Reacting To Is Your MONEY Safe in Banks?

Just because there is something there that claims that it's protecting your capital. Understanding how it's actually protected or how it's not protected is what we're trying to encourage the Canadian population to do. Is your money actually safe in Canada? I don't know. And you know what, we're going to find out a little bit more about that. You know, you may not be aware, but there's this crazy thing called bail and legislation that came in a few years back. And we're going to play a little bit of a clip. We're going to talk about how this bail in legislation and specifically the insurance available for depositors in Canadian banking institutions, how well protected they are. There's a little thing called the CDIC that is the Canada Deposit Insurance Corporation. And we're going to learn just how well protected are Canadians deposit accounts. And should you be concerned and should you think about how you may want to have a higher level of protection over your own capital. So let's go ahead and dig into this video and Henry and I are going to discuss it for you guys and have a little bit of fun.

The second thing that people should be on notice is Rob Flaherty when he was finance minister and Rob Flaherty was, as a human being, was a sweetheart, I can tell you that from Ontario. A lot of his measures were never put in, even though the government promised to put them in. In the last two budgets, he put Canadians on notice by telling you that. I read the budget papers every year and I look at them. You probably think that I don't have a life, but it's because I'm a tax lawyer. I need to know what's. I have an interest in this historically and constitutionally. In the last two budgets that he oversaw, his finance minister. How many of you heard of the term bailing? Let me explain to you. Sorry, sorry, sorry, suckers. But they don't mean this. With the first financial bank crash in 2008, the governments, the US and Canadian governments bailed out the bank debt. Just gave them the money. They bailed them out. Clarity said never again. He put us as taxpayers and depositors on notice that were bailed in to the bank. When you deposit a hundred dollars into a bank account, I have some news for you that you probably don't know. The money belongs to the bank. It's their money. All you get in exchange for that hundred dollars in the contract is a promise return for the principal and interest on that money for the bank's use. Even though it's only 1/4 of 1% on some accounts. So what happens if the bank goes bankrupt?

Well, you as a depositor are bailed into their bankruptcy. You're bailed into their debt. And as a common depositor, you are a simple creditor under the Canadian bankruptcy laws. So you will stand in line and you will get your portion of the actual money on the system.

That's it.

What they call in reserve. The bank reserves right now are 2%. So for every $100 that you deposit, they're only required to keep $2 in reserve. So you will stand in line and get 2 cents on the dollar if a bank goes bankrupt.

And all of you are saying, oh.

No, no, no, but I saw the commercials. My bank account, 60,000 is guaranteed by the insurance fund. That's true. But the entire global maximum of that fund nationwide is $2 billion. So maybe you'll get another quarter cent on in addition to your 2 cents. That insurance fund is a placebo, okay? It's only $2 billion. That's nothing for a nation of 35 million people. All right? So understand this. You are bailed in to the bank's debt. And people ask me, you know, when I talk to conferences, well, you think what almost happened to Cyprus could happen in Canada? I say, no, it's already happened again. In 1992 in Alberta, a trust company went bankrupt. Mr. Justice Este of the Supreme Court, justice ran a. An inquiry. At the end of the day, I think Those depositors got 8 cents to the dollar. So not can it happen. It's happened. And of course, it happened in the Great Depression big time. Okay, so this is where we are. So we are allowing private bankers in a foreign country not only to determine our banking policies and everything else, but to hold us hostage to their private profit needs.

Well, if that doesn't get you excited about how well protected you are with your money in Canada, I don't know what will.

