F. The Canada Deposit Insurance Corporation

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 58-69

Page 58

The Canada Deposit Insurance Corporation (CDIC) was established in 1967 for the purpose of insuring the repayment of all or part of deposits in the event of the insolvency of a financial institution. Private deposit insurance had been available in Canada and the United Kingdom from the nineteenth century, the Federal Deposit Insurance Corporation had been established in the United States in 1933, and the Deposit Protection Fund in the United Kingdom was started in 1979. After 1967 various provinces also established provincial deposit insurance schemes for provincially regulated deposit-taking institutions. The CDIC provides insurance for all federally regulated deposit-taking institutions, whether or not they are banks.

Page 59

Since 1967 the CDIC has been required to intervene in relation to a number of failed member institutions, largely trust and loan companies, but also in relation to two failed banks in 1985, the Canadian Commercial Bank and the Northland Bank. It has also intervened when individual financial institutions appear to be in difficulty and acts together with the Bank of Canada, OSFI, and the government when financial difficulties appear within the financial institutions sector generally. The last time a financial institution failed was in 1996, and the rate of loss from recent failures is approximately 17 cents on the dollar.²¹⁸

The CDIC is established as a corporation that is an agent of the Crown in right of Canada for all purposes under the Act.²¹⁹

Its head office is in Ottawa,²²⁰and its affairs are directed by a board of directors consisting of the Chairperson, the Governor of the Bank of Canada, the Deputy Minister of Finance, the Superintendent of Financial Institutions, the Commissioner of the Financial Consumer Agency of Canada, an officer of OSFI appointed by the Minister of Finance, and not more than five other directors approved by the Governor in Council.²²¹

The

Act further provides that a director may not hold any other public or publicly funded position or be a member of any federal or provincial legislature or a director, officer, or employee of any financial institution.²²²

The Chairperson is to be appointed by the Governor in Council and holds office for a stipulated term during good behaviour.²²³

In addition to the qualifications for directors, the Chairperson must also have proven financial ability²²⁴and be under seventy-five years of age.²²⁵

The Governor in Council fixes the remuneration for the Chairperson.²²⁶

The board administers the affairs of the CDIC in all matters, and under the legislation has the usual powers of a board to enter into contracts and make by-laws, including by-laws relating to standards of sound business practices for financial institutions²²⁷and defining what is an insurable deposit.²²⁸

The Act also grants to the board all powers

Page 60

under Part II of the Inquiries Act²²⁹when carrying out any inspection authorized by the CDIC Act or by a policy of deposit insurance.²³⁰

The Act further provides that the CDIC may enjoy many of the usual rights and powers associated with corporations, including maintaining bank accounts²³¹and employing officers, agents, and employees.²³²

All information obtained in the performance of its statutory duties is confidential,²³³and the CDIC, its directors, officers, and employees are exempted from liability to any member financial institution, a depositor, creditor, or shareholder for damages incurred by reason of anything done in good faith in the execution of any statutory powers and duties.²³⁴

The auditor of the CDIC is the Auditor General of Canada,²³⁵and the corporation can be wound up only by Parliament and is not subject to any insolvency or winding-up legislation.²³⁶

The objects of the CDIC are: (i) to provide insurance against part or all of deposits; (ii) to be instrumental in the promotion of sound business and financial practices for member institutions and to promote and otherwise contribute to the stability of the financial system in Canada; and (iii) to pursue these objects for the benefit of depositors and so as to minimize the exposure of the CDIC to loss.²³⁷

The CDIC is further authorized to do all things necessary or incidental to the objects of the corporation, including reducing risk or loss to the corporation; to enter into agreements with provincial governments relating to the insurance of provincially regulated deposits; to act as a liquidator, receiver, or inspector of a member institution; to assume the costs of winding up a member institution; to acquire various assets, including the assets of a member institution; and to inspect member institutions as authorized by the Act.²³⁸

The CDIC may also request and the Minister of Finance may lend out of the Consolidated Revenue Fund money to the CDIC for its statutory purposes, provided the loan does not exceed $6 billion or any greater amount approved by Parliament.²³⁹

