Canada Deposit Insurance Corporation
Encyclopedia
Canada Deposit Insurance Corporation (CDIC) is a Canadian federal Crown corporation created by Parliament in 1967. The CDIC insures Canadians' deposits held at Canadian banks (and other member institutions) up to CA$100,000 in case of a bank failure. CDIC automatically insures many types of savings against the failure of a financial institution. However, the bank must be a CDIC member and not all savings are insured. The CDIC does not protect against fraud or theft. The CDIC also serves as the lender of last resort
for commercial banks in Canada to protect the Canadian banking system from insolvency and bank run
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in 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 Office of the Superintendent of Financial Institutions
, who can in an extreme case close a financial institution. Alongside Canada’s mortgage rules, the risk of bank failures similar to the US are slim, but not impossible.
The original amount of insurance per eligible deposit account was $20,000. This was raised to $60,000 in 1983. The present $100,000 in coverage was changed in 2005 from per eligible deposit account to per depositor.
s and Quebec and New Brunswick's caisses populaire
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 foreign currencies are not insured, even when held by a registered CDIC financial institution. Guaranteed Investment Certificate
s with a term longer than 5 years are also not insured. Funds in foreign banks operating in Canada are not covered. Some funds in Registered Retirement Savings Plan
s or Registered Retirement Income Fund
s 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.
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Lender of last resort
A lender of last resort is an institution willing to extend credit when no one else will. The term refers especially to a reserve financial institution, most often the central bank of a country, intended to avoid bankruptcy of banks or other institutions deemed systemically important or 'too big to...
for commercial banks in Canada to protect the Canadian banking system from insolvency and bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
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History
The Canada Deposit Insurance Corporation was created 4 March 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 CorporationFederal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
in 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
Home Bank
The Home Bank of Canada was a Canadian bank that was incorporated July 10, 1903 in Toronto. It failed August 18, 1923 and was the subject of a Canadian Royal Commission initiated by Prime Minister Mackenzie King in 1924....
, symbolized today by Casa Loma
Casa Loma
Casa Loma is a Gothic Revival style house in midtown Toronto, Ontario, Canada, that is now a museum and landmark. It was originally a residence for financier Sir Henry Mill Pellatt. Casa Loma was constructed over a three-year period from 1911–1914. The architect of the mansion was E. J...
. 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 Office of the Superintendent of Financial Institutions
Office of the Superintendent of Financial Institutions
The Office of the Superintendent of Financial Institutions is an independent agency of the Government of Canada reporting to the Minister of Finance created "to contribute to public confidence in the Canadian financial system"...
, who can in an extreme case close a financial institution. Alongside Canada’s mortgage rules, the risk of bank failures similar to the US are slim, but not impossible.
The original amount of insurance per eligible deposit account was $20,000. This was raised to $60,000 in 1983. The present $100,000 in coverage was changed in 2005 from per eligible deposit account to per depositor.
Coverage
Insurance is restricted to registered member institutions, and covers only the first $100,000 in very specific categories of accounts. Credit unionCredit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
s and Quebec and New Brunswick's caisses populaire
Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
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 foreign currencies are not insured, even when held by a registered CDIC financial institution. Guaranteed Investment Certificate
Guaranteed Investment Certificate
A Guaranteed Investment Certificate or GIC is a Canadian investment that offers a guaranteed rate of return over a fixed period of time, most commonly issued by trust companies or banks. Due to its low risk profile, the return is generally less than other investments such as stocks, bonds, or...
s with a term longer than 5 years are also not insured. Funds in foreign banks operating in Canada are not covered. Some funds in Registered Retirement Savings Plan
Registered Retirement Savings Plan
A Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act...
s or Registered Retirement Income Fund
Registered Retirement Income Fund
A Registered Retirement Income Fund or RRIF is a tax-deferred retirement plan under Canadian tax law. Individuals use an RRIF to generate income from the savings accumulated under their Registered Retirement Savings Plan...
s 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.
Current financial position
According to the CDIC's 2010 Annual Report, CDIC protects $590 billion CAD in total eligible deposits, and has $1.95 billion CAD in assets to meet insurance claims. This amount represents 0.33% of total eligible deposits. The CDIC is also authorized to borrow up to $17 billion if necessary from the federal government or the financial markets, and may request further funds from ParliamentParliament of Canada
The Parliament of Canada is the federal legislative branch of Canada, seated at Parliament Hill in the national capital, Ottawa. Formally, the body consists of the Canadian monarch—represented by her governor general—the Senate, and the House of Commons, each element having its own officers and...
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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 CorporationMortgage Investment CorporationA Mortgage Investment Corporation or MIC is an investment and lending company designed specifically for mortgage lending in Canada. Owning shares in a Mortgage Investment Corporation enables you to invest in a company which manages a diversified and secured pool of mortgages...
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 CorporationMortgage Investment CorporationA Mortgage Investment Corporation or MIC is an investment and lending company designed specifically for mortgage lending in Canada. Owning shares in a Mortgage Investment Corporation enables you to invest in a company which manages a diversified and secured pool of mortgages...
1985 - Canadian Commercial BankCanadian Commercial BankThe Canadian Commercial Bank was an Edmonton, Alberta-based Canadian bank. It received its parliamentary charter in 1975 and established its head office in Edmonton. The bank was privately owned and operated as a wholesale commercial bank. It officially began operations in July 1976, with CDN$22...
1985 - Continental Trust Company 1985
- London Loan Limited 1985
- Northland BankNorthland BankThe Northland Bank was an Alberta-based Canadian bankthat failed in 1985. It was incorporated in 1974.See also: List of Canadian banks; Canada Deposit Insurance Corporation-References:...
1985 - Pioneer Trust Company 1985
- Western Capital Trust Company 1985
- Bank of British ColumbiaBank of British ColumbiaThere have been two Canadian banks with the name Bank of British Columbia.-The first bank:The first was established by Royal Charter in 1862, with its head office in London. Between 1862 and 1871 it issued dollar banknotes. By 1885 it had branches in San Francisco, Portland, Oregon , Victoria,...
1986 - 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