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The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

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Freedom 55 Financial is a division of The Canada Life Assurance Company and the information you requested can be found here.

Your money is protected in Canadian banks - here's why

Key takeaways

  • The Canada Deposit Insurance Corporation (CDIC) protects your eligible deposits at member financial institutions.
  • Eligible deposits are also covered by provincial insurance plans.
  • Your investments may be protected if you deal with a company that’s a member of the Canadian Investor Protection Fund (CPIF).

It’s understandable that recent news of bank failures in the U.S. may be making you nervous. Could failures happen here? The good news is banking failures are extremely rare in Canada and customers are protected. 

What happened to Banks in the US?

The biggest US bank failure since the global financial crisis unfolded in real time on March 10 as a major tech industry lender, Silicon Valley Bank (SVB) succumbed to a bank run.

In the aftermath of the collapse, customers frantically began withdrawing their money from the California-based lender. However, the collapse panicked markets, causing further pain to weaker institutions already struggling with soaring interest rates and self-inflicted wounds.

A week later, the United States’ second regional bank, Signature Bank, closed, and a third bank, First Republic Bank (FRC) was bailed out by the Federal Deposit Insurance Corporation (FDIC). These measures were taken to avert the first major threat to a bank of global financial significance since 2008.

Relative calm has returned in the US banking industry now thanks to significant emergency funding from last resort lenders like central banks and other large players in the industry.

What is a Bank Run?

A bank run occurs when many customers of a bank withdraw their deposits at the same time, usually because they have lost confidence in the bank's ability to meet its obligations.

This can be triggered by a variety of factors, such as:

  • Rumors of insolvency
  • News of large losses or scandals involving the bank
  • A general economic downturn.

When a bank experiences a run, it can quickly collapse because it may not have enough cash on hand to meet all the withdrawal requests. This can lead to a cascade of failures as other customers become fearful and rush to withdraw their money as well, which in turn puts more pressure on the bank's liquidity.

Bank runs can have serious consequences for the wider economy, as they can lead to the collapse of the affected bank and the loss of people's savings. They can also cause a domino effect on other financial institutions, triggering a wider financial crisis.

In response, governments and central banks may intervene to try to prevent or contain bank runs, by providing emergency funding, guaranteeing deposits, or implementing other measures to restore confidence in the banking system.

A bank run is unlikely to occur in Canada for the following reasons:

  • Strong banking system: Canada has a highly regulated and stable banking system that is considered one of the soundest in the world. The country's major banks are well-capitalized and have a strong credit rating, which means that they are better equipped to withstand economic shocks and other challenges.
  • Deposit insurance: The Canadian government provides deposit insurance through the Canada Deposit Insurance Corporation (CDIC)Opens a new website in a new window, which guarantees eligible deposits up to $100,000 per depositor per insured category. This lets customers know that their deposits are protected in the event of a bank failure, reducing the likelihood of a panic-induced run.
  • Central bank support: The Bank of Canada plays a key role in maintaining financial stability and has the power to act as a lender of last resort to help banks access liquidity during times of stress. This helps to prevent a liquidity crunch that could trigger a bank run.
  • Stringent regulations: Canada has a strong regulatory framework that requires banks to maintain high levels of capital and liquidity. This helps to ensure that banks can absorb losses and continue to operate even in difficult economic conditions.

How do these US banking failures affect Canadians?

The U.S. banking failures that have recently occurred could likely have some indirect and limited effect to Canadians.

Firstly, it's important to note that SVB is a US-based bank that primarily serves the technology and innovation sector. It’s not a domestic bank in Canada and does not have any branches or operations in the country. However, some Canadian technology companies that do business with SVB could be affected if the bank were to collapse.

For example, Canadian startups and tech firms that rely on SVB for financing, payment processing, or other financial services could experience disruptions or delays if the bank were to fail. This could in turn impact their ability to access funding or grow their business, which could have wider implications for the Canadian tech industry.

In addition, a collapse of SVB could also have broader ripple effects on the global financial system, which could impact the Canadian economy.

If SVB were to default on its debts or trigger a wider financial crisis, this could lead to a tightening of credit conditions and a slowdown in economic activity. This could in turn affect Canadian businesses and investors who have exposure to the U.S. financial markets.

How are Canadian deposits and investments protected?

What's next?

Now that you know how your deposits and investments may be protected, why not meet with an advisor to:

  • Discuss if you need to make any adjustments to your financial plan.
  • Find out more about how an advisor can help you ride out ups and downs in the market cycle.

The information provided is accurate to the best of our knowledge as of the date of publication, but rules and interpretations may change. This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.

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