Frequently Asked Questions: Taxpayer Protection and Bank Recapitalization Regime

A1. The Government has announced the establishment of a risk management framework for Canada’s systemically important banks. This consultation sets out a proposal for a key component of this framework: the Taxpayer Protection and Bank Recapitalization regime. This proposed regime would ensure that, in the unlikely event of a bank failure, losses are borne by shareholders and creditors of the failed systemically important bank, rather than taxpayers. The consultation paper seeks feedback from interested parties on the design of this proposed regime.

A2. Systemically important banks are banks whose failure could have a detrimental impact on the functioning of the Canadian financial system and economy.

On March 26, 2013, the Office of the Superintendent of Financial Institutions (OSFI) identified Canada’s six largest banks as being domestic systemically important banks. Further details can be found on OSFI’s website.

A3. Canada’s financial system is widely considered one of the most resilient and best regulated in the world. In fact, the World Economic Forum has deemed Canada’s financial system to be the strongest in the world for six consecutive years since the 2008 global financial crisis.

Even though Canada has a well-developed and coordinated intervention and resolution toolkit, the Government recognizes the need to manage the risks associated with systemically important banks, given the costs a disorderly failure could have for the economy and for Canadians.

The proposed regime would build on the strengths of the existing resolution toolkit and ensure that losses are borne by shareholders and creditors of a failed systemically important bank, rather than taxpayers, while preserving the critical services the bank provides to its customers. It would also give shareholders and creditors stronger incentives to monitor the banks’ risk-taking activities.

A4. The proposed regime aims to protect the savings of Canadians without resorting to taxpayer-funded government interventions such as a bail-out.

The regime would protect taxpayers by ensuring that losses are borne by shareholders and creditors of a failed bank, while also preserving the critical services the bank provides to its customers.

The proposed regime focuses on a specific range of liabilities and excludes deposits. Insured deposits would continue to be guaranteed by the Canada Deposit Insurance Corporation.

A5. Comments on the consultation paper can be submitted to the Department of Finance at ConsultationsFSS-SSF@fin.gc.ca or to the address below. The closing date for comments is September 12.

Financial Sector Policy Branch
Department of Finance
140 O’Connor Street,
Ottawa, Ontario
K1A 0G5