Glossary

A company that is associated with another through partial ownership, shared control or other such relationships.

An agreement by which one person is appointed to act on behalf of another person.

A formal report by a corporation that includes a statement about financial performance and includes the current balance sheet and the auditor’s report. For a Crown corporation, like CDIC, the annual report also provides information describing how well the corporation is meeting its corporate mission as mandated by Parliament. CDIC submits its annual report to Parliament through the Minister of Finance. See “auditor’s report”.

A contract providing the investor with a fixed payment at regular periods, often monthly. Each payment represents a portion of the capital invested and interest earned.

Anything of monetary value. A car and a house are examples of physical assets; a savings account, cash and a bond are examples of financial assets.

A statement in an annual report in which an auditor indicates whether a corporation’s financial statements provide a true picture of its finances. The financial statements in CDIC’s annual reports are audited by the Auditor General of Canada. See “annual report”.

The Taxpayer Protection and Bank Recapitalization Program would allow for the permanent conversion of eligible liabilities of a non-viable D-SIB into common shares. It would allow a failing bank to be restructured so that it can keep operating and maintain its critical services, without depositor or taxpayer bail-outs.

A cashable instrument, similar to a certified cheque or money order, that is drawn by a bank against its own funds and payable to the person named in the draft.

The third of the Basel Accords, Basel III was developed in a response to deficiencies in financial regulation revealed by the global financial crisis. It is meant to strengthen bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage.

One basis point is equivalent to 0.01%.

An individual, corporation or organization that has a property interest in a trust account or another asset held by a trustee. See “trust” and “trust account”.

The group of individuals charged with the overall direction of a corporation or organization, who have the power to appoint senior managers and approve the strategic direction of the corporation or organization.

A debt instrument issued by a government, or by a bank or other corporation. Bonds normally pay fixed interest rates and may be redeemable on demand or at the end of a fixed term.

An office of a financial institution that is open to the public as a place where deposits can be made.

A firm that buys and sells securities in the securities markets on behalf of its customers.

A rule put in place by a corporation or organization under authority granted to it by a higher law. For example, CDIC is allowed by the CDIC Act to pass by-laws that apply to its member institutions or others involved in the placement of deposits.

A co-operative organization offering banking services, such as the taking of deposits. Caisses populaires are not members of CDIC, so CDIC does not insure deposits made with them. Caisses populaires participate in alternative deposit insurance arrangements under Provincial laws.

The legislation passed by Parliament creating CDIC, specifying its powers, and defining its corporate mission. Abbreviated as “CDIC Act”.

A debt issued by the Government of Canada. Canada Savings Bonds (CSBs) may be registered in the name of an individual or a joint name. They are sold in regular interest form with interest paid annually or in compound interest form with the accumulated interest paid together with the principal when the bond matures. CSBs may be cashed by the owner at any time at most Canadian financial institutions.

The document that indicates legal ownership of a share, bond, debenture, term deposit or other financial asset. It may or may not be negotiable; if a certificate is negotiable, the ownership of the asset it represents can be changed by transferring the certificate.

A cheque written by a customer to which the financial institution on which the cheque is drawn has added its certification. The certification is the institution’s own promise to pay the cheque; therefore, the holder of a certified cheque can rely on the creditworthiness of the institution, rather than just on the credit of the customer who wrote the cheque.

An account on which you can write cheques.

Interest calculated not on the principal only, but on the sum of the principal and interest accrued.

A co-operative organization offering banking services, such as the taking of deposits. Credit unions are not members of CDIC, so CDIC does not insure deposits made with them. Credit unions participate in alternative deposit insurance arrangements under Provincial laws.

A corporation set up and owned by a government to fulfill a public policy objective. CDIC is a Federal Crown corporation.

A debt instrument issued by a bank or other corporation. Debentures may pay interest at a fixed rate or a floating (variable) rate and may be redeemable on demand or at the end of a fixed term.

Lending your money to a borrower who pays you interest for the use of your money and repays the principal (sometimes called the face value) on demand or at maturity. For example, a demand or term deposit, a bond, a debenture, a treasury bill, a mortgage or a deposit note/principal protected note.

