Overview
Canadian banks, trust companies, loan companies, credit unions, deposit-taking insurance companies, pension funds and retail associations are regulated and examined for safety and soundness by the Regulatory and Supervisory Practices Division of the Office of the Superintendent of the Financial Institutions Canada (“OSFI”). According to the OSFI web page, Canada has:
- about 15 banks in addition to the big five.
- about 50 trust companies (including foreign ones);
- five cooperative credit unions (with assets of, at most, $5B);
- a retail association (Concerta Financial Services Assn. with $4B in assets); and
- fourteen loan companies (a few foreign).
According to Investopedia there are over 1,000 caisses populaires in Canada, defined as:
A cooperative, member-owned financial institution that fulfills traditional banking roles as well as diverse activities such as lending, insurance, investment dealing. Caisses Populaires are primarily found in the province of Quebec in Canada, as caisses populaires are essentially the francophone equivalent of a credit union.
The largest caisse populaire, which also has banking and insurance affiliates, is Caisse Populaires Desjardins. Credit unions and caisse populaires are regulated by provincial authorities.
The big five banks in Canada ranked according to asset size for fiscal year 2007 are:
- Royal Bank of Canada (“RBC”) — $600B
- Toronto-Dominion Bank (“TD Bank”) — $422B
- Bank of Montreal (“BMO”) —
- Bank of Nova Scotia (“Scotia Bank”) — $412B
- Canadian Imperial Bank of Commerce (“CIBC”) — $342B
Canadian Bank Rankings and Ratings for Safety and Soundness
All of the big five Canadian banks and the largest credit union (Caisse Centrale Desjardins) are rated in the list of the world’s 50 safest banks according to GlobalFinance magazine as of August 25, 2009: RBC (10), TD Bank (14), Scotiabank (22), Caisse Centrale Desjardins (26), Bank of Montreal (31) and CIBC (37). The rankings were based on the banks’ Moody’s, Standard & Poor’s, and Fitch long-term credit ratings and on their total assets. For the sake of comparison, GlobalFinance ranks Bank of New York Mellon Corporation at 32, J.P. Morgan Chase & Co. at 39, Wells Fargo & Co. at 42, U.S. Bankcorp at 47 and Northern Trust Corporation at 49.
In October, 2008, it was reported that a survey conducted by the World Economic Forum found that Canada’s banks are thought to be the safest globally [http://www.financialpost.com/news-sectors/story.html?id=870688]. The World Economic Forum’s Global Competitiveness Report based its findings on opinions of executives, and handed banks a score between 1.0 (insolvent and possibly requiring a government bailout) and 7.0 (healthy, with sound balance sheets). Canada’s banks scored 6.8, compared to US banks, which scored 6.1 (and ranked 40th world wide).
Toronto-based ratings agency DBRS [http://www.dbrs.com/], the largest Canadian ratings service, rated the deposits and senior debt of Canada’s big five banks (as of July, 2009) and Caisse Centrale Desjardins (as of April, 2009) “AA” (with “AAA” as its highest rating) and the short term instruments as “R-1 (high).” All had trend ratings of “stable” except CIBC, which had a negative trend rating.
In a press release dated November 24, 2008, Moody’s changed its outlook for RBC to “negative” due to concerns about write-downs in its US subsidiary, although the Canadian bank’s “Aaa” rating for long-term deposits and “B+” rating for bank financial strength remained unchanged (a rating which was confirmed in April, 2009). In March, 2009, Moody’s also changed its outlook on Caisse Centrale Desjardins to “negative” from “stable” and it affirmed the credit union’s ratings of “C+” for bank financial strength, “Aa1” for long-term deposits, and “P-1” for short-term obligations [see www.allbusiness.com/banking-finance/financial-markets-investing-funds/11919119-1.html].
Standard & Poor’s ratings for the five largest banks in Canada and its largest credit union (current on the date of this memo) are:
- RBC AA-/Positive/A-1+
- Toronto-Dominion Bank AA-/Stable/A-1+
- Caisse Centrale Desjardins AA-/Stable/A-1+
- Bank of Montreal A+/Stable/A-1
- Bank of Nova Scotia AA-/Stable/A-1+
- CIBC A+/Stable/A-1
Deposit Insurance
Qualifying deposits with member banks are insured by the Canada Deposit Insurance Corporation (“CDIC”), a federal Crown corporation created by Parliament, up to $C 100,000 (as of September 6, 2009) per institution (see). The CDIC website states:
Some financial institutions that take deposits are NOT members of CDIC—for example, credit unions and caisses populaires, Canadian branches of foreign banks and some Canadian chartered banks. Your deposits with credit unions and caisses populaires may be covered by provincial deposit insurance programs. Canadian branches of foreign banks, and those Canadian chartered banks that are not CDIC members are required by law to inform you that they are not CDIC members and that your savings at such banks are not insured.
CDIC insures Canadian dollar-denominated savings accounts, checking accounts and guaranteed investment certificates (“GICs,” which are analogous to US certificates of deposit) and other term deposits with original maturities of five years or less held at member banks. CIDC also insures money orders, certified checks and bank drafts issued by CDIC members and debentures issued by loan companies. The insurance covers only Canadian dollar-denominated financial products. Jointly held accounts are covered separately. See,GICs and Other Term Deposits. Not covered by CIDC insurance are:
- any deposits in foreign currency (such as bank accounts in US dollars)
- mutual funds and stocks
- GICs and other term deposits that mature in more than 5 years
- bonds
- Treasury bills
- accounts held in US dollars or any other foreign currency
- accounts or products that are held in banks or other financial institutions that are not members of the CDIC
The Financial Consumer Agency of Canada [http://www.fcac-acfc.gc.ca/eng/consumers/FAQs/QAView-eng.asp?id=247] tells us that certain Canadian insurance products, such as segregated funds, are also insured, although not by CDIC. Segregated funds are similar to mutual funds in that the investor’s money is pooled with the contributions of other investors to purchase a portfolio of securities. These are kept and managed separately (“segregated”) from the general assets of the company that sells the product. The Canadian Life and Health Insurance Compensation Corporation (Assuris), a private, not-for-profit corporation established and funded by the Canadian life insurance industry, provides up to a maximum of $100,000 in insurance for these products.
US accountholders are eligible for CDIC insurance as long as other conditions of insurance (e.g., Canadian dollar denomination) are satisfied.
Deposits in credit unions and caisses populaires may be insured by provincial deposit insurance plans.
Some Canadian Banks Do Not Accept U.S.-Resident Accountholders
Due to strict bank regulatory requirements in Canada similar to the US “know your customer” rule, many banks to do not offer accounts to non-Canadians who are not living, studying or working in Canada or intending to immigrate to Canada. Generally, those banks that do accept US accountholders either require that an account be opened in person at a Canadian branch or place restrictions on the accounts as “investor” accounts.
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