Mark Carney, exiting Bank of Canada Governor and future Bank of England head, spoke at a recent event hosted by Thomson Reuters about the economy and confirmed that Canadian savers with accounts in the nation’s big six financial institutions should not be concerned about their deposits being touched.
Carney explained that policymakers are devising a plan to establish an international bail-in organization to thwart off big bank failures in the future. Although the central bank figure did not issue a guarantee that all depositors would be safe under any circumstance, Carney noted that it’s hard to fathom that Canadians’ deposits would be confiscated.
What is a bail-in? It’s when an entity has to look for money from within to solve a crisis, which is the opposite of a bailout when money originates from an outside source, such as a government agency. In this case, a financial institution would be required to set aside capital, such as shares, in order to provide liquidity and stabilize the situation. Officials say its depositors’ money would not be required.
“Canadian institutions have substantial unsecured debt obligations in the wholesale market and as well as other classes of capital, and they have substantial capital as well, so once you stack all of that up, regardless of whether one would look to reach into it…it’s hard to fathom why it would be necessary,” stated Carney
Finance Minister Jim Flaherty proposed the bail-in plan deep in this year’s federal budget:
“The Government proposes to implement a ‘bail-in’ regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital.”
Ottawa attempted to clarify what the bail-in regime meant in the budget after media outlets and blogs reported on it. Many Canadians were concerned, especially after Cyprus confiscated large amounts of deposits in the island nation’s banking system.
Kathleen Perchaluk, the finance minister’s press secretary, issued a statement last week to clarify the bail-in scenario.
“The bail-in scenario described in the Budget has nothing to do with depositors’ accounts and they will in no way be used here,” said Perchaluk. “Those accounts will continue to remain insured through the Canada Deposit Insurance Corporation (CDIC), as always.”
Perchaluk said the measures being proposed would help the taxpayers and depositors from having to bail out a financial institution. “If a bank is having severe difficulties, the bail-in regime would force certain debt instruments to be converted into equity to recapitalize the bank.”
Despite Canadian officials assuring the general public that their money is not at risk, many are wary of what the federal government says, considering its past record.
Michel Chossudovsky, professor of economics at the University of Ottawa, published an article titled “The Confiscation of Bank Savings to ‘Save the Banks’” that discusses the Cyprus situation establishes a dangerous precedent. He argues that politicians and bankers could use this “weapon of financial destruction” against smaller credit unions and other independent banks that could hurt their monopoly.
Economic Collapse News reported earlier this month that finance guru Jim Rogers believes central banks around the world would follow Cyprus’s lead of stealing deposits in order to save the financial system. Rogers made the case that since it was a policy endorsed by euro partners and the International Monetary Fund (IMF) the other central banks would implement the same policies and justify it by pointing to the IMF, eurozone and others.
“The IMF has said ‘sure, loot the bank accounts’ the EU has said ‘loot the bank accounts’ so you can be sure that other countries when problems come, are going to say, ‘well, it’s condoned by the EU, it’s condoned by the IMF, so let’s do it too,” explained Rogers.