A group of smaller Canadian financial institutions was lobbying the federal government for an increase to limits on deposit insurance weeks before Silicon Valley Bank’s collapse.
In a Feb. 7 letter to Finance Minister Chrystia Freeland, the Bank and Trust Companies Association (BATCA) asked for a review of the $100,000 limit on deposit insurance provided by the Canadian Deposit Insurance Corporation (CDIC) — a cap that hasn’t moved since 2005.
The letter, signed by Equitable Bank president and CEO Andrew Moore and Home Capital Group Inc. president and CEO Yousry Bissada, among others, said that “nearly 20 years of inflation has eroded the value of this insurance.”
Raising the limit would make the financial system safer, they argued, and protect Canadians from losing their savings if a financial institution fails.
“Increased protection limits would send Canadians a strong signal about the stability of the financial system while greatly reducing any concern about the damage a ‘run on the bank’ could have on an institution and its depositors,” the letter stated.
A higher limit would also help smaller financial institutions compete for deposits with the big banks, the association argued, as it would assuage fears about the safety of deposits.
“Indeed, the stability of that part of the financial system occupied by small and medium-sized institutions relies to a much larger extent on the confidence given to depositors through deposit insurance coverage,” it said.
The $100,000 CDIC limit would be about $146,000 today if it were indexed.
The limit for insurance coverage in the U.S. is $250,000, but regulators stepped in to guarantee deposits for SVB. Smaller U.S. banks are lobbying in Washington to temporarily extend insurance to all deposits.
The BATCA letter was first reported by Bloomberg.