Does it matter if it is called “Bailout or Liquidity” Support?
Excerpts: Financial Post wrote:
“Where MacDonald says “bailout,” a financial ministry official says “liquidity support” While MacDonald said the government tried to hide the numbers even from Access to Information requests, the official said the bank funding was “clearly, publicly laid out – repeatedly.”
Read more:
https://business.financialpost.com/news/fp-street/did-canadian-banks-receive-a-secret-bailout
Moving forward to 2015-2016 (7 years later):
The federal government thereafter confirmed its intention to proceed with a bail-in regime in both the 2015 budget and, following the change in government, the March 2016 budget. What they call a “Bail-in” You need to understand the Bail-In and how it can affect you and your family
https://theripregistry.ca/bank-bail-in-c15/
It is important to note:
The 6 major banks include National Bank (referred to as D-SIBs) are too big to fail which cannot be come bankrupt and liquidated without imposing significant costs to the economy.
In particular, Division 5 contains three main components that establish and implement a bail-in regime for Canada:
- the maintenance, by D-SIBs, of a minimum capacity to absorb losses;
- the ability of the Canada Deposit Insurance Corporation (CDIC) to control a D-SIB on a temporary basis; and
- the ability of the CDIC to recapitalize a D-SIB by converting its non-common shares, subordinated debt and prescribed senior liabilities into common shares.
What is CDIC (Canada Deposit Insurance Corporation)
Deposits held in an RRSP
Here’s an example of a portfolio within a RRSP – and what does (✓) and does not (✗) qualify for CDIC coverage:
- $ 10,000 in a GIC ✓
- $ 50,000 in a term deposit ✓
- $ 50,000 in stocks and bonds ✗
- $ 130,000 in mutual funds ✗
- = $240,000 of which $60,000 is covered.
What’s protected & why:
The GIC and term deposit are eligible deposits within an insured category – a RRSP. Eligible deposits within one category are insured for up to $100,000. So $60,000 of the $240,000 in total deposits is covered.
What’s not insured:
CDIC does not insure stocks, bonds or mutual funds, so $180,000 in those investments is not covered.
Hopefully this information will have you ask the important questions which will lead you to read more.
There is much to think about.
Do you have savings? Do you have locked in investments? Do you have a mortgage and equity in the property?
Should a bail-in occur, how are you protected? Each individual has to evaluate their own investments and products in their portfolio and see how the CDIC, the Bail-In and other Federal arms of the government can impact you them, either positively or negatively.
This blog has been provided in order to have the doors open to asking more questions to your financial advisor, banker and/or educating yourself, based on your needs and concerns.
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