But, you know, very interesting video, Henry. So thanks for bringing this to my attention. And, you know, I know myself, I'm familiar with the Balin legislation. Never heard it described in that way before by, you know, Rocco Colati, who is, again, well known, very well known, I believe, you know, tax lawyer has done a lot of constitutional fights in, in Canada. And so I, I found this very interesting to hear some of the things he said, especially about, you know, past issues where it's happened. And basically trust company failure in 1992 in Alberta and how, you know, people only got eight cents on the dollar back. And so some of those historic aspects 1992 is not that far away. I mean, you know, in the grand scheme of things in the, in the banking realm in Canada. So I think when we think back to some of that history and we're, I know you're going to show us some stuff here today as we discuss this further, but there's a lot of meat and potatoes there to be digested and in an awareness level to be brought to the Canadian population about how the system is all based on trust. We are marketed to and then we have faith and trust that big name commercial banking institutions in the country that I'm sure most people would be familiar with. And we all probably have a bank account or something with them. They've done a really good job of demonstrating over a long period of time that they're, they're a trustworthy organization for us to deposit our capital into because we believe that the money will be safe and it's available on demand when requested. And one of the things that he said, and we've talked about this in other videos, is that once you put that deposit into that financial institution, that commercial banking institution as a, in a checking or a savings account, what you've really done is you've exchanged custody of the ownership of the money as your money to becoming their money. You now are a creditor of them. They have an IOU on a ledger that says they owe you that $100 he was talking about, plus any interest earnings. And of course we know the interest earnings is a pittance these days. But effectively that's all they owe you for the privilege of us lending our money to that banking institution so that they can now put that money to work on a massive scale, you know, with volume and velocity. It's a, it's a really, I mean, it's a fantastic business model, which is why I think everyone wants to become their own banker. But it's a matter of how do you actually go about doing that and protecting yourself. So a lot to digest here. A lot of talk about, you know, walk me through when you first found this video. I think you were aware of Balin's prior to that. But, you know, something I would imagine really connected with you. And you saw this video initially?

Yeah, Rocco Galati really describes it very well. And you know, just to kind of really break it down. When you take your money and you put it in the bank, you are a debtor. They, they owe you money. Now it's not your money. And so what really opened my eyes at least when he, the way that he described it was if the bank goes under in normal bankruptcy laws, you know, they go through the legal proceedings and whatever salvageable is repaid back to the debtors wherever possible and on priority. And for those who also don't understand unsecured means, that's a promise for the whole principal. But unsecured means they're not going to promise you that principle. So the money that you're leaving in there is exposed to the possibility of that disappearing. And so he's already shared an example of disappearing or that has gone down. And so he's made some statements. And I thought it'd be really good for us to properly fact check some of the things that he's saying or at least verify the comments that he said. And I wanted to share from my background how I dissect things because some of the information that people don't go into, diving into is a little bit sophisticated. I've been trained as a CPA knowing how to read financial statements. So I want to illuminate and share some of that, the comments that he shared in there so that the viewers can actually see what, what that looks like.

Yeah, let's do it.

So here's a set of financial statements from the CDIC now the Canada Deposit Insurance Corporation. And again, most people are totally told that when you leave your money in a financial institution, it is protected by the Canada Deposit Insurance Corporation. And as you know, Rocco has said, and as what we're told to believe is that is true, when we look at some of the things that are there, we can kind of see the rules of what is covered under cdic. So typically it's just based on these rules and parameters. And they also kind of dive into talking about what aspects of it is it covered, like an rsp, rif, tfsa, and then what's not covered. So the financial statements give a really good background. I mean, in our channel we've talked a lot about what CDIC covers, but there was a comment now Rocco mentioned. So the question is, yes, you are covered, but how much of your money when you leave in a bank is it actually covered? So here's a consolidated financial statements with notes. And I'm going to walk through the interpretation now. The first parts to understand is this is in thousands of dollars. So you see this cash here is 2,000, 480 with three extra zeros at the end. So it's 2 million, 4, 80,000 in cash that they have. They have investment in securities for a lot of money here with extra three zeros at the End here, the comment that Rocco mentioned about 2 million. And now, so that video was recorded in May of 2015. And so what I'm sharing with you is, you know, we're already seven years since then. What he was referring to is provisions for insurance losses. So these are the insurance losses that he was referring to as the 2 billion as of 2015 of May he quoted out 2 billion. As of 2020, it was 2.2 billion. Now, I think we all remember what happened from 2020 with all the lockdowns. They've only increased those provisions for losses an extra $400 million in there. So that only went up X amount there. So now let's take into context how much CDIC is insuring. They're ensuring up to $100,000. Now imagine if one bank were to go down and for 30, 35, 37 million Canadians, I think accumulated, you can get close to a hundred thousand per family. And if you kind of put into these numbers, we did 35 million, let me half that number for 15 million Canadians at 100,000 each per account. But let's just do that. Richard, can you help me out with these numbers here? It's pretty large.

