Canada’s new “bail-in” regime. Why you do NOT want to have your money with the banks!

Earlier this year,the Canadian Government had unveiled the budget which outlined their objectives and goals, as well as some policies they were looking to implement going forward. One of the things they did was introduce legislation that would implement a “bail-in” regime. That’s right, not “bail-out”, but “bail-in”. Now, this largely went un-noticed and under-reported, but this is probably one of the most important aspects of the budget that Canadians do not understand.

What is a “bail-in”?

In English, this new legislation will allow the top 6 Canadian Banks (RBC, TD, Scotia, BMO, CIBC, National Bank) to use their depositors money to bail themselves out. Yes, you read it right. Your hard-earned money sitting at the bank can be used to bail them out, without any notice or permission required from you.

The exact wording from the budget is this (page 223 of the 2016 Budget):


Introducing a Bank Recapitalization “Bail-in” Regime


To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditors are responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating. Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail”.


Translation: In the event a bank fails, the Government would allow the assets of the bank’s creditors (i.e. all of us) to be absorbed into the bank’s capital in exchange for common shares of the bank (which aren’t going to be worth much anyways since it the bank is failing).

One important thing to note is that all deposits made at the bank are considered a ‘debt’ for the bank, as it is something that needs to be paid back to the customer. This is why understanding the wording of the budget is important. The wording states “converting eligible long-term debt”, which means, converting your deposit money into shares of that bank. Another thing to note is that they started off with saying “To protect Canadian taxpayers…”, but what it really means is the government is no longer going to protect the banks, and we are all going to flip the bill for the banks’ screw-ups. Wait, then, what use is CDIC (Canadian Deposit Insurance Corporation) to us?

Why is this important?

Having this legislation in place also will give the banks the ability to freeze deposit accounts and/or restrict or limit the amount people can withdraw from their own accounts. It was only 3 years ago when this was implemented in Cyprus, which created some serious backlash and hardship there. Imagine what would happen if the banks failed. What would the overall economic situation look like? How would you feel if you were not able to have access to your own money? How would your overall financial situation be impacted if you couldn’t access your own hard earned money to pay your bills or feed your family? With the new legislation, this is something that may become a reality.

Here’s a great video that describes in detail about what a “bail-in” is.

Last week I wrote an article titled “Real Estate & Market Bust? Follow the Leaders!“, which touched upon certain activities happening in the market, specifically some insider trading/sales. It seems all these things that are happening are pointing to something drastic that might (or will) happen in the markets.

What are the next steps?

First, do your homework! We all need to be educated and aware on what’s really going on around us. In a world where it seems all of our rights and privileges are being trounced on, we need to understand how all these new rules and laws affect our own situations.

Second, as much as possible, try to take as much as you can OUT of the bank. Does this mean that you keep your deposits sitting in a safe at home in cash, or that you go and buy some silver/gold with your excess cash or even take your money and put it into a smaller credit union? That’s something that you need to discuss with an Elite level Financial Advisor to make sure you are structuring your finances effectively. The main thing is that you need to take steps to protect yourself from the greed and stupidity of the banks and government.

Third, spread the word! Share this information with your friends, family, colleagues/co-workers, etc… The more awareness that can be created, the better, as right now this information is largely unknown.

What about my RRSP/TFSA/RRIF etc..?

Well, at this point I’m not really sure if those plans will also become ‘victims’ of this bail-in regime, but I definitely would not want to risk it. I would say to sit down with an INDEPENDENT (not bank) Financial Advisor/Planner to structure your investment and retirement plan in the most efficient and protected manner. Essentially, if you have any investments at the bank, you might really want to consider moving them out. Where you move them would depend on your overall financial situation, risk tolerance, time horizon, objective etc…, but an Elite level Financial Advisor will be able to provide you with all the options and their pros/cons. This way at least you have all the information you need to make the most informed decision for yourself.

Investment Planning

All these things happening over the last couple of years seem to signal some sort of (major) market downturn — many are saying it can/will be worse than 2008. So, what should you do with your investment portfolio? The reality is, if you’re in a traditional Mutual Fund or Segregated Fund, there isn’t much (if any) downside protection. There’s no defensive strategy. This means, if the market tanks, and you’re still invested, your portfolio tanks with the market.

One great option is to have Tactical Money Management which provides you with both an ‘offensive’ and ‘defensive’ strategy. This allows the Portfolio Manager to get in and out of the market in a timely and efficient manner, when they see fit, to help minimize or negate any losses.

Want to know your options? I can definitely help with that!