In the wake of three regional bank failures in the United States, some Canadians are eyeing their own banking system with trepidation, with a few even withdrawing their cash just to be safe.
More than half of Canadians, or 56 per cent, say they’re worried the country’s banks could fail in the face of a financial crisis, according to a recent survey conducted by WealthRocket, a personal finance site. Younger generations are most worried about the prospects of a collapse, and 64 per cent of those between the ages of 35 and 44 say they’re concerned, along with 63 per cent of those aged 25 to 34.
Such concerns are translating into fear over the safety of their deposits, and 28 per cent say they are at least somewhat worried their money is in danger. Another 29 per cent fall into the “very” or “extremely worried” category. Only 19 per cent have no qualms at all.
Those worries have led 58 per cent to take steps to shield their money in case of trouble, and 22 per cent have gone so far as to have pulled money from a Canadian bank in the past 30 days. Others have taken less drastic steps to move cash, such as transferring to an investment account or another financial institution, or bought alternative assets, such as cryptocurrency and precious metals such as gold.
The survey results offer a glimpse into the mood of Canadians as turmoil rocks the U.S. banking sector. “There’s a lot of fear and panic going around,” David-Alexandre Brassard, chief economist at Chartered Professional Accountants Canada, said in WealthRocket’s report.
In March, Silicon Valley Bank became the largest U.S. bank to collapse since the height of the 2008 financial crisis, and the second-biggest failure in U.S. history. Days later, Signature Bank followed suit. Next came the forced sale of First Republic Bank to JP Morgan & Chase Co. in April. In the midst of the failures, shares of regional banks have been volatile as regulators scramble to stem panic over the banking system. Industry watchers say more turmoil and further failures may lie ahead.
But experts say a major bank collapse in Canada isn’t a likely scenario. Canada has only 34 banks, including the Big Six major institutions, compared to 7,000 in the United States, and all must follow strict regulations. Further, Canada’s banks are well-diversified and profitable, giving them ample cushion in the event of even a hint of trouble. “Canadian banks are some of the most profitable in the entire world,” Brassard said in the report. “They’re not in an uncomfortable financial situation.”
They’ve also weathered previous upheaval in one piece, only to emerge stronger. Bank of Canada deputy governor Toni Gravelle said in late March that the Canadian banking system is even more resilient now than during the 2008 financial crisis. He also said the central bank is “ready to act” to shore up the financial system in case of contagion from the current turmoil.
Bank failures in Canada are relatively rare, with the last occurring in 1996, when Calgary-based Security Home Mortgage Corp. closed, affecting $42 million belonging to 2,600 depositors, according to the Canada Deposit Insurance Corp. (CDIC). Meanwhile, the United States has had 564 banks fail since 2001, data from the Federal Deposit Insurance Corp. shows.
Canadians might also sleep better knowing their bank deposits are protected by CDIC, a Crown corporation. If a bank fails, CDIC guarantees deposits of up to $100,000, per account category. There’s a chance that limit might be boosted, too. Ottawa said in the 2023 federal budget that it is exploring increasing the maximum amount CDIC insures. CDIC coverage on bank deposits is automatic, meaning you don’t have to apply for it, and is designed to give people access to their money in a timely manner in case of a failure. For example, in 1996, the Crown corporation made payouts to all Security Home Mortgage customers within three weeks.
If that isn’t assurance enough, people can also rest easy knowing that regulators are watching the banking system very closely, and will act quickly if needed, Brassard said. “Spotting a bad apple when you’ve got six banks is not hard,” he said. “If one of them is going astray, you’ll see it quite fast.”