From (No) Bail-outs to Bail-in: A Comparative Assessment of Canada’s Bank Recapitalization Regime

Abstract

Bail-in within resolution has been at the forefront of the regulatory agenda to end too-big-to fail. The article examines Canada’s recently introduced bail-in framework through a comparative lens, in the backdrop of the COVID-19 pandemic. It argues that Canada embraces a less stringent approach than its international counterparts in applying the bail-in tool and permitting use of public funds. This flexible approach is preferable as it can help the stabilization of the bailed-in bank by facilitating its access to liquidity. Yet, the administration of the bail-in tool will not be without difficulties in Canada. The extensive administrative discretion and opaqueness embedded in the regime come at the expense of rule of law and creditor protection. Further challenges arise from the country’s highly concentrated financial system and interdependencies among the large banks which can also result in a reluctance to turn to bail-in if systemic solvency concerns are present.

Keywords: bank resolution, bail-in, COVID-19, Bank of Canada, Canada Deposit Insurance Corporation