Thanks to CDIC, much of your clients’ money will be protected if a financial institution goes bust.

Since 1967, 43 Canadian banks have failed, but not one has closed its doors since Security Home Mortgage Corporation went bankrupt in 1996. Of course, as stable as our financial sector is today, no one can predict what will happen in the future.

If a bank does unexpectedly shut down, Canadians need not worry — Canada Deposit Insurance Corporation (CDIC) will automatically protect up to $100,000 in eligible deposits.
It’s free and all depositors in CDIC member institutions are covered.

Since the crown corporation was created
47 years ago, not a single Canadian has lost money on the deposits that CDIC covers, says Brad Evenson, the corporation’s director of communications and public affairs.

Up to $100,000 of cash and term deposits will be returned to people if one of CDIC’s 79 member institutions goes bust. But while it’s nice to know the money is protected, what would actually happen if one of CDIC’s member institutions failed?

Get the money back

If a bank can’t be saved and goes under, CDIC would automatically refund eligible deposits to its customers with the amount that was in their account when the bank closed.

It would take “a matter of days,” says Evenson, for Canadians to receive their cheques, which they would then be free to cash at another financial institution.

Save the bank

When it comes to protecting people’s assets, CDIC does more than just pay back money to depositors. It also helps prevent banks from disappearing in the first place.

If a bank finds itself in trouble, CDIC will assist in selling that company to another institution, says Evenson. If that happens, money held in the troubled bank’s accounts will transfer to the new bank.

“People won’t be affected at all,” he says. “The only thing they’ll notice is that their statements will come on different letterhead.”

Big bank protection

All of the big banks are CDIC members, which means if one goes bankrupt, money held in insured accounts would be covered. In general, though, winding down a big bank would be a complicated  affair.

CDIC is currently developing plans to ensure the big banks stay open even if they fail.

“It would look a lot like corporate restructuring,” says Evenson.

No matter what happens, though, eligible deposits up to $100,000 will always be protected. Whether clients get that money back via a cheque, or their accounts are moved to a healthier bank, they will not lose their money.

“The best thing a financial advisor can do is remind clients that the deposits we cover are protected and that they have nothing to fear,” he says. “CDIC has various tools for resolving failed banks and no matter the resolution, those deposits are safe.”

Read more from CDIC.

Originally published on Advisor.ca