Ottawa weighing plans for bank failures
By Neil MacDonald
April 3, 2013
Buried deep in last month's federal budget is an ambiguously worded section that has roiled parts of the financial world but has so far been largely ignored by the mainstream media.
It boils down to this: Ottawa is contemplating the possibility of a Canadian bank failure — and the same sort of pitiless prescription that was just imposed in Cyprus.
Meaning no bailout by taxpayers, but rather a "bail-in" that would force the bank's creditors to absorb the staggering losses that such an event would inevitably entail.
If that sounds sobering, it should. While officials in Ottawa are playing down the possibility of a raid on the bank accounts of ordinary Canadians, they chose not to include that guarantee in the budget language.
Canadians tend to believe their banks are safer and more backstopped than elsewhere in the world. The federal government enthusiastically promotes the notion, and loves to take credit for it.
It may well be true, even if Canada's six-bank oligopoly isn't terribly competitive, at least in comparison to the far more diverse American banking universe.
But in the ever-more insecure world that has unfolded since the financial meltdown of 2008, it is also increasingly clear that nothing is safe anymore, not even blue-chip bank stocks and bonds or even, in the case of the Cyprus bail-in, private bank accounts.
And now, Canada is making a bail-in official government policy, too...
Read the rest here.