CDIC member institutions operate under a regulatory environment to induce prudent behaviour, promote sound and prudent practices, and prevent problems.



In certain circumstances, CDIC, the Office of the Superintendent of Financial Institutions or provincial regulators may find it necessary to take action to minimize the risk of failure in a CDIC member institution. In such situations, a graduated approach is usually taken to resolve the problems.

First, potential problems are identified and assessed. A variety of statutory and other measures are used to identify and control problems as they arise.

Where minor difficulties are found, several options are available to regulators and CDIC. Regulators may:

• issue notices of violations, or breaches of relevant legislation, regulations or guidelines
• remove approvals required by legislation
• require undertakings and/or other conditions
• place restrictions, terms or conditions on an institution's licence to carry on business
• issue the institution directions of compliance.

When warranted, CDIC may intervene. For example, we may request further information from the member institution.

Situations are often resolved at an early stage without using more drastic measures.

More serious difficulties relate to liquidity or solvency problems. In such situations, CDIC may consider it necessary to conduct a special examination of the member institution. In these cases, CDIC and the Office of the Superintendent of Financial Institutions or relevant provincial regulators jointly determine the scope of the examination. The findings and conclusions of the examination are shared among CDIC and the relevant regulators.

Where CDIC is concerned with the solvency or viability of a member institution, it could take actions, such as:

• implementing action plans regarding the amalgamation or sale of a problem institution
• acting as liquidator, receiver or inspector of a member institution or a subsidiary (when duly appointed).

A large part of CDIC's risk management role is participating in working out the problems of member institutions. CDIC strives to find a solution for potentially insolvent institutions. We determine, and then pursue, the solution in a way that will minimize our exposure to loss in compliance with statutory objectives.

In the case of a sale process, CDIC works with the management of the member institution to ensure that all interested parties have an equal opportunity to buy the institution. CDIC must be satisfied that the end purchaser has the capability and capacity to acquire the institution. In the case of a liquidation process, CDIC expends substantial resources in developing processes and strategies in the event that no other solution is found. Payment of insured deposits is highly complex and requires a significant amount of planning.

To date, CDIC has never acted as a liquidator or receiver of a failed member institution. CDIC is usually the largest creditor and therefore subject to perceived conflicts. Firms competent in bankruptcies and liquidations are retained by the court, with CDIC's support. Conflicts can thus be reduced substantially since the liquidator is an officer of the court and has a duty to act in the creditors' best interests.




Last modified : 3 November 2006