An account from which you can make withdrawals at any time on demand. Savings, chequing and daily interest deposits are examples of money held in demand accounts.

A deposit is a balance of money that is held by a CDIC member institution for an individual, corporation or organization. The CDIC member holding the deposit must give credit to the depositor’s account or issue an instrument on which the member is primarily liable.

Someone who arranges for a person to make a deposit with a deposit-taking financial institution.

A CDIC by-law that requires member institutions to prominently display a CDIC membership sign at all business locations and make the CDIC brochure Protecting Your Deposits available on request.

A CDIC by-law that requires a member institution to provide financial and other information to CDIC each year that is used set the annual premium rate for that member. See “differential premiums”.

CDIC assigns each of its member institutions one of four annual premium rates, based on a number of tests such as its level of capital, profitability, asset quality and so on. The better a member institution scores under these tests the lower the annual premium rate assigned to it will be. The differential premiums levied by CDIC from its member institutions annually are applied to CDIC’s operations, as well as its ex ante funding.

Deposits made by third parties into the accounts of depositors. A very common example is where an employer deposits salary payments into the employee’s deposit account at a financial institution.

A bank that has been judged by its regulators to pose a serious risk to the financial system if it were to fail. The framework for identifying D-SIBs is set out by the Basel Committee on Banking Supervision and the assessment considers bankspecific characteristics of systemic importance, such as size, interconnectedness and substitutability, which are correlated with the systemic impact of failure. Banks designated as such are subject to intensive supervision and higher capital requirements to minimize the likelihood of failure.

In effect, the equivalent of a cheque written by a financial institution that is drawn on itself.

Deposits that are eligible for insurance under the CDIC Act. Eligible deposits must be with a CDIC member institution and include: savings and chequing accounts; term deposits, such as Guaranteed Investment Certificates (GICs); money orders; drafts; certified drafts and cheques. Not all deposits are eligible; for example, investments in mortgages, stocks and mutual funds are not covered by CDIC.

The accumulation of a fund to cover deposit insurance claims in case of future need. (Ex ante translates as “before the event”.)

Holding a second position or office by virtue of being appointed to a first. When individuals are appointed to certain senior government positions (for example, the Governor of the Bank of Canada and the Superintendent of Financial Institutions) they automatically become members of CDIC’s Board of Directors.

A failure occurs when an institution business becomes insolvent or is in immediate danger of insolvency. In the case of CDIC’s member institutions, a failure can occur if the institution meets the conditions set out in the Guide to Intervention for Federal Financial Institutions for action by OSFI or CDIC to take control or seek its wind-up.

The process of settling the affairs of a failed member institution. This may involve such things as a wind-up by a court-appointed liquidator, creating a company to manage and dispose of certain assets, or arranging the sale of all or part of the institution’s business.

The ability to quickly determine the amount of insured deposits owed to depositors.

A multilateral system among participating institutions, including the operator of the system, used for the purposes of clearing, settling, or recording payments, securities, derivatives, or other financial transactions.

A corporation in the business of offering financial products or services, such as a bank, trust company, loan company or association.

Any investments or other instruments that have monetary value. Examples include deposits, annuities, stocks and bonds, and mutual funds.

A forum established by the G7 finance ministers in 1999 (in the aftermath of the Asian economic crisis) to foster the exchange of information and co-operation among supervisory authorities, central banks, and deposit insurers.

A deposit held in a currency other than Canadian dollars.

A bank that is designated to be so interconnected to the world’s financial markets that its failure could pose a threat to the international financial system. The Basel Committee designates banks with the highest systemic risk scores as GSIBs, based on size, interconnectedness, substitutability, complexity and cross-jurisdictional activities. A GSIB must meet a higher risk-based capital ratio to enhance its resilience, and is subject to additional regulatory oversight and requirements for groupwide resolution planning and resolvability assessments. The resolvability of each GSIB is reviewed annually using a high level FSB resolvability assessment process conducted by senior policy makers within the firms’ Crisis Management Groups.

