What happens in a failure

Introduction to resolution

Canada’s financial system is strong and stable. Canadian financial institutions must meet robust prudential standards to maintain their safety and soundness but like all businesses they can fail at some point.

If a bank does fail, CDIC has tools to resolve them while protecting depositors and contributing to the stability of the financial system. 

Resolution is the process by which financial institutions that are failing or likely to fail are restructured or closed.

In Canada, CDIC is the resolution authority for all its members – from the smallest to the largest. This means CDIC takes the lead when any of its members reaches the point when it is no longer viable.

Since our creation by Parliament in 1967, CDIC has handled 43 failures, affecting more than 2 million depositors. No one has lost a single dollar that is under CDIC protection. 

CDIC’s objectives in resolution are to: 

• Protect eligible deposits
• Maintain the flow of critical financial services
• Protect our economy
• Minimize risk to taxpayers

CDIC has a range of tools it can use to resolve member institutions. These are not confined to closing an institution and reimbursing insured deposits. They include powers to support: a sale of shares or assets; amalgamation with another institution; recapitalization; restructuring or other private solutions. 

Factors such as the size and complexity of the bank, its franchise value, as well as the current availability of private sector solutions would be key considerations in determining the best approach.  When acting as resolution authority for its members, CDIC is guided by its mandate to protect deposits, contribute to financial stability, and minimize its exposure to loss. Each of these considerations must be given equal weight.