CDIC welcomes new bail-in regulations to strengthen bank resolution framework

The publication of regulations to establish a federal bail-in regime for Canada’s largest banks will strengthen CDIC’s bank resolution toolkit and further contribute to financial stability.

The new bail-in regulations only apply to Canada’s domestic systemically important banks (D-SIBs). A D-SIB is a bank that could broadly impact the domestic economy should it fail.

The bail-in power is a tool that CDIC can use to convert some of a failing D-SIB’s debt into common shares in order to recapitalize the bank and allow it to remain open and operating. Bail-in legislation was introduced as part of Federal Budget 2016 and the regulations provide details for operationalizing this important resolution tool.

The regulations set out key features for the bail-in regime including which instruments are subject to the bail-in power, factors that CDIC must consider in exercising the bail-in power, and the requirements that D-SIBs must follow when issuing the bail-in debt:

  • Bank Recapitalization (Bail-in) Issuance Regulations
  • Bank Recapitalization (Bail-in) Conversion Regulations

“Bail-in is an important step in strengthening Canada’s bank resolution regime,” said CDIC President and CEO Michèle Bourque. “Deposits, including deposits in chequing accounts, savings accounts and term deposits, are not affected by the bail-in regime.”

The Government has also published new compensation regulations which set out an updated process for providing compensation to shareholders and creditors in the unlikely event that they have been made worse off as a result of CDIC’s resolution actions than they would have been if the bank had been liquidated or wound up.