A form of term deposit.

A document developed by OSFI and CDIC that outlines the intervention steps applied to CDIC member institutions. It describes the mechanisms in place between OSFI and CDIC, summarizes the circumstances under which certain intervention measures may be taken and defines a graduated and progressive set of responses, based on the member institution’s particular circumstances.

A trust that receives some or all of the income from a business and distributes that income to the holders of units of the trust (that is, the beneficiaries). The units of an income trust are issued in the securities markets pursuant to a prospectus or an offering memorandum.

An interest rate is said to be index-linked when it is calculated by tracking changes in the price or value of something, such as a stock market index or a pool of investments.

An individual, corporation or organization is insolvent if: 1) they cannot pay their debts as they fall due, or 2) the value of their assets is less than the total of their debts.

The money borrowers pay to lenders for the use of their money.

The amount by which interest owing is reduced because a term deposit is withdrawn (sometimes called redeemed) before maturity.

Standards for accounting and reporting, developed and revised by the International Accounting Standards Board (IASB) to support reliable and relevant reporting that is understandable and comparable across international jurisdictions. IFRS have increasingly replaced national financial reporting standards.

Steps that are taken by OSFI or CDIC, or both, to address concerns that may arise with CDIC member institutions.

Using money to make more money, that is, using money to increase capital or gain income.

A deposit owned by two or more persons jointly. If a joint owner is an individual, on death he/she drops out, so that the deposit then is owned by the remaining joint owner(s); this is called the right of survivorship of the remaining joint owner(s). An eligible deposit owned jointly can qualify for separate CDIC insurance.

The winding up of the affairs of a business by converting all assets into cash to pay off creditors in the order of their preference, and distributing the remainder, if any, to the owners in proportion, and in the order of preference, if any, of ownership. The process of selling all assets in order to repay creditors as much as possible.

Frequently subsidiaries of banks or trust companies. Loan companies accept deposits from the public primarily for the purpose of funding mortgages. A loan company must be incorporated under the federal Trust and Loan Companies Act, or under similar provincial legislation.

The date at which a term deposit becomes due.

A bank, trust company, loan company, federal credit union, or an association governed by the Cooperative Credit Associations Act whose deposits are insured by CDIC.

CDIC treats two situations as a merger: (1) when two or more CDIC member institutions join together to become a single member, or (2) when one member takes over deposits made with another member.

The market where short-term, relatively low-risk debt securities are bought and sold.

A type of mutual fund invested solely in short-term, low-risk securities, such as treasury bills, bankers’ acceptances, and other commercial debt instruments.

A cashable instrument, similar to a certified cheque or a bank draft, issued by a deposit-taking financial institution or a postal authority and payable to the person named in the order.

A legal document pledging real estate as security for a debt.

A financial product that combines the money of many investors to make a variety of investments in products such as stocks and bonds. The investors have a shared property interest in the pool of investments.

A debt instrument issued by a bank, corporation or organization. Notes may pay interest at a fixed rate or a floating (variable) rate and may be redeemable on demand or at the end of a fixed term.

Legislation permitting a bank to take deposits without being a CDIC member institution. Banks that opt out of CDIC are only allowed to take deposits of $150,000 or more.

The process undertaken by CDIC to make deposit insurance payments to the insured depositors of a failed CDIC member institution. CDIC may make a payment of deposit insurance in one of two ways: (1) by issuing cheques to insured depositors; or (2) by providing insured depositors with new demand deposits at another CDIC member institution.

The amount that is payable to CDIC by a member institution for deposit insurance coverage. It is calculated annually as a percentage of the total eligible insured deposits that are held by the institution as of April 30. CDIC has a differential premiums system in which institutions are classified in one of four premium categories. Institutions classified in the best premium category pay the lowest premiums.

The period beginning on May 1 in one year and ending on April 30 in the next year.

The amount invested without taking in consideration the interest earned.

A debt instrument issued by a bank or other corporation. Instead of paying interest at a fixed rate or a floating (variable) rate, principal protected notes pay interest that is calculated by tracking changes in the price or value of something, such as a stock market index or a pool of investments. A PPN is similar to a term deposit that pays interest at an index-linked rate, but PPNs are not insured by CDIC because they are sold through securities brokers.

