The CDIC insures your deposits. Now it wants to fight the spread of unverified ‘facts’
George Bailey never had to deal with Twitter or Facebook in “It’s a Wonderful Life,” just the machinations of the evil Old Man Potter.
Canada Deposit Insurance Corp. does not have the same luxury, and the chief executive of the Crown corporation said it is prepared to wade into the social-media muck to try to counter any fake news during a financial crisis.
Bailey, of course, is a fictional character and the protagonist of the classic holiday movie, but he is also who Peter Routledge, CDIC’s chief executive, likened the deposit insurer to in a recent interview.
Specifically, Routledge is thinking of when Bailey was set to leave his hometown of Bedford Falls for his honeymoon, but is forced to stop and calm a crowd of panicked customers at his family’s building and loan bank with a speech — “The money’s not here. Your money’s in Joe’s house …” — and then uses his own money to pay back depositors.
“We’re George Bailey,” Routledge said. “We’re there to say, ‘Your deposits are safe.’”
The Crown corporation insures deposits, adds to the stability of Canada’s financial system and, if necessary, takes control of failing banks. But whereas Bailey had to talk down a panicked crowd of customers in person, the CDIC has to worry about more than just word-of-mouth misinformation.
The CDIC was founded in 1967 following some high-profile bank failures, and there was obviously no Twitter or Facebook to worry it. Now, though, false information can go viral, and the CDIC has to be prepared to be much more proactive, “to shape the narrative in times of financial crises,” as Routledge put it in an Oct. 10 speech in Istanbul during an International Association of Deposit Insurers conference.
We’re George Bailey. We’re there to say, ‘Your deposits are safe’
Peter Routledge, CDIC’s chief executive
Routledge warned of “unverified ‘facts’” and “exaggerated criticisms” that could be spread by “conflicted parties with a vested angle or interest.”
For example, during the spring of 2017, he said, “rumours” spread on social media helped cause a run on deposits and the near-failure of “a mid-sized Canadian bank.”
Routledge did not name any names during that speech or in an interview with the Financial Post — he said he can’t talk about individual financial institutions — but his reference was likely to the plight of alternative mortgage lender Home Capital Group Inc.
In April 2017, Home Capital had a run on its deposits after the company was accused of issuing misleading disclosures about a dip in its mortgage originations (something the lender ultimately admitted). There was also a short-selling campaign, with plenty of comments about Home Capital being made on Twitter. The company’s stock quickly plummeted as a result.
Routledge, referring to the unnamed lender in his speech, said there were more than 12 million references to it on Twitter, “some of it false or misleading.”
The CDIC’s concern about social media is well warranted given that it insures, and is therefore on the hook for, $850 billion in deposits, including $720 billion in Canada’s Big Six banks. That credit risk is expected to grow to $1 trillion after coverage for foreign currency kicks in next year.
The CDIC will collect around $700 million in premiums this year from its members, not one of which has failed since 1996. However, the massive amount of responsibility CDIC has for depositors is the driving force behind its plan to become more proactive.
“I have no intent to call out or in any way pigeonhole any specific group of investors,” Routledge said. “It’s a society based on free speech. I’m not here to police that. What I am here to say is CDIC is … one of the largest, if not the largest, creditors in the financial system. And we have a systemic role to promote financial stability and we think we enhance financial stability by ensuring Canadians have access to accurate information.”
Sharpening its social-media game is just one of many things the CDIC is working on.
We have a systemic role to promote financial stability and we think we enhance financial stability by ensuring Canadians have access to accurate information
The Crown corporation is also making major investments in technology, said Routledge, who was appointed to a five-year term as CDIC’s head effective last November. Prior to joining the public sector, he spent 20 years in various positions in the financial services industry, including as managing director of research at National Bank Financial.
The CDIC technology upgrades are being made at a time when depositors can cash in deposits “at the click of a button” and take them elsewhere, Routledge said in Turkey, presenting the possibility of a digital bank run, in other words. Deposit insurers have some responsibility for mitigating this risk, he said, as they have mandates to promote financial stability.
“We should speak plainly and truthfully to Canadians if financial conditions metastasize into a level of distress that’s elevated,” he told the Post.
The CDIC is not the only federal agency prepared to pipe up either.
For example, Canada Mortgage and Housing Corp. chief executive Evan Siddall defended a mortgage stress test earlier this year in a letter to a parliamentary committee. He did so amid calls by the real-estate industry and a vow by Conservative Leader Andrew Scheer to make changes to the measure, which they claimed make it more difficult for would-be homebuyers.
Routledge said he was grateful Siddall spoke up given that deposits are turned into loans and that fallout from a severe housing correction could turn into losses for CDIC as well.
“When Evan said what he said, I appreciated it as someone who had a similar set of risks,” Routledge said. “He showed good leadership there. Hopefully, I can live up to his example.”
Prior to Siddall speaking up, another defence of the stress test was given in a February speech by an assistant superintendent from the Office of the Superintendent of Financial Institutions (OSFI). Carolyn Rogers noted that B-20, OSFI’s updated guideline that includes the stress test, is the only one the regulator has with its own hashtag. Moreover, she said one of OSFI’s goals is to increase transparency, which the speech furthered.
Other players in the financial system would likely welcome more regulator transparency. Doubts about the Canadian housing sector and household indebtedness have circled the sector for years, and the Home Capital crisis rattled the industry.
“DBRS Morningstar would agree that the CDIC and other regulators such as OSFI need to have a strong communication plan to introduce and repeat facts that help shape the narrative,” said Robert Colangelo, senior vice-president in the global financial institutions group at DBRS Morningstar.
CDIC spends about $5 million to $6 million every year on advertising and trying to raise awareness of its work, Routledge said. You’ll see its purple lock logo somewhere if you look for it at your bank.
These ads, Routledge said in his speech, are there because experience and research show they can reduce the risk of a bank run by making depositors aware of their insurance.
Other communication efforts, theoretically, could include sending out tweets or using other social media to insert facts into the conversation.
Recent CDIC tweets reminded followers that their deposits in seven different categories, such as those held in one name or in a registered retirement savings plan, were automatically insured for up to $100,000. Others promoted CDIC’s Would You Rather? Financial Challenge, where players were presented with the chance to win $5,000 in travel vouchers.
“The overarching priority is to make sure that we are a trusted source of information in a time of distress,” Routledge said. “I have a Twitter account. If one tool to further that is to use that particular outlet, then we will do that.”