The federal budget was released yesterday, and as we know, the government is projecting close to $30B in deficit spending.
The budget, it would appear, mirrors many actions EU countries are thinking of implementing. More cash in the hands of the populace, infrastructure spending to stimulate job growth and of course, printing more money. At least in the USA, they gave it a name, QE.
There is scant mention of agriculture in the budget which is not surprising as farmers are officially a minority class of people in this country. Our votes just don't manner in the larger political picture. That is reality and I get it.
But, while reading the budget, I came across an interesting section titled "Introducing a Bank Recapitalization "Bail-In" Regime" on page 223. (to be fair, Mr. Flaherty introduced this concept in his 2013 budget)
It is a short section that states:
"To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditors are responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating. Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail”.
The Government is proposing to introduce framework legislation for the regime along with accompanying enhancements to Canada’s bank resolution toolkit. Regulations and guidelines setting out further features of the regime will follow. This will provide stakeholders with an additional opportunity to comment on elements of the proposed regime.
Bail-In Regime for Banks
Canada’s financial system performed well during the 2008 global financial crisis. Since that time, Canada has been an active participant in the G20’s financial sector reform agenda aimed at addressing the factors that contributed to the crisis. This includes international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail”. Implementation of a bail-in regime for Canada’s domestic systemically important banks would strengthen our bank resolution toolkit so that it remains consistent with best practices of peer jurisdictions and international standards endorsed by the G20."
The government prefaces with the statement "in the unlikely event of a large bank failure". If our government is confident that a bank failure is unlikely, then it begs the question why they feel the need to implement a bank protection policy.
The "Bail-In" regime simply allows the banks to "recapitalize" their deposits which means depositors will have their unsecured deposits preempted....this only applies to the 5 Important Banks. There is no mention of other banking institutions.
The government has increased their spending much in the same manner all countries are proposing or implemented with absolutely no timeline for repayment but will introduce guidelines to protect our 5 "Systemically Important Banks".
I think the real message our government is saying loud and clear in the budget is: Get ready for the Reset button.