Canadians’ own bank accounts could be used to save failing financial institutions

A number of sources have raised concerns about how this new law would affect bank deposits.
A number of sources have raised concerns about how this new law would affect bank deposits. (Photo: REUTERS/Mark Blinch)

With news that Canadian banks have a new method of taking your money, you may want to hide your funds under your mattress like your great-grandparents!

The federal government passed its new budget bill, Bill C-15, on June 22, 2016, and introduced something few people have heard about: a bail-in strategy for the six major Canadian banks, in case they were to collapse.

The bail-in strategy is a method by which banks are ‘bailed-in’ by forcing the bank’s lenders to write off some of the debt the bank owes, meaning lenders and account holders lose money.

What that means to anyone who has more than $100,000 in the bank is that his or her money could be in trouble, as anything above that amount is considered an unsecured deposit. The Canada Deposit Insurance Corporation will only insure account deposits up to a maximum of $100,000. However, that maximum limit doesn’t just affect personal bank accounts but also RRSPs, RRIFs, trusts and TFSAs.

A number of sources have raised concerns about how this new law would affect bank deposits but the government promised that customer deposits will not be included as part of the new strategy. President and CEO of CDIC, Michelle Bourque has stated that “Bail-in would not change the deposit protection offered by CDIC."

In the case of a failed bank that has to be bailed-in, the deposit holder will be considered an unsecured creditor, meaning any amount above $100,000 in the account would not be safe and could be taken to rescue the bank.

This new method of dealing with failing banks and ensuring they are financially secure is already in use in multiple countries, due the bail-out strategy having been highly criticized for saving major banks with taxpayer funds.

Similarly, the bail-in strategy is not without its critics. The Huffington Post went as far as to question whether bail-in’s are “legal theft” and stated, “The new rules for keeping the too-big-to-fail banks alive: use creditor funds, including uninsured deposits, to recapitalize failing banks.”

Bet a mattress deposit is starting to sound better and better.

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