As the great Queen song goes, “another one’s gone, another one bites the dust”. I woke up to the news that another bank has failed today. This time it was another troubled California lender, First Republic Bank.
Regulators seized their assets early this morning and most of it’s assets and all of it’s deposits were sold to JP Morgan Chase in a bid to stabilize the banking sector. This was the 3rd large US bank to fail this year, 4th large banking failure if we include Credit Suisse who had to be reluctanly taken over by UBS.
What causes this you may ask? Well it all starts with a run on deposits when large sums of money are withdrawn from the bank as people hear rumours that their money won’t be safe. Basically it is an evaportion of confidance that they will be able to protect the money that you have on deposit with them. When the confidance is lost then the bank will quickly fail if enough of the deposits are withdrawn.
Can a bank fail here in Canada? While possible, it is highly unlikely. Since the Canadian Deposit Insurance Corporation was established in 1967 there have been 43 bank failures. However in the US there have been more than 500 since the year 2000. For instance the Canadian banking sector is made up mostly of the big 5 well capitalized banks whereby the US have smaller or mid-sized regional banks spread across the country.
How do you protect yourself? Make sure that your bank is a member of CIDC. This means that your deposits of up to 100,000 are fully protected. This covers your chequing and savings accounts, TFSA’s, tax free home savings accounts, RESP’s, RRSP’s, Disability savings plans, RRIF’s and trust deposits. There are also calls to increase the coverage as the US FDIC covers up to 250K US or 330K CDN.
It is important to also do your own research on the stability and financial health of the bank you choose to do business with. Check their credit ratings and financial statements to ensure they are not at risk of failing. Diversifying your investments and keeping some cash on hand can also provide some protection in case of a banking crisis. Overall, while bank failures may be a rare occurrence in Canada, it is still important to take precautions and stay informed about the stability of your financial institution.
Today I am thankful that I finely have all my kids home, that my girls has a great 1st year at university and that I made it though running every day in April.
I look forward to hearing from you in regard to your mortgage needs.
p.s.s- I should tell you that I am licensed in Nova Scotia Brokerage (2022-3000179) Broker (2022-3000180), Ontario(M18001555) & in British Columbia(BCFSA #504098).
p.s.s.s You can download my new mortgage app here