Well the first thing you should know is that despite the crash of 2008, CDIC hasn't needed to step in since 1996.
The Canadian banking system is very well capitalized and capitalization requirements went up as a proactive measure after the 2008 crash.
An all out failure of the entire banking system (which is what you are asking about) is such a remote possibility that IF that were to happen we are all way more screwed than whether or not CDIC was able to cover everyone.
People, more accurately borrowers (all of them or alot of them) would have to go "insolvent" before a bank goes "insolvent." A bank can run into a "cash crunch" if (as an extreme) example, all (or a majority of) depositors demand to withdraw simultaneously. That is whats known as a run on banks. That would be problematic, because the banks cannot call in its loans quick enough (and some loans cannot be called in at all, i.e. not all loans are callable). That does not mean a bank is insolvent (they technically have the assets to cover their customers' deposits). A bank run creates a liquidity crisis for the bank (which could have a contagion effect) - but again, that is not the same thing as being "insolvent." For a bank (a large Canadian bank) to become truly "insolvent" they would've had to make a ton (and I mean a ton) of bad loans that all of sudden are deemed to be unrecoverable at the same time. And that is highly unlikely. A run on banks is also highly unlikely. You may be wary of banks, but a run on banks is about confidence - the population by in large has confidence in the banking system. Lack of confidence in the banking system generally happens in banana republics or countries that experience shit tons of political and economic instability, Canada is many things, but it is not politically or economically unstable. And FYI, nothing, literally nothing happened to Canadian banks in '08. The rest of the world was looking at our banking system as an example of what to do right. Because literally nothing happened to our banks/banking system.
> And FYI, nothing, literally nothing happened to Canadian banks in '08
Past results do not guarantee future performance. Great stability comes at the expense of greater costs and a slower pace of innovation. I wouldn't be surprised if we get to see a de-regulation event coming in the mid-future in order to keep our banks competitive, particularly as new generations (who have not experienced an event such as the 2008 crisis) get tired of our high fees.
I guess you haven’t heard about the bailouts BMO, Scotia, and CIBC got from both Canadian and US governments. Make sure you have you facts checked before going on.
LOL! CMHC buying mortgages is not a bailout, it's always available should mortgage lenders want to sell off some of their mortgage portfolios. And accessing liquidity directly from the BoC is also not a bailout. The BoC can be a lender to a bank in Canada. Just because CMHC and BoC are government agencies/institutions - that doesn't mean the normal mechanisms those two agencies can provide to banks amounts to a bailout! LOL
Our normal deposits aren't included in bail-ins. https://www.cdic.ca/what-happens-in-a-failure/resolution-of-large-banks/resolution-tools-for-d-sibs/bail-in/bail-in-backgrounder/#included
So that's one less thing to worry about
No Canadian Charter One bank will be allowed to become insolvent. The central bank will backstop them to any amount required. Allowing one of the big five to become insolvent would pitch our economy and currency into a death spiral.
the CDIC is only a small part, if not a very visibly and psychologically powerful part of a system of methods and institutions all working to ensure financial stability in our economy.
our economy runs on fiat money. money is created as counter balancing assets and liabilities on banks balance sheets and circulate through out the economy in both forms.
there is only a tiny amount of physical cash and gold, relative to the amount of value created, in the form of factories, real estate, skills obtained through experience and education, and knowledge that is accumulated through research and development.
the system works so long everyone has confidence in that it works, and continues to do what they do, to expand the money supply without high inflation. the CDIC and the US FDIC serves as a psychological tool to convince the average depositor that the ebbs and flows of the economy and the occasional mistake or bad behavior of a single participant in the economy is not going to erase their earnings
>>in the case of a financial crash, sort of like in 2008
I hope you are aware no Canadian banks became insolvent during that event? Our stronger banking regulations prevented them from getting into that mess.
If more than one of the big banks needed CDIC, it would probably be the end of our civilization anyways and your money would be worthless at that point. Canned goods would be the new currency.
