A Domestic Systemically Important Bank (D-SIB) is a bank that could harm the domestic economy should it fail. Canada currently has six D-SIBs (Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank). The Royal Bank of Canada (RBC) and the Toronto-Dominion Bank (TD) have also been designated as Global Systemically Important Banks(G-SIBs).
D-SIBs are so important to the functioning of the financial system and the economy that they could not be wound up under a conventional bankruptcy and liquidation process. The failure of any one of Canada’s D-SIBs, with the potential loss of financial services, even briefly, could have a serious impact on Canada’s economy.
In the event of a D-SIB resolution, CDIC’s powers ensure that the D-SIB remains open and continues to provide regular banking services for its customers while being resolved. Financial products such as loans, mortgages, and lines of credit continue to be offered, and chequing and savings accounts are accessible and receive CDIC’s protection.
Each D-SIB must prepare a resolution plan describing what to do for it to continue to provide critical financial services while being resolved. CDIC’s role is to ensure these plans are realistic and meet resolution objectives:
- Protect eligible deposits
- Maintain the flow of critical financial services
- Protect Canada’s economy
- Minimize risk to taxpayers
CDIC must also be ready and have the means to implement these plans.
CDIC meets regularly with Canada’s D-SIBs to provide guidance (PDF, 920 KB) and ensure these plans are credible. Canadian and foreign regulators and other stakeholders also share information and perspectives on the resolution of Canada’s D-SIBs.
If a Canadian D-SIB were to fail, CDIC would take control of the bank using itsEnhanced Financial Institution Restructuring Powers(E-FIRP) to stabilize and restructure its operations and to help restore it to viability while maintaining public confidence. CDIC would recapitalize the bank by converting some long term debt into equity (bail-in).
CDIC could also create abridge bank.
