Bank scares in the United States and Switzerland have prompted the federal government to grant itself extraordinary powers to stem any financial panic in Canada, a parliamentary committee heard on April 27.
Testifying before the Standing Committee on Finance, Rachel Grasham, a senior director with the federal finance department, said those powers will be used “only in exceptional sort of emergency situations.”
“The purpose of that is to really allow the minister and the government to bring forward a temporary measure, under extreme circumstances, just to help promote financial stability and safeguard public confidence in the system,” Grasham testified, as first reported by Blacklock’s Reporter.
Grasham was responding to NDP MP Daniel Blaikie, who asked why the Liberal government “feels those authorities should be granted” pertaining to the Canada Deposit Insurance Corporation (CDIC) Act.
“There are some extraordinary powers being conferred to the minister of finance in respect to the Canada Deposit Insurance Corporation and deposit insurance amounts,” he said, referring to the amendments proposed in a bill sponsored by Finance Minister Chrystia Freeland on April 20.
Known as Bill C-47, the 430-page omnibus budget bill seeks to amend the CDIC Act by allowing cabinet to guarantee deposits in case of a bank run to “the amount that the Minister [of Finance] determines” if it is deemed “necessary to promote the stability or maintain the efficiency of the financial system in Canada.”
‘Potential Bank Runs’
“Can you describe for the committee the kinds of circumstances that might trigger the use of this power?” Blaikie asked.
“In the event that there is instability, concerns around potential bank runs, etc., as we saw in the U.S., the minister would be poised to be able to step in and bring forward a measure,” Grasham replied.
The bill follows the March 10 collapse of Silicon Valley Bank of Santa Clara, California; the failure of Signature Bank of New York on March 12; and the March 19 purchase of faltering Credit Suisse of Switzerland by rival UBS Group AG.
“The thinking is that given the current situation and the banking turmoil that we saw in the U.S. and in Switzerland, it was a prudent thing to do,” said Grasham.
The CDIC, a Crown corporation established in 1967, safeguards deposits at dozens of member institutions—including banks, federally regulated credit unions, as well as loan and trust companies.
It currently insures eligible deposits for up to $100,000 at each member institution, for each of nine different categories of accounts such as joint accounts, tax-free saving accounts, and deposits held in registered retirement saving plans.
Although if passed, the bill will grant Freeland the ability to raise the existing deposit insurance limit to over $100,000, Grasham said those authorities are “temporary.”
“The new authorities, the proposed authorities rather, are time-limited. They’re set to expire on April 30, 2024,” she told Blaikie.
The committee learned this won’t be the first time the finance minister was given such authorities.
“There is a precedent in the early days of COVID. Under the … special emergency legislation, the minister was granted this power,” Grasham said.
“It also had an expiry date, and it did expire, and it was never used.”
The COVID-19 Emergency Response Act, which received royal assent on March 25, 2020, allowed Freeland to decide “a greater amount” for the deposit insurance limit should she deem fit.
That section of the act expired on Oct. 1 that year.