Potential postal disruption. Prepare for possible mail delays due to Canada Post labour negotiations. You can use our mobile app or log in to my Sun Life to submit claims and/or check on your investments.

Get more help here

Close search  
  • Please enter a search term.

Please select your language preference on the right hand side

Languages - Canada

  • English
  • Français
Back
Regions
Language
  • English
  • Français
Skip to signin Skip to main content Skip to footer
Sunlife logo
  • I am an:
    Advisor
    The selected view is for Advisors. Activate the menu to switch your view.
    Advisor
    Investor
    End of list. Press Escape to close the menu.
  • Practice management consulting
  • Applications & forms
  • Contact us
  • CANADA | EN
  • Search
  • Products

    Mutual funds

    • Overview
    • Sun Life MFS Funds
    • Sun Life Granite Managed Solutions
    • Sun Life Private Investment Pools
    • Sun Life Tactical ETF Portfolios
    • Sun Life Milestone Funds
    • Emerging Markets Funds
    • Private Client Pricing

    Segregated funds

    • Overview
    • Sun GIF Solutions
    • Sun Lifetime Advantage
    • Investment options
    • Sun Life GIFs Products no longer for sale

    GICs and Annuities

    • Insurance GICs and Trust GICs Overview
    • Insurance GICs
    • Sun GIC Max
    • Superflex
    • Trust GICs
    • Income Master
    • SLF Trust GIC
    • Payout annuities
  • Performance & Insights

    Mutual funds

    • Overview
    • Daily prices
    • Performance
    • Ratings
    • Fund codes

    Segregated funds

    • Overview
    • Daily prices
    • Performance
    • Ratings
    • Fund codes

    Insurance GICs and Trust GICs

    • Rates

    Insights

    • Commentary
    • Investor Education
  • Resources

    Advisor marketing & resources

    • Segregated funds marketing
    • Fund reviews
    • Payout annuities advisor resources
    • Trust GICs advisor resources
    • Insurance GICs advisor resources
    • Multi-product conversations

    Investor resources

    • Market volatility
    • Retirement Hub
    • MFS Insights
    • Solving the Know Your Product (KYP) puzzle

    Tools & calculators

    • Overview

    Mutual Funds

    • Mutual fund illustration tool
    • Granite Solutions tool
    • Series T calculator

    Segregated Funds

    • Choose your path
    • Current income rates
    • Investment GIF e-App
    • Sun Life GIFs Proposal tool

    Regulatory documents

    • Fund facts
    • Financial statements
    • Management Reports of Fund Performance and Quarterly Portfolio Disclosure
    • Simplified Prospectus
    • Proxy voting
    • Independent Review Committee (IRC) report
    • Passive Foreign Investment Company (PFIC)
  • About us

    Our story

    • Who we are
    • Investment management
    • Leadership
    • News releases
    • In the media

    Sustainability

    • Sustainability
    • Responsible investing
    • Governance & engagement
    • Inclusion at Sun Life Global Investments

    In the community

    • Livebright Scholarship Program
Sign In

  • MySunLifeGIFs access
  • Suncentral access
  • Advisor hub (Sun Life advisors)

