Compensation backgrounder
Overview
Where CDIC uses one of its resolution tools to resolve a failing financial institution, it is expected that the creditors and shareholders of the financial institution will be in a better financial position than if the institution had simply been liquidated (or wound up). This is because the losses incurred in liquidation through the closure of the financial institution would generally far outweigh the losses that would be incurred through the use of one of CDIC’s resolution tools.
However, if that were not the case, the CDIC Act provides an important safeguard to ensure that creditors and shareholders of the financial institution are compensated when CIDC’s actions mean they are worse off than they would have been in a liquidation.
This protection is consistent with international standards and best practices.