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The Canadian government has mapped out the specific process for creating a so-called “bail-in” regime for the country’s biggest banks aimed at keeping taxpayers off the hook in the unlikely event of a bank failure.

The bail-in structure, framed by the Department of Finance and complemented by new loss-absorbency guidelines from Canada’s main bank regulator, is part of a global response to the financial crisis of 2008. The banks will have to begin making changes next year but they will have until November of 2021 to reorganize their balance sheets to accommodate the new rules.

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Analysts expect the impact on bank earnings and the cost of capital to be minor.

Converting debt

As opposed to a bailout, in which an outside agency such as the government provides financial assistance to a bank that is deemed non-viable, a bail-in involves automatically converting certain debt securities into regulatory capital to stabilize the financial institution.