That's a big fat number is what that boils down to. I mean, we're looking at. What is that, 1.5 trillion. It's a lot.

Yeah, it's a lot. 1.5 trillion. And if we look at the amount of zeros here, I think the numbers are pretty far apart.

Yeah, I would say so. And that, and that a hundred thousand is per account per specified type of account. So as an example, let's say, you know, we'll pick one family. Maybe they have 100,000 in a TFSA, they have 100,000 in an RSP, they have 100,000 in a savings account. And then they, you know, maybe they have some other mechanism. So, you know, potentially that one, that one account holder could have, in theory, 100,000 protected in each one of those accounts with that one bank if they're doing all their business with that bank, which is a common occurrence. And so now if that banking institution runs a risk of failure where they don't have the ability to meet the demand deposits available and they have to exercise this insurance mechanism of the cdic. So already they don't have enough deposits on demand to, to solve that. So now we're going to go to the insurance corporation to solve the problem. But the problem is there's only a limited pool there. And if that, that major banking institution there's only a few of them in Canada that really, you know, they have the weight of the market. There's, there's five basically primary banks in the country. You know, it's, it's reasonable to think that, that customers have, we have accounts at multiple banks. And so if one bank goes down and that's, you know, as Henry's indicating, maybe that's half of the population of Canada. I mean there's just not enough capacity for them to solve that problem. Now not, does not everyone has a hundred thousand in their bank account or in, in, in that TFSA or in that rsp. Right. So if they spread that around a little bit there, there might be some value there. But the end result is it's a pretty glim looking outlook. When you take a look at this financial statement and you indicate, okay, how much is really appropriated for solving this particular problem? It's a scary number that we're looking at and how little is really available to solve the problem that could exist.

Like for a typical Canadian, do you actually spread out your money 100. 100, 100, 100 to actually make sure your deposits are covered? How likely do Canadians actually do that? I'll be honest with you, I don't do something like that.

A lot of people don't. And not only that, you might gain some protectionary mechanisms as we're indicating here, but you would also lose some of the economies of scale. As an example, if you have a million dollars in your corporation account, that cash reserve operates like your business operating line of credit. So you try to keep it at a certain level. Well, you might be able to negotiate now some higher interest earnings on your daily interest account or GICs or whatever because you're putting a larger amount of capital to work. Whereas if you're chunking it all into smaller pieces, you're probably not able to negotiate as much over leverage that way. So again that's, that's kind of the check and balances, I guess it's the, it's the marketing aspect of the particular commercial banking institution. They want to get as much of those deposits into a large account as possible, knowing full well that that whole account value is not fully protected by the insurance corporation of the Canada Deposit Insurance Corp. They're going to dangle a carrot of some nature in front of the, the consumer's eyes. It says, oh, but if you do this, hey Bob, hey Sally. If you shove your million dollars in here, we're going to pay you an extra 0.5 or 0.75% earnings on your interest account, they're like, oh, that makes sense. Let's go and close out our other accounts at all those other institutions that was fully protected. Let's smash it all into here. You know, these kind of things happen all the time. And I don't think a lot of Canadians think twice about it. And so the purpose of us having this conversation today is to bring some awareness to that. And maybe you should consider thinking twice about it. And we're not, we're not trying to push people in one direction or another. This is a, this is the reality of the Canadian marketplace. And just because there is, there's something there that claims that it's protecting your, your capital, understanding how it's actually protected or how it's not protected is what we're trying to encourage the Canadian population to do.