The amount set aside on a balance sheet to provide for anticipated or possible loss or expenditure. CDIC maintains a provision for insurance losses that reflects the organization’s best estimate of the losses it is likely to incur as a result of insuring deposits at member institutions.

An RESP is an investment vehicle that allows parents to save towards paying the costs of their children’s post-secondary education. An eligible deposit held in a RESP can qualify for separate CDIC insurance if the RESP is set up as a trust. Interest earned in an RESP is tax-exempt until it is withdrawn. See “trust” and “trust account”.

A government-approved retirement vehicle used most often as a receptacle for funds previously held in an RRSP. Allows for variation in income until the planholder reaches age 90. RRIFs are effective methods ofring the receipt of income and the payment of income tax. A RRIF is not a type of investment. It is a plan into which you put investments.

A government-approved tax-sheltered plan to help you save for retirement. There are limits on contributions. Contributions are deductible from taxable income and the earnings in the plan are exempt from tax until they are withdrawn from the plan. An RRSP is not a type of investment. It is a plan into which you put investments.

The process of controlling whether a risk will be taken on and responding to the negative consequences of a risk taken.

A deposit account that can be withdrawn at any time. Savings accounts pay interest and depositors are not able to write cheques on them. (When accounts both pay interest and allow cheques to be drawn they are sometimes called “chequing-savings accounts”.)

Stocks (equity investments), debt instruments, income trust units, mutual funds and other forms of investments that are issued in the securities markets. The brokerage industry protects consumers on the insolvency of a broker through the Canadian Investor Protection Fund.

Differs from other types of RRSPs in that the planholder is responsible for making all investment decisions, or delegates that power to an investment advisor.

A sole proprietorship exists whenever an individual carries business for his own account without using the medium of any other form of business organization (such as a corporation) or involving the participation of other individuals, except as employees. The individual is the sole owner of the business. Many small businesses are organized as sole proprietorships. All benefits flowing from the business accrue to the exclusive enjoyment of the sole proprietor. All obligations associated with the business are also his responsibility.

Corporate shares – that is, units of ownership of the equity of a corporation. Can be common shares or preferred shares; preferred shares are in fixed amounts and have priority over common shares in a liquidation of the corporation. Shares may or may not pay dividends and may or may not carry voting rights.

A subsidiary is a company of which more than 50% of the voting shares are owned by another corporation, called the parent company.

A person or organization that regulates financial institutions. In Canada, the Federal supervisory authority is the Superintendent of Financial Institutions (abbreviated as “OSFI”). Provincial regulators supervise Provincial financial institutions, such as credit unions.

A deposit that is due at the end of a fixed term. A term deposit may pay interest at a fixed rate, at a floating (variable) rate or at an index-linked rate. A GIC is a common type of term deposit.

The action (by CDIC) of terminating a member institution’s policy of deposit insurance (and thus ending its membership in CDIC). Demand deposits on hand on the day the termination or cancellation takes effect, less withdrawals after that day, continue to be insured for a period of two years. Term deposits on hand on the day the termination or cancellation takes effect, less any early withdrawals after that day, remain insured until they mature.

The ratio of a bank’s core equity capital to its risk-weighted assets.

A debt instrument issued by a government and redeemable at the end of a fixed term – normally, in 90 days, 180 days or 1 year.

A type of ownership in which a person (the trustee) holds property for the benefit of one or more other persons (the beneficiaries). For example, a trustee may have a deposit account in which they hold money for the benefit of one or more beneficiaries.

A deposit account held by a trustee. An eligible deposit in a trust account can qualify for separate CDIC insurance.

A deposit made by the trustee(s) of a trust and which forms part of the trust property under the trust.

An order of the court requiring that a financial institution be liquidated. Usually a winding-up order is made because the institution is insolvent, a regulator has taken control of the institution or, in the case of a member institution, because CDIC has terminated its policy of deposit insurance.