How Long Can A Bank Hold Money If Withdrawal Requested?

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Park
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How Long Can A Bank Hold Money If Withdrawal Requested?

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There is variability in the interest rates offered on HISAs and GICs. For example, the highest 5 year GIC rate I can find is 3.25% (Oaken), compared to 1.25% from Scotiabank of CIBC.

However, the higher interest rates tend to come from lesser known institutions. A GIC is basically a contract. How confident are you that the institution will be able to meet the conditions of the contract?

"Oaken Financial is the consumer deposit brand of Home Trust, which is owned by Home Capital Group -- the alternative mortgage lender that nearly collapsed this year." - from the next link.

A response is to only have HISA or GICs that have CDIC or comparable backing.

http://cawidgets.morningstar.ca/Article ... ture=en-CA

"...CDIC will aim to reimburse savings, chequing, joint and mortgage tax accounts within three business days. For deposits in trusts, the organization will inform broker-trustees about the process to reimburse insured deposits. Within seven business days of receiving wire/transfer payment information, CDIC will remit payment to broker-trustees.

For registered deposits, CDIC will hold them for several days while it works with the Canada Revenue Agency to ensure they remain tax-sheltered. CDIC will then contact these depositors to inform them of next steps."

So it looks like CDIC will act quickly.

The following is about CDIC, which comes from wikipedia:

https://en.wikipedia.org/wiki/Canada_De ... orporation

"According to the CDIC's 2012 Annual Report, CDIC protects $622 billion CAD in total eligible deposits, and has $2.44 billion CAD in assets to meet insurance claims.[7] This amount represents 0.39% of total eligible deposits. The CDIC is also authorized to borrow up to $19 billion if necessary from the federal government or the financial markets, and may request further funds from Parliament."

From wikipedia, it looks like the last time CDIC coverage was used was for Security Home Mortgage Corporation in 1996. So it been more than two decades since the system was used.

Overall though, I'm confident that CDIC will provide timely deposit insurance.

But assume you want to get your money out of a bank, and CDIC hasn't gotten involved yet? How long can a bank keep your money, if you request a withdrawal?

I sent an email to the Office Of Superintendent of Financial Institutions, and this was the response that I got:

"Although the Office of the Superintendent of Financial Institutions (OSFI) regulates federally regulated financial institutions (FRFIs), our central role is to monitor these institutions for solvency, liquidity, safety and soundness. We do not have authority over matters of individual consumer protection and we are unable to intervene on behalf of individual consumers.

The Financial Consumer Agency of Canada (FCAC) is the government agency responsible for administering the compliance of consumer protection laws and regulations for FRFIs. For further assistance, please visit FCAC’s contact information web page at https://www.canada.ca/en/financial-cons ... ct-us.html."

I sent an email to CDIC, and this was the response that I got:

"Canada Deposit Insurance Corporation (CDIC) is a federal Crown corporation that contributes to the stability of the Canadian financial system by providing deposit insurance against the loss of eligible deposits at member institutions in the event of failure. Eligible deposits are automatically covered to a limit of $100,000 per insured category at each member institution. CDIC members include banks, federally regulated credit unions, as well as loan and trust companies and associations governed by the Cooperative Credit Associations Act that take deposits. CDIC is funded by premiums paid by member institutions and does not receive public funds to operate. For a list of CDIC members, please visit the CDIC website at www.cdic.ca/Pages/Members.aspx<http://w ... mbers.aspx>.

The Financial Consumer Agency of Canada (FCAC) provides consumers with accurate and objective information about financial products and services, and informs Canadians of their rights and responsibilities when dealing with financial institutions. FCAC also ensures compliance with the federal consumer protection laws that apply to banks and federally incorporated trust, loan and insurance companies."

I emailed FCAC, and this was the response that I got:

"FCAC protects consumers by:

· Making sure that banks, federal loan and trust companies, and federal insurance companies obey certain laws that protect consumers called consumer provisions.
· Monitoring agreed-upon codes of conduct and public commitments made by these same institutions and by network operators.
· Informing Canadians about financial services and products and about their rights.
· Telling consumers who they can contact if they have problems that FCAC does not deal with.

Please note that in general, the day-to-day operations and decisions of banks are not regulated by FCAC. Banks determine their own internal policies and guidelines with respect to the servicing of customers, accounts and the products they offer. Banks also determine their own services and accompanying fees, as well as determine their own lending criteria. This includes determining their own standard of service.

It is also important to note that FCAC does not oversee the withdrawals of GICs.

FCAC monitors banks’ compliance with a public commitment called the Canadian Bankers Association’s (CBA) Guidelines for Transfers of Registered Plans. These guidelines are for transfers of deposit type instruments like guaranteed investment certificates (GICs) within RRSPs.

