Canada’s banks were built to last.
If you want to keep your money safe, there are few better places to put it than in the Canadian financial system. While other countries have dealt with unexpected bank failures, Canadian banks continue to withstand those pressures.
Need proof? Consider how the country’s banking sector weathered the 2008 financial crisis. By many accounts, it didn’t just survive; its resiliency allowed it to emerge stronger than ever. During the darkest days of 2008, Canada experienced no bank failures, and required no bailouts.1Then, as banks collapsed south of the border, the World Economic Forum declared Canada’s banking system the soundest in the world,2just ahead of Sweden, Luxembourg, Australia and Denmark.
There have been 564 bank failures in the U.S. since 2001.3Over the same period, Canada has had none. The last time a Canadian bank failed was 27 years ago, when the Calgary-based Security Home Mortgage Corporation was forced to close its doors in 1996.4
Are Canadian banks safe?
One of the reasons for Canada’s financial fortitude is that, from the beginning, the country has featured a system that favours a relatively small number of well-capitalized, well-regulated national banks with many branches. There are just over 80 banks in Canada, with the big six – the Bank of Montreal, the Royal Bank of Canada, Scotiabank, TD Bank, CIBC and the National Bank – holding 90% of the country’s deposits.5
The concentrated nature of Canada’s banks makes it easier for the Office of the Superintendent of Financial Institutions (OSFI), the industry’s regulating body, to understand their operations and keep a close eye on what they’re up to. OSFI’s regulations, which prioritize safety and soundness, encourage Canadian banks to take a relatively conservative approach that avoids any unnecessary risk.
The banking sector, concentrated as it may be, is also diverse. With services ranging from wealth management and brokerage services to insurance, deposits and loans, if one area of the economy struggles, the system as a whole is equipped to endure. And because the big six dominate the industry, they have access to a healthy flow of cash that lowers their chances of failure and removes the need to resort to riskier practices.
In the unlikely event a bank does go under, the Canada Deposit Insurance Corporation (CDIC) exists to ensure eligible deposits of up to $100,000 per account are protected at member financial institutions. (All the main banks are CDIC members.) Since it was created by Parliament in 1967, the Crown Corporation has stepped in to protect more than two million depositors from 43 bank failures. Not a single dollar of insured deposits was lost to Canadians.6Use this link for a complete list of what deposits are considered eligible; it includes money inside chequing and savings accounts and guaranteed investment contracts.
A tale of two countries
Unlike in Canada, our southern neighbours have one of the most fragmented banking systems in the world. For most of its history, the country had restrictions in place that prevented banks from opening branches across state lines – and often within the same state. The country now has several thousand banks that are governed by a slew of different regulators depending on their charters.
The sheer number of financial institutions means individual banks feel compelled to take greater risks to differentiate themselves from the competition.7Consequently, it becomes harder for regulators to oversee what these institutions are doing and to ensure that the interests of customers are thoroughly protected.
At its highest, roughly a century ago, the U.S. had around 31,000 financial institutions, or one for every small town in the country.8When regional banks are only able to service small areas, they become far more vulnerable to failure than large, national institutions that aren’t tied to a single economy.
Canada’s banking system also features a level of separation not seen in the states. In the U.S., the central bank manages the economy and regulates the financial industry. Here, the Bank of Canada handles monetary policy and leaves the enforcement of banking rules in the capable hands of the OSFI. With fewer banks to monitor and a distinct separation of duties, oversight is invariably easier.
The bottom line
Canada’s reputation for financial stability is well earned and should continue to provide a sense of security – if not pride – to Canadians everywhere, no matter what the future holds. The big six have plenty of liquidity and manageable credit risks that allow them to survive the kind of economic uncertainty that can be catastrophic to other banks. The industry’s emphasis on stability over experimentation, and reliability over risk, allows it to remain a safe harbour in periods of turmoil and ensure that Canadians see only sunny skies after the storm.
FAQs
One of the reasons for Canada's financial fortitude is that, from the beginning, the country has featured a system that favours a relatively small number of well-capitalized, well-regulated national banks with many branches.
