Resolution of small and medium-size banks

CDIC’s approach to resolution

Resolution occurs at the time when authorities determine that no supervisory or private sector solution alone can restore the member institution to viability. As Canada’s resolution authority, CDIC is responsible for ensuring that effective measures are in place to deal with such events.

To ensure we are prepared for bank failures, CDIC plans for the resolution of all its member institutions by: 

• Monitoring risks and emerging issues that could affect member institutions and CDIC.
• Developing plans and processes to ensure eligible deposits are protected in the event of a failure of financial institutions of any size.
• Requiring member institutions to maintain data standards that would facilitate timely insurance calculation and reimbursement of deposits in the event of failure.
• Developing new policies to improve Canada’s resolution regime.

Resolving small and medium-size banks

In the case of a small- to medium-sized member institution, CDIC’s resolution toolkit has evolved to include a variety of mechanisms to protect depositors while minimizing our exposure to loss.

When CDIC was created in 1967, and for the two decades that followed, we were essentially a “paybox” that acted only once a bank had failed and was closed. Once insured depositors were reimbursed, CDIC’s exposure to loss was heightened because the value of the failing member institution declined rapidly before we were permitted to intervene.

Following a series of bank failures in the mid-1980s, CDIC was given a stronger mandate with additional powers. These include the power to conduct examinations of our members to increase our level of preparedness and have the incentive to intervene earlier when the CDIC’s potential losses are smaller. Using the results of these examinations, CDIC can make a more informed determination of the most appropriate resolution tool.