Question

Question need be discussed in this chapter:

"Are the Canadian bank is safer than American bank? Provide explanation and sources for evidences.? What would happen if one of the major Canadian banks were bankrupt. What are the list of protections can be made for the depositors at that bank?"

Answer 1

Yes, Canadian bank is safer than American Bank. Explaination and soureces for evidences are:-

While there are only 28 domestic banks in Canada, in the U.S. that number exceeds 7,000. Even when considering differences in population size, the U.S. is a more crowded space, and its banking environment is more competitive. As a result of this competition, in the last few years U.S. banks took more chances and subsequently created a less stable financial system — e.g. the Savings & Loan crisis.

Because there are fewer banks in Canada, its financial system is more concentrated. And the “Big 6” in Canada (Toronto Dominion, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada) control more than 85 percent of $3.955 trillion in domestic assets. Although highly concentrated, Canadian banks are generally more diversified, with expansion into wealth management, insurance, deposit and loans, and brokerage services.

Also, because of the fewer number of Canadian banks, Canadian regulators are more involved in everything the banks do. This includes everything from capital requirements to underwriting standards. This level of scrutiny has helped the Canadian banks be more conservative in terms of risk taking.

By comparison, the “Big 5” in the U.S. (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs) control 44 percent of the $15.3 trillion in assets held by U.S. banks, according to data compiled by SNL Financial.

According to Canadian payments expert Sue Whitney, “In Canada, the small number of major players has resulted in a very coordinated market. Banks move in lock step on pricing, watching each other carefully for changes. A case in point was this year’s account package plan pricing changes, where they all made similar pricing moves within a few weeks of each other.”

Thus, Whitney explained, the smaller number of major players also allows regulators to form closer relationships with banks. Given this concentration, regulators get to know the banks, their risk policies and procedures, and their sources of revenue very well. Politicians also know the bank CEOs very well, and don’t mind calling them to account, using moral persuasion if they don’t behave in a way that is conducive to the government’s agenda. When a major bank cut interest rates on mortgages a few years ago — creating the possibility that Canadians might take on risky levels of mortgage debt — lawmakers expressed dismay and the bank reversed its mortgage rate cut.

Canadian regulators take the position that having a banking license is a privilege and not a right, and that permeates the relationship. For this reason, major banks invest heavily in government relations, and actively manage their relationships and images in the market.

It’s also worth noting that Canada has around 650 credit unions, while the United States has nearly ten times as many.

If Canadian Bank were bankrupt , following protection can be made for the protection for the depositors at that bank :-

If major candian bankrupt , then around 2,600 Canadians discovered that their savings were not immediately available from their financial institution. They had entrusted a total of $42 million in deposits to Calgary-based Security Home Mortgage Corporation, which had closed its doors for good. The news must have momentarily sent a shiver of fear through each of its clients. Fortunately, this failed financial institution was a member of the Canada Deposit Insurance Corporation (CDIC) so customers’ eligible deposits were protected up to $60,000, per separate insured category. Coverage was free and automatic, no one ever had to apply for it, nor did they have to file a claim, payment was automatic. Within a span of three weeks, CDIC made payment of all insured deposits.

That was 20 years ago. CDIC can now pay out depositors in a matter of days. Since its creation in 1967, CDIC has stepped in following the failure of 43 member institutions like Security Home. In fact, during the past five decades, it has protected more than two million people holding about $26 billion in insured deposits at these failed institutions. No one has lost a single dollar under CDIC protection.

Although bank failures are rare in Canada, CDIC is there to protect deposits at its member institutions, big or small. In the case of larger members, CDIC has plans to ensure that all of us would have ongoing access to our deposits and day-to-day banking services.

But some things are not protected by CDIC. For example, stocks, bonds, and mutual funds are not covered. Also, it’s important to know that accounts in foreign currency such as U.S. dollars are also not covered.

Take steps to ensure that your money is safe by becoming informed about CDIC’s member institutions, insured categories, and limits. Talk to your financial advisor or ask about CDIC where you bank or invest.