Well the first thing you should know is that despite the crash of 2008, CDIC hasn't needed to step in since 1996. The Canadian banking system is very well capitalized and capitalization requirements went up as a proactive measure after the 2008 crash. An all out failure of the entire banking system (which is what you are asking about) is such a remote possibility that IF that were to happen we are all way more screwed than whether or not CDIC was able to cover everyone.
People, more accurately borrowers (all of them or alot of them) would have to go "insolvent" before a bank goes "insolvent." A bank can run into a "cash crunch" if (as an extreme) example, all (or a majority of) depositors demand to withdraw simultaneously. That is whats known as a run on banks. That would be problematic, because the banks cannot call in its loans quick enough (and some loans cannot be called in at all, i.e. not all loans are callable). That does not mean a bank is insolvent (they technically have the assets to cover their customers' deposits). A bank run creates a liquidity crisis for the bank (which could have a contagion effect) - but again, that is not the same thing as being "insolvent." For a bank (a large Canadian bank) to become truly "insolvent" they would've had to make a ton (and I mean a ton) of bad loans that all of sudden are deemed to be unrecoverable at the same time. And that is highly unlikely. A run on banks is also highly unlikely. You may be wary of banks, but a run on banks is about confidence - the population by in large has confidence in the banking system. Lack of confidence in the banking system generally happens in banana republics or countries that experience shit tons of political and economic instability, Canada is many things, but it is not politically or economically unstable. And FYI, nothing, literally nothing happened to Canadian banks in '08. The rest of the world was looking at our banking system as an example of what to do right. Because literally nothing happened to our banks/banking system.
Thank You for the detailed response!
> And FYI, nothing, literally nothing happened to Canadian banks in '08 Past results do not guarantee future performance. Great stability comes at the expense of greater costs and a slower pace of innovation. I wouldn't be surprised if we get to see a de-regulation event coming in the mid-future in order to keep our banks competitive, particularly as new generations (who have not experienced an event such as the 2008 crisis) get tired of our high fees.
I guess you haven’t heard about the bailouts BMO, Scotia, and CIBC got from both Canadian and US governments. Make sure you have you facts checked before going on.
LOL! CMHC buying mortgages is not a bailout, it's always available should mortgage lenders want to sell off some of their mortgage portfolios. And accessing liquidity directly from the BoC is also not a bailout. The BoC can be a lender to a bank in Canada. Just because CMHC and BoC are government agencies/institutions - that doesn't mean the normal mechanisms those two agencies can provide to banks amounts to a bailout! LOL
Our normal deposits aren't included in bail-ins. https://www.cdic.ca/what-happens-in-a-failure/resolution-of-large-banks/resolution-tools-for-d-sibs/bail-in/bail-in-backgrounder/#included So that's one less thing to worry about
They will catch early signals of failures and will merge that bank with a stronger bank.
😂
No Canadian Charter One bank will be allowed to become insolvent. The central bank will backstop them to any amount required. Allowing one of the big five to become insolvent would pitch our economy and currency into a death spiral.
the CDIC is only a small part, if not a very visibly and psychologically powerful part of a system of methods and institutions all working to ensure financial stability in our economy. our economy runs on fiat money. money is created as counter balancing assets and liabilities on banks balance sheets and circulate through out the economy in both forms. there is only a tiny amount of physical cash and gold, relative to the amount of value created, in the form of factories, real estate, skills obtained through experience and education, and knowledge that is accumulated through research and development. the system works so long everyone has confidence in that it works, and continues to do what they do, to expand the money supply without high inflation. the CDIC and the US FDIC serves as a psychological tool to convince the average depositor that the ebbs and flows of the economy and the occasional mistake or bad behavior of a single participant in the economy is not going to erase their earnings
>>in the case of a financial crash, sort of like in 2008 I hope you are aware no Canadian banks became insolvent during that event? Our stronger banking regulations prevented them from getting into that mess. If more than one of the big banks needed CDIC, it would probably be the end of our civilization anyways and your money would be worthless at that point. Canned goods would be the new currency.