Why is the World Bank important to Canada? ›
The World Bank provides support to developing countries and is committed to poverty reduction. Their complementary mandates contribute to sustainable economic growth and the alleviation of global poverty.
How is the banking system in Canada different from the United States? ›
In Canada, banking regulations are overseen by the Office of the Superintendent of Financial Institutions (OSFI), focusing on stability and prudential regulation. Meanwhile, the US employs a multi-tiered system with federal agencies like the Federal Reserve, FDIC, and OCC, along with state-level oversight.
How stable is the Canadian banking system? ›
Financial System Review—2022
The Canadian financial system remains resilient, but vulnerabilities have become more complex and risks have grown. The Bank is carefully watching households' high levels of mortgage debt, as well as the risks associated with a price correction in Canada's housing market.
Why is Canada considered the best country in the world? ›
Canada is famous for the gorgeous scenery and uninhabited land. The views of the untouched and natural environment are breathtaking and composed of beautiful lakes and rivers. There are three oceans, mountains, plains, and some of the most attractive cities in the world, like Toronto.
Which country has the best banking system? ›
There are many choice when it comes to choosing the country that has a banking system to beat others but according to the survey by the World Economic Forum, Canada has the world's best banking system. It is followed by Sweden, Luxembourg and Australia.
Why is the Bank of Canada so important? ›
The Bank of Canada is the country's sole authority for issuing bank notes and is responsible for the design, production and distribution of Canada's bank notes.
Why is Canada important to the world? ›
While the service sector is Canada's biggest economic driver, the country is a significant exporter of energy, food and minerals. Canada ranks third in the world in proven oil reserves and is the world's fourth-largest oil producer.
Which country has the highest debt in the World Bank? ›
India takes the top spot. The world's most populous country owed $38.3bn to the WB at the end of 2022, down by almost $1.5bn from a year earlier. India's outstanding balance is almost double that of the next biggest debtor, Indonesia, with $20.6bn.
How is the banking system in Canada? ›
Serving Canadians
Canada has one of the most accessible banking systems in the world – more than 99 per cent of Canadian adults have an account with a financial institution. Number of banks offering financial products and services to Canadian consumers, including bank accounts, credit cards, loans and investments: 40.
When you bank with many Canadian banks, your funds amount up to $100,000 is insured by the CDIC (Canada Deposit Insurance Corporation) which is a Federal Crown Corporation. This means that if something does happen to the banks, the CDIC can pay you out your insured deposits in just a matter of days though.
What is the most important function of the Bank of Canada system? ›
Our main role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. Our main areas of responsibility are: Monetary policy: We influence the supply of money circulating in the economy, using our monetary policy framework to keep inflation low and stable.
Where do Canadian banks rank in the world? ›
According to a ranking produced by Standard & Poor's, in 2017, the Big Five banks of Canada are among the world's 100 largest banks, with TD Bank, RBC, Scotiabank, BMO, and CIBC at 26th, 28th, 45th, 52nd, and 63rd place, respectively.
Is Canada more financially stable than the US? ›
The economies of Canada and the United States are similar because both are developed countries. While both countries feature in the top ten economies in the world in 2022, the U.S. is the largest economy in the world, with US$24.8 trillion, with Canada ranking ninth at US$2.2 trillion.
What are the challenges facing Canadian banks? ›
The banks are tackling global challenges, including a changing interest rate environment, high inflation, and concerns of a potential “hard landing” economic scenario. Canadian banks expect interest rates to decline in 2024, a shift from the rising rate environment seen in 2023.
Why are Canadian banks so secure? ›
Stringent regulations: Canada has a strong regulatory framework that requires banks to maintain high levels of capital and liquidity. This helps to ensure that banks can absorb losses and continue to operate even in difficult economic conditions.
What is Canada ranked in the World Bank? ›
As a result of all these changes, in 2020, Canada ranked 23rd out of 190 economies; however, among G7 members, Canada ranked 4th after the U.S. (6th), the UK (8th) and Germany (22nd).
Which country has the best online banking system? ›
Canada leads all countries in terms of its share of Internet users who access online banking sites each month at nearly 65%, with the Netherlands a close second at 61%.
