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September 16, 2016 | Show Us The Money

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


On a sleepy Friday in Ottawa the feds signaled they intend to overhaul the plan that protects Canadian bank accounts. About time, eh?

As you may know, you have coverage of up to $100,000 for you, your spouse plus with a joint account. In general, coverage is restricted to savings accounts, braindead GICs and moribund term deposits, all with a shelf life of under 5 years. The insurance is per institution, so if you have a million saved and want coverage, you must deal with multiple banks. Some provinces have unlimited coverage of deposits at credit unions, but good luck with that.

Well, is this adequate? Are the feds finally about to raise that paltry limit, the way governments did in Europe and the US during the 2008-9 crisis? After all, investors who have their net worth in accounts covered by CIPF (Canadian Investor Protection Fund) enjoy insurance of $1 million each for registered accounts, and up to another million for non-registered ones. Does it make any sense that a dude with stocks and bonds and an investment savings account gets $2 million in coverage and the schmuck with $200,000 in CIBC GICs is only 50% protected?

Meanwhile, to the south, coverage is vastly higher – $250,000 per person, per bank, protecting not only cashable savings but registered retirement accounts and a few other key vehicles. The increase to that level was a dramatic response to the credit crisis which resulted in the shiving of a few high-profile banks.

Well, guess what? Ottawa is launching a review of CDIC and asking for input, but there are zero plans to increase the insurance, says finance guy Bill Morneau. So much for consultation. Says his department:

“The review indicates that major changes to the framework are not required and that the current $100,000 limit remains appropriate. The analysis undertaken for the review indicates that raising the deposit insurance limit would not enhance protection to the savings of the vast majority of individuals in Canada, whose deposit accounts are currently covered under the framework. In line with international best practices, Canada’s framework covers the large majority of depositors but leaves a substantial amount of deposits exposed to the possibility of loss in the event of a bank failure. Therefore, uncovered depositors have an interest in the risk management practices of the member institution.

“Increasing the limit would provide a proportionally higher benefit to corporate depositors, while increasing CDIC exposure which would need to be offset through additional premiums paid by CDIC member institutions.”

If this logic sounds vaguely familiar, you must have a TFSA. It echoes the T2 decision to gut the tax-free account contribution limit because ‘average people’ aren’t making maximum use of the tax shelter since they’re too busy pickling themselves in debt and buying slanty semis on dodgy streets. Therefore it’s perfectly logical to penalize others who are saving and investing for their futures. Apparently we should all have the same future.

Here’s something else interesting: of the $2.7 trillion Canadians have on deposit with the banks, a shocking 73% of it isn’t covered by any kind of insurance. This is money people and companies have given the banks in excess of the CDIC limit, which is locked into vehicles with maturities of five years or longer, or in foreign currencies. It means that in the event of a bank collapse (ain’t gonna happen), a whole mess of cash could be burned.

So what’s this review all about?

Not much. Morneau plans to eliminate coverage for accounts that banks use to pay taxes on behalf of homeowners, add RESPs and registered disability accounts, cover deposits of more than five years, insure temporarily-high deposits (like when you sell your houses and get a big lawyer’s cheque) and maybe deposits in selected foreign currencies.

Two observations: first, our low level of deposit insurance is a reflection of the dismal state of most people’s affairs. Remember – this is a country where household debt (as of this year) exceeds the size of the total economy. Also, as the Ontario Securities Commission just found out in a poll, 56% of Canadians over the age of 50 have no retirement savings plan, and 22% haven’t even started saving.


So there ya go. Record, epic, historic debt. And most people have no plan. No wonder the feds can say a hundred grand coverage is plenty – since millions will never, ever have that kind of cash, despite the fact they can buy a $1.2 million house. This is the legacy of the cheap-rate, lax-lending policies T2 inherited, and is happy to maintain.

Meanwhile here’s an interesting thought: if you had a million in savings to give RBC, only $100,000 would be covered and you’d get 0.55% from its high-interest account. If you opened an account with RBC’s brokerage arm, your investment savings account would pay 1.2%, and every single dime would be insured.

Don’t tell Bill.

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September 16th, 2016

Posted In: The Greater Fool

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