ECON 460 Lecture Notes - Lecture 5: Canada Deposit Insurance Corporation
February 5th, 2018
OSFI Continued
Under the Bank Act, banks are incorporated under a special framework; rules parallel to rules for other
types of corporations, but specific rules on ownership, board of directors composition, etc.
---ownership → a few people can start a corporation, but not a bank; surprising because big
corporations have a huge effect on the economy, must have power diffused over many share-holders to
maintain public confidence, higher risk when power is concentrated because it a e i soeoe’s
personal interest to declare bankruptcy, no longer possible with many share-holders who have other
assets
Part Nine: Regulation- Superintendent
628: A bank shall provide the superintendent with such information, at such times and in such form as
the superintendent may require.
---this is quite sweeping; access to all information about banks, enforceable in court
644.1 → “uperitedet a eter ito a prudetial agreeet ith a ak to iproe its safet
645 → Directions of compliance
646-7 → Disqualification and removal of directors (this has never happened)
Fro the “uperitedet’s poit of ie, differet reedies orrespod to differet leels of seerit. If
the bank is not functioning, there is the option/threat of director removal. Paradoxical: sends a strong
signal to the public and undermines public confidence
648 → Supervisory intervention for a period of 16 days (never occurred)
---theoretiall, a tea fro the superitedet ould sho up i a ak’s offies ad take oer; this
requires an extreme situation in which the bank is not paying its liabilities
It is ot i the regulator’s iterest to oeruse, or ee to use, these ehaiss. This reates a push-
and-pull in which banks will test the limits of what they can do before the regulator invokes certain
reedies, ad reedies hih are ot i the regulator’s iterest go uused.
OSFI is part of a collection of agencies dealing with the Canadian economy; department of finance, bank
of Canada, Canada deposit insurance corporation, financial consumer agency of Canada
---all managed by Minister of Finance
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Document Summary
Under the bank act, banks are incorporated under a special framework; rules parallel to rules for other types of corporations, but specific rules on ownership, board of directors composition, etc. 628: a bank shall provide the superintendent with such information, at such times and in such form as the superintendent may require. --this is quite sweeping; access to all information about banks, enforceable in court. 644. 1 uperi(cid:374)te(cid:374)de(cid:374)t (cid:373)a(cid:455) e(cid:374)ter i(cid:374)to a (cid:862)prude(cid:374)tial agree(cid:373)e(cid:374)t(cid:863) (cid:449)ith a (cid:271)a(cid:374)k to i(cid:373)pro(cid:448)e its safet(cid:455) 646-7 disqualification and removal of directors (this has never happened) Fro(cid:373) the uperi(cid:374)te(cid:374)de(cid:374)t"s poi(cid:374)t of (cid:448)ie(cid:449), differe(cid:374)t re(cid:373)edies (cid:272)orrespo(cid:374)d to differe(cid:374)t le(cid:448)els of se(cid:448)erit(cid:455). If the bank is not functioning, there is the option/threat of director removal. Paradoxical: sends a strong signal to the public and undermines public confidence. 648 supervisory intervention for a period of 16 days (never occurred)