Banks will attempt to process transfers in a maximum of seven (7) business days normally and twelve (12) business days during peak time (February 15 to March 31) from the date the bank receives the complete and accurate form (whether at the branch or the processing centre) or the maturity date of the instrument, whichever is later, to the date that the cheque is mailed to the receiving institution. You can view this public commitment on CBA’s website at www.cba.ca/contents/files/misc/vol_2009 ... ans_en.pdf. "

This is relevant to HISAs and GICs that are maturing soon. ​What happens if you're concerned about the financial stability of the institution, and the CDIC hasn't gotten involved yet?

So the answer to the question is a minimum of 2.5 weeks. Maximum?

If you're thinking about using a HISA from lesser known banks, one should consider diversifying and have 2-3 HISA, in case there is a problem at one.
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Re: How Long Can A Bank Hold Money If Withdrawal Requested?

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CDIC has been discussed in a number of threads, including debate on such questions. Generally speaking, there would be a spontaneous run on deposits of a FI if someone wanted to make a withdrawal and it was not forthcoming 'instantly' or even a rumour of that happening. A matter of only a few days most likely as it occurred with Home Capital.

OSFI and CDIC would step in quickly to see whether the FI is solvent, and if not, would take over the FI, paying out withdrawals and/or selling the deposits to another solvent FI. Probably a matter of a week or so for smaller FIs, but increasing times, maybe months or? for something the size of CWB or BNS.

Such an incident was seamless to me in the 1980s with Principal Trust where I had an RRSP of GICs. Media reported that PT had become insolvent when it became known that CDIC came in and had sold the deposits to someone else. My next monthly statement of account came with the name of the new company on the letterhead. Nothing else had changed.

The system works extremely fast especially with smaller institutions. A host of trust companies went under in the 80s and 90s, a function mostly I think of RE foreclosures and/or delinquent mortgages.

Added: A few more points to ponder. OSFI and CDIC have a rather good idea of the health of the FIs under their regulatory oversight. Short of outright fraudulent regulatory reporting by an FI, OSFI and CDIC know which FIs to monitor closely and as I understand it, CDIC has different tiers of premiums an FI has to pay depending on their risk, such as capitalization. Etc.

Further, can you imagine an FI suddenly not being able to honour auto debits from chequing accounts? Money moves in real time every minute of every day. It is hard to imagine an FI suddenly hitting a wall without regulatory knowledge and intervention.
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Park
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Re: How Long Can A Bank Hold Money If Withdrawal Requested?

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AltaRed wrote: 31 Jan 2018 15:06 CDIC has been discussed in a number of threads, including debate on such questions. Generally speaking, there would be a spontaneous run on deposits of a FI if someone wanted to make a withdrawal and it was not forthcoming 'instantly' or even a rumour of that happening. A matter of only a few days most likely as it occurred with Home Capital.

OSFI and CDIC would step in quickly to see whether the FI is solvent, and if not, would take over the FI, paying out withdrawals and/or selling the deposits to another solvent FI. Probably a matter of a week or so for smaller FIs, but increasing times, maybe months or? for something the size of CWB or BNS.

Such an incident was seamless to me in the 1980s with Principal Trust where I had an RRSP of GICs. Media reported that PT had become insolvent. CDIC came in immediately and sold the deposits to someone else. My next monthly statement of account came with the name of the new company on the letterhead. Nothing else had changed. The system works extremely fast especially with smaller institutions. A host of trust companies went under in the 80s and 90s, a function mostly I think of RE foreclosures and/or delinquent mortgages.
What you've written is reasonable.

For idiosyncratic failure of a smaller FI, the effective maximum may be 3-4 weeks. For idiosyncratic failure of a Big 5 bank, longer. For systematic failure of FIs, ?

Since the higher HISA/GIC rates are coming from the smaller institutions, 3-4 weeks may the most relevant. If your GICs aren't maturing within the next few months, it may not be an issue.
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Re: How Long Can A Bank Hold Money If Withdrawal Requested?

Post by AltaRed »

I had made a small edit in my earlier post which your quote did not capture.

My belief is OSFI and CDIC would already be involved by the time either the media or a depositer would be aware of anything going on, except in a specific case of intentional fraud by a failing FI perhaps, or in the HCG case where the OSC got into a public battle with HCG.

My view is our regulators do not want the public losing faith in the banking system and potentially start a 1930s era panic, so they will be ready to pounce quickly and have at least interim measures in place. I believe any interruption in a deposit holder having access to his/her funds to be short lived, whatever that might be. I suspect regulators know many people live pay cheque to pay cheque and don't want to make the situation worse than it needs to be.

As to maturing GICs, these are presumably investments and not urgently needed funds on a daily basis in any event. It hardly matters if a maturing GIC was in hiatus for a month or so. A few dollars in lost interest perhaps, a minor inconvenience at most.
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