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What are the provisions under the October 15, 1999 Opting-Out By-law?
Answer: According to the By-law, Schedule III banks that accept primarily wholesale deposits
(defined as $150,000 or more) could opt out of CDIC membership and therefore to operate
without deposit insurance. The new legislation however includes provisions to protect depositors
who hold deposits eligible for CDIC protection. These include the requirement for an opted out
bank to inform all depositors by posting notices in its branches that their deposits will not be
protected by the CDIC and not to charge any early withdrawal penalties for depositors who
choose to withdraw.
Diff: 2 Type: SA Page Ref: 228
Skill: Recall
Objective List: 10.3 Examine CDIC Developments
Describe how the CDIC premiums have evolved over the past years.
Answer: CDIC premiums were fixed and unrelated to the risk profiles of the various member
institutions. In 1999, the Differential Premiums By-Laws differentiated the premiums of member
institutions according to a variety of both qualitative and quantitative aspects, dominated by
capital adequacy measures.
Diff: 2 Type: SA Page Ref: 227 - 228
Skill: Applied
Objective List: 10.3 Examine CDIC Developments
10.4 Banking Crises Throughout the World
The evidence from banking crises in other countries indicates that ____.
A) deposit insurance is to blame in each country
B) a government safety net for depositors need not increase moral hazard
C) regulatory forbearance never leads to problems
D) deregulation combined with poor regulatory supervision raises moral hazard incentives
Answer: D
Diff: 1 Type: MC Page Ref: 231
Skill: Recall
Objective List: 10.4 Banking Crises Throughout the World
The Japanese equivalent of the CDIC played a ____ role in that country's banking crisis.
A) tiny
B) huge
C) important
D) dominant
Answer: A
Diff: 1 Type: MC Page Ref: 231
Skill: Recall
Objective List: 10.4 Banking Crises Throughout the World