Depository and non-depository institutions
◈ 4 cardsWho takes deposits, who does not, the Canadian names for both, and which level of government regulates each.
One test: does it take deposits?
Every financial intermediary in the previous lesson stands between savers and borrowers. What separates them is the claim they issue to the saver. A depository institution issues a deposit — a claim repayable on demand or at a short fixed term, transferable by cheque or transfer, and in Canada eligible for deposit insurance. A non-depository institution issues something else — a policy, a pension promise, a fund unit — and is still an intermediary, because it still pools funds and holds a different claim on the borrower.
Worked example — sorting eight institutions
Sort these, and say which level of government watches each.
Depository: - Chartered banks — federally incorporated under the Bank Act, supervised by the Office of the Superintendent of Financial Institutions (OSFI). Schedule I banks are domestic; Schedules II and III are foreign-bank subsidiaries and branches (Module 3 takes the schedules apart). - Credit unions and caisses populaires — member-owned co-operatives, provincially regulated as the general rule (a federal credit-union option exists under the Bank Act, but it is the exception). A caisse populaire is the Québec form of a credit union. - Trust companies — take deposits and act as fiduciaries: trustees, estate administrators, custodians. Federal trust companies are supervised by OSFI; provincial ones by the province.
Non-depository: - Life insurers — collect premiums, invest them, pay claims decades later. Intermediaries without deposits. Federal insurers answer to OSFI for solvency; the sale of insurance is provincial. - Pension plans — collect contributions, invest, pay retirement income. Federally registered plans are supervised by OSFI; most are provincial. - Mutual fund managers — pool investor money into fund units. Regulated as securities, provincially. - Investment dealers — underwrite and trade securities. Provincially regulated, through the self-regulatory organisation CIRO (Module 3). - Finance companies — lend for cars, equipment and consumer purchases, funded by their own borrowing rather than deposits.
The split that the exam keeps asking
Banking is federal; securities are provincial. A conglomerate that owns a Schedule I bank and an investment dealer answers to OSFI for the bank and to a provincial securities regulator, through CIRO, for the dealer. The Bank of Canada supervises none of them: it is the central bank, running monetary policy and the payments system, and it is the distractor most often placed beside OSFI.
Six more to sort
(1) A Québec caisse — depository, provincial. (2) A property-and-casualty insurer — non-depository, OSFI for the federal ones. (3) A federally chartered trust company — depository, OSFI. (4) An exchange-traded-fund manager — non-depository, provincial securities regulation. (5) A payday lender — non-depository (funds itself by borrowing), provincial consumer-protection law. (6) A Schedule II bank — depository, OSFI. If you placed the ETF manager under OSFI, notice the rule: a fund is a security, and securities are provincial.