Banks represent security.

When you put your money into a bank account, you trust that it will be there when you need it.

But what if it wasn’t?

In the US, Silicon Valley Bank (SVB) and Signature Bank clients experienced precisely that.

Both banks failed spectacularly, leaving the Biden Administration to step in to protect depositors.

How could that happen?

Well, as all banks do, SVB invests the money it receives.

SVB was a favourite of the tech sector, which experienced a boom during the pandemic. It saw a massive surge in deposits.

A bank only keeps some of its assets as cash – the rest is invested. In the case of SVB, it invested in long-dated government bonds, which included mortgage-backed securities. At the time, those investments likely looked solid.

However, after the Federal Reserve hiked interest rates to combat inflation, those mortgage-backed securities’ prices fell, meaning the bank’s portfolio value plummeted too. Concurrently, the tech sector itself began to struggle after two years of substantial growth, meaning all those tech companies suddenly needed their money back.

In order to give back those deposits, SVB was forced to sell those bonds at a loss. This, of course, created panic in the bank’s clients, causing a mass withdrawal (a “bank run”) that took the bank under. This collapse was the biggest one since the financial crisis in 2008.

That’s in the US.

But could such a thing happen here?

The answer is yes; banks have failed in Canada.

In 1996, Calgary-based Security Home Mortgage Corporation went under. 2,600 Canadians could not access their savings. $42 million in deposits was simply not available.

Luckily, Canada has an institution known as the Canada Deposit Insurance Corporation (CDIC).

The CDIC automatically protects eligible deposits at member institutions up to $100,000 per insured category.

Eligible deposits include:

  • Deposits in Canadian or foreign currency (including via payroll, Interac e-transfer, or cheque)
  • Guaranteed Investment Certificates (GICs)
  • Other term deposits

Those insured categories include:

  • Deposits held in one name
  • Joint deposits held in the names of two or more people
  • Deposits held in a registered retirement savings plan (RRSP)
  • Deposits held in a registered retirement income fund (RRIF)
  • Deposits held in a tax-free savings account (TFSA)
  • Deposits held in a Registered Education Savings Plan (RESP)
  • Deposits held in a Registered Disability Savings Plan (RDSP)
  • Deposits held in trust

EACH of those categories is insured up to a maximum of $100,000.

If your institution fails, your covered funds – eligible, principal, and interest – will be accessible to you within days.

This coverage is automatic. You do not need to apply for it.

However, if you have more than $100,00 of deposits in any one category, only $100,000 is insured.

For example, if you have $200,000 if deposits in a TFSA, only $100,000 of that is insured.  If you have over $100,000 in one category, you can divide your money between various institutions, as each category will have a max of $100,000 per institution.

What about your insurance company?

Just like banks, insurance companies can fail, too.

In Canada, every life insurance company is required federally AND provincially to become a member of an independent, not-for-profit, industry-funded organization called Assuris.

If your life insurance company collapses, Assuris guarantees you will retain at least 85% of your insurance benefits: death benefit, health expenses, monthly income, and cash value. Investment products are guaranteed 100% of accumulated value up to $100,000

Knowledge is power. Protecting your assets is essential.

If you want to make sure you are as protected as you possibly can be, book a call.