Mr. Speaker, deposit insurance is an important element of Canada’s financial system stability framework. It contributes to public confidence in the financial system by protecting depositors’ savings in the unlikely event that a deposit-taking institution fails.
The deposit insurance limit is set out in the Canada Deposit Insurance Corporation Act. Changing the limit would require a legislative amendment. At this time, the deposit insurance limit remains at $100,000 for each of the nine separate deposit categories.
The Department of Finance Canada held public consultations on changes considered to the deposit insurance framework in the fall of 2016. The consultation paper on the deposit insurance review can be found at the following link: https://www.canada.ca/en/department-finance/programs/consultations/2016/deposit-insurance.html.
Approximately 15 submissions were received from a range of stakeholders, including Canada’s six largest banks and the Canadian Bankers Association. In addition, the Canada Deposit Insurance Corporation, CDIC, held public consultations on proposed changes to the joint and trust account disclosure bylaw needed to implement the deposit insurance review provisions. Submissions the government received permission to publish can be found at the following link: https://www.canada.ca/en/department-finance/programs/consultations/2016/deposit-insurance/submissions.html.
Overall, CDIC depositor data at the time indicated that the framework is working well and provides sufficient coverage for the savings of Canadians. Approximately 97% of all eligible deposit accounts are fully covered under the current framework.
The analysis undertaken for the review indicated that raising the deposit insurance limit would not enhance protection to the savings of the vast majority of individuals in Canada because their deposit accounts are currently already covered under the framework. In line with international best practices, Canada’s framework covers the large majority of depositors but leaves a substantial amount of corporate deposits exposed to the possibility of loss in the event of a bank failure. These uncovered depositors, therefore, have an interest in the risk management practices of the member institution.
Increasing the limit would provide a proportionally higher benefit to corporate depositors, while increasing CDIC exposure which would need to be offset through additional premiums paid by CDIC member institutions, thereby potentially affecting the cost of financial services. This would not further the objectives of deposit insurance and could shift the existing balance between financial stability and market discipline, contrary to international best practices.
Based on the review, several proposed amendments to the Canada Deposit Insurance Corporation Act were introduced in 2018 with legislative changes made from 2019 to 2022. The amendments modernized the scope of deposit insurance coverage to better protect depositors, e.g., foreign currency and extended term limits on guaranteed investment certificates, while clarifying and simplifying the deposit insurance framework for depositors, making it easier to understand, e.g., registered deposits and mortgage tax accounts.
Budget 2023 announced the government may amend the Canada Deposit Insurance Corporation Act to provide expanded authorities to increase deposit insurance and related measures in the event of a market disruption.
The budget implementation act, 2023, no. 1 proposes amendments to the Canada Deposit Insurance Corporation Act to authorize the Minister of Finance, upon the Governor in Council’s approval, to increase the deposit insurance coverage limit until April 30, 2024. Specifically, the proposed legislation would provide the minister temporary authorities to increase the deposit insurance limit to a higher threshold if doing so would, for example, protect financial stability and support consumer confidence in the banking system. This would strengthen the financial stability tools available to the Government of Canada in the current economic environment.
Should the minister seek to temporarily increase the deposit insurance limit, the minister would be required to consult the Governor of the Bank of Canada, the Superintendent of Financial Institutions, the president and chief executive officer of the Canada Deposit Insurance Corporation, and the commissioner of the Financial Consumer Agency of Canada prior to doing so.
The minister would be required to publish a report and table it in Parliament on a monthly basis during the period in which the deposit insurance limit is raised. The minister would also be required to undertake a review of these amendments after April 30, 2024, and publish a report on the review.