Following U.S. bank failures, is it time for Canada to raise deposit insurance limits?
CBC
First came the bank run, then the demise, of California-based Silicon Valley Bank two weeks ago. Soon after, New York-based Signature Bank also collapsed.
These back-to-back episodes — the second- and third-largest bank failures in U.S. history, respectively — compelled American officials to act publicly to prevent a broader financial crisis.
"We are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system," officials from the U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corporation (FDIC), said in a joint statement after the headline-making bank failures.
These actions included guaranteeing all of the failed banks' deposits, including those far exceeding FDIC deposit-insurance limits.
Deposit insurance protects people's money in the event of a bank failure. In the U.S., the FDIC covers up to $250,000 US per depositor, for each FDIC-insured institution, and per eligible category of account.
But for the Silicon Valley and Signature cases, authorities opted to fully protect all affected depositors — even those with millions of dollars in deposits, which normally wouldn't be entirely insured.
Canadians watching these events may have questions about their own level of protection from bank collapse-related calamity.
Banking experts say such failures are less likely to occur here, owing to a range of factors including: stricter regulations and a set of big, well-capitalized banks at the core of the sector.
"While a bank is a bank, underneath the covers, a bank is very different in the United States as it is in Canada," said Reena Atanasiadis, dean of the Williams School of Business at Bishop's University in Sherbrooke, Que.
"And that is the driver behind why deposit insurance here in Canada is not as urgently needed by the population."
But some analysts say it's worth thinking about how deposits are insured on this side of the border — and some believe there's a need to raise existing coverage limits.
The Canada Deposit Insurance Corporation (CDIC) is a federal agency that safeguards deposits at dozens of member institutions — including Canada's biggest banks. It is funded by premiums paid by those members.
The agency insures eligible deposits, to a maximum of $100,000, at all member institutions and across a range of categories of accounts.
Effectively, depositors are separately protected for this amount, for eight types of accounts, at each member institution they bank with.
