GRI advocates for reform in CDIC deposit insurance

GRI highlights technology's impact on finance, urging reforms in Canada's outdated deposit system

GRI advocates for reform in CDIC deposit insurance

The Global Risk Institute (GRI) has released a comprehensive report emphasizing the need for a significant overhaul of Canada's deposit insurance system.

Announced via Newswire Canada, the report suggests an increase in insurance coverage and a more adaptable structure to better serve individuals and small businesses while maintaining the stability of the banking system.

GRI's president and CEO, Sonia Baxendale, stresses the necessity for an updated approach to enhance the system's resilience against contemporary and future risks. The report aims to align with these objectives while maintaining public confidence in the system.

A key concern highlighted is that the Canada Deposit Insurance Corporation's (CDIC) coverage levels have remained stagnant despite economic growth. With Canada's GDP doubling since 2005 and the TSX index rising by 72 percent, CDIC's coverage has not kept pace.

This stagnation contrasts sharply with international trends, where countries typically offer higher coverage limits. For instance, post-financial crisis, the US raised its insurance coverage to US$250,000, whereas Canada's remained at $100,000.

GRI underscores the critical role of deposit insurance as a macroprudential tool and outlines several recommendations to enhance the system.

These include raising the statutory/basic coverage to $250,000 per account, offering voluntary coverage of $500,000 per account for personal and $5,000,000 per account for business, and allowing unlimited excess coverage determined by the insurance provider.

The institute points to technological advancements as a driving factor for these reforms. The rapid deposit run at Silicon Valley Bank in 2023, fueled by social media and digital technology, exemplifies the changing operational landscape for financial institutions.

Gerard McDonald, managing director and head of research at GRI, notes that technological changes, along with anticipated future shocks from climate change, demographic shifts, geopolitical changes, and advances in AI, necessitate a reformed deposit insurance system initially designed over 50 years ago.