It does, in fact, answer the question. I will start with that by saying yes, all deposits are out of the bail-in regime, and they're not contemplated here in any way. I'm happy to answer questions in that regard.
As a quick summary, the proposed amendments in part 4, division 5, provide a legislative framework for a bank re-capitalization, or bail-in regime for short. Bail-in is the power to convert certain debt of a failing bank into common shares to absorb losses, re-capitalize the bank, and allow it to keep operating.
Clauses 126 to 168 amend the Canada Deposit Insurance Corporation Act and the Bank Act to implement the bail-in regime, with consequential amendments to the Financial Administration Act, the Payment Clearing and Settlement Act, and the Winding-up and Restructuring Act .
These amendments build on the existing provisions in the CDIC Act that relate to managing the unlikely and remote scenario of a bank failure.
Amendments to the CDIC Act would provide CDIC with the power to undertake a bail-in conversion. Specifically, the corporation would be able to convert some of the failing systemically important bank's long-term debt into common shares. This would only apply to certain long-term debt securities prescribed in regulations. Deposits would be excluded.
The proposed amendments include updates and enhancements to existing provisions of the CDIC Act in order to ensure they function effectively with the bail-in power. These include: one, CDIC's power to take temporary ownership or control of a bank; two, provisions setting out how bank creditors and investors can seek redress or compensation from CDIC following a resolution process of a bank, in short, if they were bailed-in; and three, provisions aimed at preventing the termination of a bank's contract in the context of a resolution process, again, to keep it operating to protect customers.
Proposed amendments to the Bank Act would first enshrine in legislation the ability of the superintendent of financial institutions to designate banks as systemically important, thereby making them subject to the bail-in regime. The amendments would allow the superintendent of OSFI to set a requirement for the banks to maintain sufficient loss-absorbing capacity on an ongoing basis. This requirement will be met through an additional capital or debt subject to the bail-in power.
The proposed bail-in regime has been the subject of extensive stakeholder consultation, including with banks, credit rating agencies, investors, and creditors. Before coming into force, the regime will follow completion of regulations, which will allow for additional consultations on the technical elements allowing a smooth transition for stakeholders.
The proposed reforms in a division are in line with international best practices and standards endorsed by the G20 following the financial crisis.