Well, just to be aware about that. It's, it's. There is an insurance in place to protect your deposits. I think it's fair to say from what you see here, your deposits are pretty much it's underinsured for the protection that you see here. So there is insurance for it, but it's not likely that one goes down. You will be completely covered. If multiple goes down, then what happens? Everybody's not going to be insured. So you become someone who lines up as a creditor trying to collect. So in bankruptcy, if anybody has ever worked with anyone who's gone through bankruptcy, you're essentially lining up in priority sequence who gets the money first. And you being an unsecured demand depositor, you are way on the lower end of the food chain when it comes to getting your money back. So there's something called here investment in securities, which is denoted with a Note for. It's $6.5 billion here. Now, what are those securities? So Note 4 was investment in securities. These investment securities are debt instruments issued or guaranteed by the government of Canada. So the government has issued out some loans to be received, and the CDIC invests in the government by bonds and loans. And so these are guaranteed by the government of Canada. Now, if we look into those financial numbers, we can see pretty much the yield that they're getting on those investments, about 1.06%. But the key takeaway is the CDIC is connected with the government of Canada. And depending on how you view it, it's a reliable way, a good, reliable thing, or it may not be. But I also just wanted to highlight another thing when it comes to the cdic, which, if we go into the annual report, I just wanted to Show a couple of things. So here there's a number of members of 85 members and it's increased 14% year over year. Here's how much premiums that they get form those member institutions. One thing that kind of caught my attention when I was reading these highlights. The CDIC welcomed two new ex officio directors, Board of Directors Tiff Macklem who's the governor of the bank of Canada and also Michael Sabia, the Deputy Finance Minister of Canada, Department of Finance for Canada. So you've got the bank of Canada I think from our other video we talked about how the bank of Canada and the finance department in the government are pretty well connected. Now the insurance is also part of that architecture system. What happens if the bank goes down? Citizens are going to look for their money from those banking institutions and they're not going to get it. So they're going to come to cdic. And now we establish that the CDIC is underinsured in terms of the amount that needs to be covered. I think that kind of really raises some eyebrows related to the expression that people will throw out there that you are protected because of insurance. Now a last part I also want to highlight from the video that I shared earlier was what were the history of failures. So he Rocco pulled out one failing example but there's many failed examples. So the possibility of this happening truly exists. It's not something that when it actually truly exists. And here's a long list of member institutions who have failed.

And the last one on the list was 1996. So it may have been a while but there's certainly a number that exist on that, on that list. And again they're mortgage and credit company, savings and mortgage companies, you know, variety of different types of companies here. And again to being able to go and see this, it's public knowledge, it's available on the C website. You know it's not like we're finding anything that's a mystery here. We're just, we're just actively showcasing what's the, what's available and to be in a position where again as you've identified looking at the, at the balance sheet, what are the investment assets of the cdic? Pretty much not the large bulk. It's almost entirely the asset base is basically in some form of treasury bills or government issued bonds. And so there they might have, they have some that are rolling at say a 90 day. So every 90 days it pays out and then they can, you know, they recycle it and then there's some that are One year, five year, et cetera. On the chart you showed, the one in the five year was like the large bulk. Most of that asset base is in there. So if they needed to raise more capital to be able to pay out more claims in a bank failure, they would have to wait those bonds and TBT bills to redeem or else they would have to say, hey, Canadian government, can you just pay us out and we'll discount, maybe we'll discount this, this bond that we're holding of yours, this debt. Can you just pay us out and give us a lump sum so we can take care of all these Canadian citizens that desperately need their money from this failed bank? In which case, now the government coffers need to also, should that follow the bouncing ball, should that come to pass. The good news is the government coffers get to discount some of this debt instrument. So that might be okay from the public coffer standpoint. However, they have to get the money together. Well, where's all the money coming from? All the money comes off of our backs. So it's like, oh, we're going to help the Canadian citizens that we need to help. But wait a second, we need to get all the money from the Canadian citizens that we need to help and the Canadian citizens don't have any more money. And it's kind of like a weird little loop. And again, I mean we're making this maybe a little bit obtuse, like we're making this a big kind of song and dance thing, but thinking through it and like, okay, like using a little bit of logic. Yeah, there's more pieces in the chain of events that happen there. But just recognize, is this a system that is designed to support you? And if you think that it is, great, and if you don't think that it is, you might want to consider doing something about that. There's a great webinar. You can go check out watchibc.com there's a ton of good content there. You can start learning what you might be able to do. And that brings me up to talking a little bit about a separate industry that operates in Canada, which is the insurance industry. And they operate with member companies in a non profit organization called Assurance. We have a whole great podcast episode over at Wealth. Basically we talk about that. We have other videos on the Bankers Vault Channel that talk a little bit about the power of something called Assurance, which is basically the insurance company of insurance companies that protects things like your, your insurance benefits. It also protects things like cash values, which is one of the assets that people can hold in their, on their balance sheet, their personal balance sheet and their corporate balance sheet. And that's something we teach people how to do. And so the level and the quality of protection of that mechanism dramatically outweighs anything that the CDIC could even possibly begin to touch. So again, if we're, if we're stack ranking the quality and the caliber of protection on your own capital resources, I have no other demonstrated thing that I've seen that can even come close to matching what the insurance industry and Canada does on the private side. So, you know, if you want to find ways that you can protect more of that capital resources, then doing it through the mechanism of high cash value insurance is a lot logically the next best place where you would look to go and do that. And many people are doing it. In fact, they're doing it in droves. There's a lot of uncertainty in the marketplace in the Canadian sphere, based on many different issues that have happened over the last couple years. This whole Covid scenario has given people a lot of things to reconsider on things like their money, where it sits, where it resides, how it's being put to work, how much control they have over it, how much accessibility they have to it. I think there's become a bit of a heightened awareness on things like the, the general banking system. People are becoming more aware of things like you and I have talked Henry, before about, like the fractional reserve system. And that goes back to the video that we just watched with Mr. Galati. He talked about again, what percentage of the, the bank's money is available there to solve this problem. Like the deposits that they, they basically have on hand, they got to pay you 100% of the deposit, but they're only actually maintaining a reserve. And hit in, in the video here, he indicated 2%. I mean that's a fluctuating number. It shifts and changes over time. But he gave an example of, you know, hey, if you, if that bank went under today, if you had a hundred dollars, you only get 2 cents back. I mean that's basically like your, and that's, that's a pretty small fraction of your deposit that's on reserve, right? And he said now if you also interact with, you know that because they don't have enough money as a creditor, you're unsecured. Well, now they're going to initiate the, the Canada Deposit Insurance Corporation. Hey, what is that going to add up to based on the 2.6 billion that they've got set aside? Maybe you get another quarter of a cent back. In other words, the total amount of recovery capacity available to the average Canadian is vastly lower than what we believe it to be. If things really were to take a, take a negative turn overall in the economic landscape here in Canada.

