A Canadian seniors advocacy group and at least two economists believe the limit on deposit insurance in this country should be increased in the wake of the collapse of California-based Silicon Valley Bank (SVB), which was shuttered by U.S. authorities after a bank run left the US$200-billion lender without enough funds to survive.

Canadian bank deposits are currently guaranteed by the Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation established in 1967. But the amount depositors can get back in the case of a bank closure is limited to $100,000 per category of deposit, per financial institution. While there are some differences in the insurance regime south of the border, the U.S. limit is US$250,000 (or approximately $340,000) — nearly three-and-a-half times the Canadian cap.

Anthony Quinn, a spokesperson for the Canadian Association of Retired Persons (CARP), said the limit in Canada needs to double at least.

“For older savers, the RRIF accounts, for example, are still capped at $100,000 of insurance which could include lump-sum pensions, conversion of their RRSPs, or the equity from a home sold when downsizing. A substantial part of their savings are likely at risk with such a low threshold of CDIC protection,” he added.

Most industry observers believe the risk of a major bank failure in Canada is extremely low, given that the sector is dominated by a few large banks with diversified deposit bases. SVB’s business model, by contrast, focused mostly on technology start-ups, an all-eggs-in-one-basket strategy that some have blamed for its downfall.

Even so, Amir Barnea, an associate professor of finance at HEC Montreal, believes that when the SVB “dust settles,” Canada needs to revisit its insurance limit on deposits.

“This number needs a serious update,” Barnea said in an interview on March 13, while referring to the $100,000 figure, which was set by the CDIC in 2005.

“It should have been higher by 42 per cent, just to keep up with inflation … it doesn’t make any sense,” he added.

When asked about the limitations of the $100,000 cap, CDIC spokesperson Mathieu Larocque said that the deposit insurance at a single institution could be as high as $800,000, since the coverage is up to $100,000 in each of its eight deposit categories.

“The limit can be much higher if savings are placed under different categories and at different member institutions,” he said in a statement to the Financial Post.

The categories Larocque was referring to are: deposits held in one name; joint deposits that are held in more than one name; registered retirement savings plans (RRSP); registered retirement income funds (RRIF); tax-free savings accounts (TFSA); registered education savings plans (RESP); registered disability savings plans (RDSP); and deposits held in trust.