What would happen if the banks in Canada collapsed?

Images of long lines outside ATMs in Greece—where banks have been shuttered for more than a week and citizens are only able to withdraw up to 60 euro ($84) per day from machines —have many Canadians wondering if the same crisis that has a chokehold on Greek money could happen at home. Could Canada’s banks ever inch that close to the abyss, and what would happen to all those savings accounts should the unthinkable happen? 

The answer depends on where and how you have your cash stashed. But the short response is, you probably don’t have to worry.

In fact, even in Greece, the banks have not collapsed—at least not yet. Cash withdrawals are capped and wiring money between domestic banks or overseas is prohibited (the government is trying to keep money from leaving Greece), but most Greeks have been able to shop using their debit and credit cards within the country. Only now are some stores insisting on only cash purchases, according to reports.

Sadly, Greek pensioners who do not have debit cards because they never switched to machine banking are certainly burdened, and Greeks abroad have found their cards denied, leading to more than one case where vacationers found themselves penniless andstranded abroad. Businesses that rely on purchasing international imports are running low on stock and many wonder how much longer ATMs will have paper bills at all. Yet savings accounts actually remain secure for now partially because Athens enacted these very capital control measures. If enough of the population were to panic and trigger bank runs in the face of the economic crisis, as began to happen in June, many financial institutions would not be healthy enough to survive. 

Your savings are probably already insured

In Canada, however, banks are relatively much safer. According to industry advocates, they are generally considered to be well-regulated, well-managed, and well-capitalized. Banks tend to fall because of bad loans, mismanagement, or a bank run; the last time a bank shut its doors in Canada was more than 20 years ago.  

That said, there is some disagreement about Canada’s “too boring to fail” banking system. Economists at the Canadian Centre for Policy Alternatives have warned against overconfidence and argue that the nation’s banks, like banks in any country, are not immune to global crises.

But there is yet another safeguard in place—beyond strident regulations —that is designed to protect billions in savings: deposit insurance.

The vast majority of the country’s banks are members of the Canadian Deposit Insurance Corporation (CDIC), a crown corporation created in 1967 after a spate of bank closings across the country.

If a bank were to go under, the CDIC would step in and choose one of a few possible actions to preserve clients’ savings. It could help sell the bank to another institution, force the bank to restructure in a way that would make it viable again, or liquidate the bank and pay out deposits to its customers. (Provincial entities provide a similar function for credit unions and a few provincial banks.)

Any Big Six bank seen to be at risk of defaulting would be forced into a sale or restructuring, and customers would most likely be able to keep banking as usual, with all of their insured savings (up to $100,000 per eligible account) moved over, says Brad Evenson, CDIC’s director of communications and public affairs.

Should you need to protect fortunes beyond $100,000, you’re advised to divide your funds into multiple accounts or categories. (See “What’s Covered” below.)

In the case of a smaller bank’s liquidation, the CDIC itself would return funds to the bank’s depositors—again, covering up to $100,000 per eligible account—in a lump sum cheque. It once took weeks for such cheques to be distributed, but the CDIC can now manage to have them mailed out in a matter of days.

So, if your small bank went under and closed its doors entirely, you would soon have a government-backed check in hand. You could then open a new account at a presumably sturdier bank. (Alternatively, you could buy a Chanel bag as an investment, or hide the money under a loose tile in your bathroom, as some understandably fearful Greeks have chosen to do this year.)

What’s covered?

Only some account types are insured by the CDIC, including savings and chequing accounts, GICs (with an original term to maturity of 5 years or less), money orders, travellers’ cheques and bank drafts. All must be issued in Canadian dollars. 

Because the CDIC exists to preserve savings, it’s not a failsafe for money gambled on the markets, so products like bonds, treasuries, mutual funds, and stocks are not eligible for coverage. And while RRSP and RRIFs and other special accounts may be insured, but only under certain circumstances.

Other money lost during a liquidation—the balance of a U.S. fund account, for example—might be restored if a customer makes a claim against the bank’s new holding company, just like any other bank creditor would have to do. “In Canada, there have been 43 bank failures, affecting close to 2 million Canadians, since 1967 when the CDIC was created,” says Evenson, “and not one has lost a penny in insured deposits.”

Unfortunately, the Eurozone doesn’t have an equivalent to the CDIC, or the Federal Deposit Insurance Corporation (FDIC) in the United States. And that’s one of the many reasons why Greece’s banks are in such a terrible bind.