Yeah. And this is where if you really want to keep your money safe, one of the things we really advocate for you to think about is becoming your own banker. And if you just really take a step back and look at the overall system, the banking system, the bank easily gets your money because you willingly hand it to them. We know that they only hold on to a portion of that as a reserve so that they lend it out to go make a profit. That profit goes to the shareholders, not you, even though you're the one who works for that money. Now when that bank goes under, the CDIC will insure some of that money. Now we have established it's not enough to cover it. And they also own assets, which is government debt that is locked into one to five years. If they need to now fill up the amount of people that CDIC needs to protect, they don't have enough money. So they tap into the government to early sell those bonds so that they can get some liquidity or money to pay. But that's still not enough. And the government is ultimately going to need to find some way to get more money. And their only mechanism is to come back to you as a taxpayer to get the money. So banks make the profit, they owe you the money as being the creditor and they don't share any of the profits that they take your money for. And if something goes bad, the system somehow is designed in a way where you are paying it all back. Even though you are supposed to recover your lost money, the government indirectly will find some way to tax you to get their money so that they can pay you back. It's not designed for you to win. So I just wanted to make sure that's really highlighted in terms of, I guess, why we're so passionate in doing what we're doing here.

Being able to establish a basis of personal economic potential, profitability and responsibility all through the mechanism of mutual free contract with other free people in this nation is the basis by which, you know, high cash value, dividend paying, participating, whole life insurance is really designed. And that's something that we learned from our mentor Nelson Nash. Again, to discover more about how that works, you Simply go to watchibc.com and you know you're gonna, you're gonna get a ton of value from that. And you'll be able to discover if this is the right path for you. And if it is, that's great. And if it's not, hey, that's cool, too. But at least you can't say that you sat there twiddling your thumbs, you know, not taking any effort to learn more about your financial life. The. The availability and the possibility for you to continue that journey of learning is there. In fact, we encourage you to do that. Go ahead and check out the next playlist video that's popping up on the screen and continue your journey of learning.