  • MySunLifeGIFs access
  • Suncentral access
  • Advisor hub (Sun Life advisors)
Skip to signin Skip to main content Skip to footer
sunlife logo
Sign In
  • Please enter a search term.
  • Products
    • Back
    • Products
    • Products
    • Sun Life MFS Funds
    • Sun Life Granite Managed Solutions
    • Private Investment Pools
    • Sun Life Tactical ETF Portfolios
    • Sun Life Milestone Funds
    • Emerging Markets Funds
    • Private Client Pricing
    • Sun Life Guaranteed Investment Funds (GIFs)
      • Back
      • Sun Life Guaranteed Investment Funds (GIFs)
      • Sun GIF Solutions
      • Sun Lifetime Advantage GIF
      • Sun Life GIFs Investment options
      • Sun Life GIFs Products no longer for sale
    • Payout annuities
      • Back
      • Payout annuities
      • Life annuities
      • Term certain annuities
    • Insurance GICs and Trust GICs
      • Back
      • Insurance GICs and Trust GICs
      • Trust GICs
      • Insurance GICs
  • Performance
    • Back
    • Performance
    • Performance
    • Mutual funds
      • Back
      • Mutual funds
      • Overview
      • Daily prices
      • Performance
      • Ratings
      • Fund codes
    • Segregated Funds
      • Back
      • Segregated Funds
      • Overview
      • Daily prices
      • Performance
      • Ratings
      • Fund codes
    • Insurance and Trust GICs
      • Back
      • Insurance and Trust GICs
      • Rates
  • Insights
    • Back
    • Insights
    • Insights
    • Commentary
    • Investor education
  • Resources
    • Back
    • Resources
    • Resources
    • Segregated funds marketing
    • Payout annuities advisor resources
    • Trust GICs advisor resources
    • Insurance GICs advisor resources
      • Back
      • Insurance GICs advisor resources
      • Superflex/Income Master, Sun GIC Max and GIC - Comparison
      • New applications - Rate commitments
      • Subsequent cheque deposit - Investment instructions
      • Accrued income
      • Adjusted Cost Basis (ACB) - Deferred annuities
      • Annuitization
      • First sixty-day receipt information for Superflex and GIC products
      • General tax info for TFSA
      • Marriage breakdown and removal of spousal designation
      • Non-registered taxation of surrenders or withdrawals for non-residents
      • Non-residents - Non-registered annuity
      • Pension tax credit
      • Tax slip and receipt mailing schedule for all Individual products
      • Withholding tax on withdrawals from an RRSP
      • Withholding tax rates around the world
      • Six things you need to know about Insurance GICs
    • Advisor tools and calculators
      • Back
      • Advisor tools and calculators
      • Series T calculator
      • Granite Managed Solutions proposal tool
      • Investment illustration tool
      • Current income rates
      • Choose your path
      • My SunLifeGIFS tool
      • Investment GIF e-App
      • Retirement Income Navigator
    • Applications and forms
    • Regulatory documents
  • About us
    • Back
    • About us
    • About us
    • Who we are
    • Investment management
      • Back
      • Investment management
      • MFS Investment Mangement
      • Aditya Birla Sun Life Asset Management Company Pte. Ltd.
      • KBI Global Investors
      • Schroders
      • Dynamic Funds
      • BlackRock
      • Lazard Asset Management Canada Inc.
      • SLC Management
      • Crescent Capital Group
    • Leadership
    • News
    • Sustainability commitment
      • Back
      • Sustainability commitment
      • Governance & engagement
    • Responsible investing
      • Back
      • Responsible investing
      • Stewardship
    • Inclusion at Sun Life Global Investment
    • LiveBright Scholarship Program
  • Contact us
  • Select a role
    Back
    Select a role:
    • I am an Advisor
    • I am an Investor
  • CANADA | EN

    Please select your language preference on the right hand side

    Languages - Canada

    • English
    • Français
    Back
    Regions
    Language
    • English
    • Français
  1. Home
  2. Insights
  3. Commentary
  4. Why Canadian banks are largely immune to a bank run
Share this:
  • Share this on Facebook
  • Share this on Twitter
  • Share this on Linkedin

Market updates

April 13, 2023

Why Canadian banks are largely immune to a bank run

Strong regulation, supervision and a conservative risk culture characterize Canada’s concentrated banking industry. This has reinforced the message that Canadian banks are safe following recent bank runs in the U.S. 

Why Canadian banks are largely immune to a bank run

By Christine Tan, CFA, Portfolio Manager, SLGI Asset Management Inc.

Bank runs used to start with worried account holders lining up at bank branches, desperate to get their money. Now in the digital age, bank runs begin with a few taps to a banking app on a smartphone. As concerns about the solvency of Silicon Valley Bank (SVB) in the U.S. circulated in social media, over USD$40 billion in deposits fled the bank within hours. Soon customers in other U.S. regional banks followed, which underscores the fragility and interconnection of the banking system.

While we think the problems related to SVB are unique, we also think Canadian banks are unlikely to suffer a SVB-style bank run. One key reason is Canadian banks are easier to supervise because there are only 85 banks in Canada and six of the country’s largest banks account for over 85% the industry’s assets. In the U.S. there are over 4,700 banks1.

Not just well-regulated but also well-supervised

Banking is an inherently risky business. Loans or investments made by a bank can go bad resulting in credit defaults. These concerns could lead depositors to fear the safety of the bank and withdraw their deposits resulting in liquidity risk. A bank run is an extreme form of liquidity risk.

In simple terms, banks take in money and make loans or investments to earn a profit.

Example: Bank A collects CAD$1 billion from 10,000 depositors that it promises to repay on demand.  This is a “liability” because Bank A has to repay it. It then loans that CAD$1 billion to 10 companies to be repaid with interest over a five-year period. This is an “asset” for the bank because it will earn interest on it until borrowers pay it back.

This simple banking model example illustrates an asset-liability mismatch

The 10,000 depositors can demand their funds all at once overnight, but the bank can’t quickly recall the 5-year loans made to companies. Banks are very aware of this risk. That’s why they seek funding from depositors and investors with longer-term commitments like term-deposits, bonds and equities. This can be expensive but helps to better address their asset-liability mismatch.

Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI) requires its six largest banks to keep their Common Equity Tier 1(CET 1) capital – long-term capital – above 11%. OSFI also holds a tight leash on its medium-sized banks (MSB) and requires them to maintain a CET 1 capital above 7%. These stringent capital requirements ensure Canadian banks can deal with credit or investment losses in times of economic downturn.

A strong risk culture

For their part, Canadian banks have historically managed their balance sheet risks prudently. Canadian banks’ lending activities are generally well-diversified across sectors. The banking industry’s longer-term assets (loans and investments) are relatively well-matched by conservatively managed liabilities (funds raised from depositors and bondholders) and shareholder equity. 

Source: Consolidated monthly balance sheet for all Canadian banks, January 31, 2023. Office of the Superintendent of Financial Institutions (OSFI)* Please refer to footnotes for details about the various categories of assets and liabilities.  

In addition, Canadian banks have managed their securities investments more carefully over the years. This is where banks make money by investing short-term proceeds into longer-term bonds at higher yields. It’s also the portfolio subject to interest rate risk. When interest rates started to rise sharply in 2022, these securities portfolios suffered losses. As long as these portfolios aren’t sold at a loss, banks typically don’t have to realize losses against their profits. Unrealized losses as a percentage of total assets stood at 8.4% for SVB, while Canadian banks averaged at a very manageable 0.3%2.

But a case of liquidity shortfall can force a bank to sell these assets at a loss and immediately hurt its retained earnings, which is part CET-1 capital. In the case of SVB, selling securities at a loss erased a lot of its equity and eventually led to government intervention to prevent full failure. We see such risks unlikely with Canadian banks.

The combination of strong regulation supervision, well-managed risks, and an industry structure favouring big banks largely protect the Canadian banking industry from bank failures.

The immediate fear triggered by SVB has subsided and both the US Federal Reserve and the Federal Deposit Insurance Corp (FDIC) have taken steps to reassure Americans. But the longer-term impact of the recent bank failures could lead to U.S. banks reducing their lending activity to offset deposit outflows or further declines in its investments. We think that this tightening has increased the risk of, and accelerated the potential onset, of a U.S. recession.

1,2 Canadian Banking Sector: Market Volatility Continues, but Funding Is Stable and Unrealized Losses Appear Manageable, Morningstar DBRS, March 20, 2023.

*Shorter duration assets include cash and cash equivalents, Canadian Federal, Provincial, Municipal or School Corp securities, less expected credit losses and other securities less allowance for expected credit losses.

Short-duration liabilities include government & financial institutions demand and notice deposits, individuals demand and notice deposits and other demand and notice deposits.

Longer duration assets include non-mortgage loans and mortgages less allowance for expected credit losses. Longer duration liabilities include fixed term deposits, subordinated debt, and obligations related to borrowed securities and assets sold under repurchase agreements. Shareholder’s equity is classified as longer duration. Interests in associates and joint ventures, deferred tax assets and other assets are classified under other longer duration assets. Other longer duration liabilities include mortgages and loan payables.

Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any mutual funds managed by SLGI Asset Management Inc. These views are subject to change at any time and are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.

Resources
  • Stay Diversified

  • Advisor tools and calculators

  • Fund reviews

Questions?
  • Contact us page

    Get in touch with us.

Quick links

  • Advisor sign-in
  • Client sign-in
  • Find a form
  • Newsroom
  • Rates

Regulatory Documents

  • Fund Facts
  • Information folders & contracts and supplements
  • Management Reports of Fund Performance and Quarterly Portfolio Disclosure
  • Simplified Prospectus
  • Proxy voting
  • Independent Review Committee report
  • Passive Foreign Investment Company (PFIC)

Plan sponsors, consultants & group advisors

  • Institutional investor site

Contact us

  • For all questions and inquiries, please contact us
  • Follow us on LinkedIn

SLGI Asset Management Inc. is the investment manager of the Sun Life family of mutual funds.  Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund’s prospectus. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Sun Life Assurance Company of Canada is the issuer of accumulation annuities (insurance GICs), payout annuities and individual variable annuity contracts (segregated fund contracts).  Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value.  Sun Life Financial Trust Inc. is the issuer of guaranteed investment certificates.

Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada and Sun Life Financial Trust Inc. all of which are members of the Sun Life group of companies.

  • Legal
  • Privacy
  • Security
  • Fraud
  • Accessibility
  • Careers

© SLGI Asset Management Inc., Sun Life Assurance Company of Canada, and their licensors. All rights reserved.

Start of modal

Welcome to Sun Life Global Investments

We use cookies to enhance your experience by saving your advisor or investor selection. If you prefer not to accept these cookies, please select "I'd rather not say".
Learn more about our cookie policy.

I am an advisor
I am an investor

I'd rather not say

End of modal