefit (but 100 % of the first 200 000 $), reimbursement of medical expenses (100 % of the first 60 000 $), monthly income (100 % of the first 2000 $) and cash value (100 % of the first 60 000 $).
AMF Financial Services Compensation Fund
This fund covers victims of financial fraud by representatives or companies operating in the following sectors:
■ Personal insurance (segregated funds, life insurance, accident or sickness insurance, disability insurance, salary insurance, etc.)
■ Group personal insurance
■ Financial planning
■ Damage insurance (auto, home, liability, etc.
■ Claims settlement expertise
■ Collective savings (units of mutual funds, mutual funds, etc.
■ Scholarship plans
■ Mortgage brokerage
In general, the protection provides a maximum indemnity of 200 000 $ by claim for fraudulent acts.