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Deposit Confiscation: Can it happen here?

Should those with bank deposits in the eurozone (and perhaps the other 10 European Union countries) be concerned about the possibility of a 'Cyprus event' coming 'soon to their neighbourhood'. To varying degrees, depending on a European Union countries current and prospective economic condition - 'possibly', and as of yesterday 'probably', see It's Not Just Reggie Warning Irishmen Anymore As Irish Presidency of the European Council Says Capital At Risk.

What about depositors in Canada. While I think likely less so, I suggest this is something to at least consider and 'think about'.

In past weeks a number of bloggers and commentators have picked up on language found in a November 2011 G20 Policy Statement headed Policy Measures to Address Systemically Important Financial Institutions, and in March in the Canadian Federal Government's Economic Action Plan for 2013, that states (at page 145):

"The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital."

As you may know, this statement created what has been described as 'a tremor' in the Canadian fixed income community. As a result, a (Toronto) Globe and Mail article on April 2 titled Ottawa clears up confusion over bank 'bail-in' carried a story in which the Canadian Finance Minister's Press Secretary was quoted as saying:

"The bail-in scenario described in the Budget has nothing to do with depositor's accounts and they will in no way be used here. Those accounts will continue to remain insured through The Canada Deposit Insurance Corporation".

Interesting, and fine as far as it goes, until one focuses on the fact that The Canada Deposit Insurance Corporation insures deposits at individual banks only to the extent of $100,000. Smacks a little of Cyprus, or at least enough that I decided to follow up. In summary, the best information I have been able to glean to date is that:

  • money deposited or 'invested' in any form of savings account that is held by a Canadian bank or Canadian bank subsidiary (including its 'financial markets' arm(s)) is a 'bank deposit'. Hence the depositor of any money in such an account is an 'unsecured creditor' of the bank; and,

  • money 'invested' in any Canadian bank or Canadian bank subsidiary account that in turn is invested by the bank on behalf of the depositor in securities - including short term treasury bills or other short-term financial instruments - is deemed to be an amount held on behalf of the investor in circumstances where the investor is the owner of those securities.

Accordingly, in Canada and irrespective of the statement made on April 1 by the Canadian Finance Minister's Press Secretary, if the foregoing is correct, in theory any amount in excess of $100,000 held in any Canadian bank in any form of savings account could be subject to 'bail-in' confiscation.

Two clear qualifications with respect to the foregoing:

  • I have not researched the question of what is a 'deposit' in any country other than Canada, which countries each will have their own different laws and interpretations; and,

  • the foregoing should not be taken by any reader to be either legal or investment advice. Rather, it is provided to readers in an attempt to better enable them to speak with their own legal counsel and investment advisors with respect to any monies they hold on deposit with their bank(s) in the form of cash or 'near cash' if a reader elects to do that.

You might also want to read It's Not Just Reggie Warning Irishmen Anymore As Irish Presidency of the European Council Says Capital At Risk that among other things reports that the Irish Presidency of the European Council has just put forward a proposal that would see uninsured deposits over 100,000 euros be 'bailed in' in the event of future European bank collapses. Under this proposal depositors would rank above other creditors in the even of a bank wind-down - with this 'ranking' to be known as 'deposit preference'.

All this a 'to be forewarned is to be forearmed' commentary. Again, I suggest you speak with your legal and investment advisors if you have concerns and questions around bank and investment bank deposit issues.

Topical References: It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors, from Resilience, Ellen Brown, March 30, 2013 - reading time 4 minutes. Also see:


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