Page 61

The corporation is required to insure each deposit, with the following exceptions: (i) deposits that are not payable in Canada or in Canadian dollars; (ii) deposits for which the Crown in right of Canada is a preferred claimant; and (iii) so much of any deposit that exceeds $100,000.²⁴⁰

A "deposit" is defined as the unpaid balance of the aggregate of moneys held by a financial institution²⁴¹on behalf of any person in the usual course of deposit-taking business for which the institution is obligated to give credit to an account or has issued a receipt, certificate, instrument, draft, certified draft or cheque, traveller’s cheque, pre-paid letter of credit, money order, or other instrument and is obligated to repay on demand or on a fixed day, including interest.²⁴²

A deposit also includes moneys held by an institution in respect of realty taxes on mortgaged property.²⁴³

In situations where the money in dispute does not fit neatly into any of these categories, the courts have interpreted deposit as being commonly understood to mean funds deposited with a financial institution in the expectation of their return.²⁴⁴

In addition to the exceptions to the definition of insured deposits, the Canada Deposit Insurance Corporation Act (CDIC Act) qualifies the definition of deposit as follows: (i) moneys received on or after 17 April 1967 are not deposits unless the institution is obliged to repay those moneys within five years of the date of deposit and the institution was not CDIC insured when the moneys were received;²⁴⁵(ii) moneys deposited by a trust company in its own guaranteed trust fund on behalf of itself as trustee are deemed to be repayable to the same extent as if the moneys had been deposited by a trustee other than itself;²⁴⁶(iii) moneys received on or after 1 April 1977 for which the instrument evidencing the deposit does not record the person entitled to repayment are not a deposit unless the instrument records the person entitled to repayment, who shall be deemed to be the depositor unless the records show a more recent transferee and the entry of the transfer in the records is not made subsequent to the termination or cancellation of the deposit insurance policy;²⁴⁷and (iv) moneys received on or after 1 Janu-

Page 62

ary 1977 for which the instrument of indebtedness, other than a draft, certified draft or cheque, traveller’s cheque, prepaid letter of credit or money order, is payable outside Canada or in a currency other than Canadian dollars do not constitute an insured deposit.²⁴⁸

The definition of an insured deposit is not limited to individual depositors on their own behalf but also extends to joint deposits,²⁴⁹trust deposits,²⁵⁰and deposits so defined within RRSPs²⁵¹and RRIFs.²⁵²

Thus, a single individual at a single institution may have insured deposits of $100,000 each in deposit accounts and joint accounts, in an RRSP/RRIF, and as a trustee for a beneficiary, and that individual may replicate that pattern of insured deposits at more than one financial institution.

The CDIC Act also protects insured deposits when financial institutions merge by deeming deposits in each of the amalgamating institutions to be separate for insurance purposes on the day of amalgamation.²⁵³

A deposit made with an amalgamated institution after the day of amalgamation is insured up to the $100,000 limit with that amalgamated institution.²⁵⁴

In addition, where a member institution assumes any deposit liabilities of another member institution, the two institutions are deemed to be amalgamating²⁵⁵and the deposit liabilities are deemed to be deposited with the institution that assumes them on the day they were assumed.²⁵⁶

Repayment of insured deposits to a depositor is to be made where a winding-up order has been given in respect of a member institution.²⁵⁷

Once the order is made and the obligation to pay arises, payment may be made in one of two ways: in cash or by a transfer of the sum insured to another member institution.²⁵⁸

The CDIC will normally make the payment where the member institution cannot, or the deposit insurance policy has terminated or is cancelled, or when the Governor in Council has ordered either the vesting of the institution’s shares in the CDIC or the appointment of a receiver.²⁵⁹

Page 63

Payment of the insured deposit includes payment of any interest accruing and payable up to the date of the commencement of the winding-up²⁶⁰and up to the $100,000 insured limit.²⁶¹

Prior to making the payment and with the approval of OSFI or the appropriate provincial supervisor if a provincial institution, the CDIC is permitted access to all records of the member institution relating to deposit liabilities and may make enquiries of directors, officers, auditors, or receivers in this regard,²⁶²with the costs of the examination to be paid by the member institution.²⁶³

Once payment of the insured deposit has been made, the CDIC is discharged from all further liability.²⁶⁴

When a payment is made, the CDIC is subrogated to all the rights and interests...