Too Big to Fail? How Confident Are You in Canada’s Financial System?

A sound and resilient financial sector is key to making any national economy function efficiently. To that end, the Department of Finance published regulations on June 16 regarding implementation of the Bank Recapitalization (Bail-in) Regime. 

The government is inviting input from Canadians on these proposed rules. You have until July 17, 2017, to submit your comments and be heard on this issue.

During the global financial crisis of 2008, there were no failures of Canadian banks and Canada’s financial system remained resilient. In fact, it proved to be one of the strongest and soundest in the world. Designated as “domestic systemically important banks” (D-SIBs), Canada’s six major banks have been deemed too-big-to-fail.

However, different experiences in other jurisdictions highlighted the importance of keeping our financial institutions strong and in particular, putting steps in place to avoid the possibility of failure or bailouts required to prop up the major banks. In accordance with international standards and similar steps taken in other countries, Canada has already begun implementing measures to safeguard the stability of the financial system and to protect taxpayers.

Royal Assent was given to the Bank Recapitalization (Bail-in) Regime on June 22, 2016. The regime is an important additional tool to keep a major bank open and operating in the unlikely event of a failure, by allowing regulatory authorities to convert some of a failing bank’s debt into common shares to recapitalize the bank and restore its viability.

The proposed regulations are important steps in continuing that implementation and Canadian stakeholders are being given the opportunity to comment on the following aspects of the regime:

• The scope of liabilities covered
• The process to be followed in the event of a conversion under the regime
• Disclosure requirements that apply to any debt and shares that are subject to conversion
• The process for compensating any investors who are worse off, relative to liquidation of the bank, as a result of the recapitalization

Following the 30-day comment period, a final version of the regulations will be published, likely in Fall 2017. Be sure to have your say before July 17 by clicking here to learn more.

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