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EQ Bank, Too good too be true?
July 1, 2017
9:52 pm
AltaRed
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Loonie said

The other thing EQ has done to protect itself is to restrict deposits to 100K. That way, they know everyone is fully insured by CDIC (not including interest) and therefore has less reason to bolt if things get rough. I have the feeling that HCG's withdrawal problems may have been because of people who had deposited over-CDIC limits and then withdrew them.  

Good point!

July 3, 2017
7:54 pm
NorthernRaven
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Loonie said

The other thing EQ has done to protect itself is to restrict deposits to 100K. That way, they know everyone is fully insured by CDIC (not including interest) and therefore has less reason to bolt if things get rough. I have the feeling that HCG's withdrawal problems may have been because of people who had deposited over-CDIC limits and then withdrew them.  

EQ put in the $100K limit just a few weeks after they started up - I'm pretty sure that was due to the fact they got way more money (and maybe some bigger batches) than they were expecting, and they were burning through their tolerance for paying out 3% interest... 🙂

AltaRed said
Really don't know what their end game is because we all know from HCG's experience, HISA accounts are 'fleeting'. Deposits can vanish in a month. And if their back office operations are as poor as mentioned in this thread, I wish those now opening accounts the best of luck.  

Actually, I think Oaken (retail HISA) balances survived much better than the Home ISA varieties in brokerage and advisor accounts (also, though, the ISAs had lower rates, and there are a bunch of "me too" alternatives that can easily be switched to without moving the money around). An actual run like Home had is something of a freak, given there really weren't any fundamental threats. Home's demand deposits were only a minority of its funding, and it would be pretty strong to say that demand accounts should be considered completely unsuitable for large, well-capitalized FIs like that.

July 3, 2017
8:30 pm
AltaRed
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NorthernRaven said
Actually, I think Oaken (retail HISA) balances survived much better than the Home ISA varieties in brokerage and advisor accounts (also, though, the ISAs had lower rates, and there are a bunch of "me too" alternatives that can easily be switched to without moving the money around). An actual run like Home had is something of a freak, given there really weren't any fundamental threats. Home's demand deposits were only a minority of its funding, and it would be pretty strong to say that demand accounts should be considered completely unsuitable for large, well-capitalized FIs like that.  

Seems to me there is a lesson to be learned here though that it does not take that much of a socket wrench in the gears to cause a run. It was that run (agreed mostly via HT ISAs) that caused HCG to grovel for very expensive capital. EQ may think their retail channel would stand up well too in even of a major misstep but somehow I still think the HCG experience was/is a 'classic' more than it was a 'freak'. If I was going to have a huge demand account base, I'd have an offsetting demand loan base too.

July 3, 2017
10:17 pm
Loonie
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EQ is advertising aggressively right now, so they obviously think they can handle more deposits easily. What they have not done is increase the deposit limit or open the accounts to joint account holders - both of which would be way cheaper than running these expensive ads. I think the 100K limit is a policy grounded in other concerns than what they are going to do with the money if they should get it. Initially, they did not have the limit because they simply wanted to get rolling, attract enough money to be viable, and attract public interest.

EQ probably anticipated that they might lose some deposits when they lowered their rates. They have more or less maintained their lead in rates, but there have been promos from Ideal, Tang, PC snipping at their heels, plus the one year cashable GIC at Hubert which has often been 2.05%.

I note that AlternaBank reduced its limit for new clients from 1 million to 250K on May 1 of this year, in the wake of the HCG fiasco. Coincidence?

December 16, 2017
7:55 am
Dave
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I have had an EQ account since shortly after it came online and have had only good experience other than disappointment when they lowered their rate from 3% although I did expect that to happen.

Very easy to link with other bank accounts and transfer money in or out. As long as you stay under the 100k CDIC limit I would recommend using EQ.

December 16, 2017
12:05 pm
Yatti420
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I'm Happy.. Would like to see rates start climbing 🙂

December 16, 2017
4:35 pm
Doug
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Loonie, I have to agree with NorthernRaven here. I don't think EQ Bank's $100,000 maximum balance per customer has anything to do with CDIC protection, personally, although that may be a bit of an added benefit. 🙂

It's a combination of what NorthernRaven mentioned, with them being inundated with new deposits, but it's also to protect EQ Bank mainly in the sense that the amount in liquid direct-to-consumer HISAs would be limited to $100,000 and, thus, they would not see the a "run on the bank" like Home Bank/Home Trust did back in late March/early April, which would cause a crisis of liquidity and be of concern for banking regulators.

While they have some attractive features vis a vis free bill payments and 5 free Interac e-Transfers, on the whole, it's less compelling than, say, an Alterna Bank, which offers the same or Simplii Financial chequing/savings combo pared with a Motive Financial, Implicity Financial and/or Hubert Financial, in my opinion.sf-cool

Cheers,
Doug

December 16, 2017
7:25 pm
Loonie
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i no longer remember the exact sequence of events, but if, as NorthernRaven asserts, EQ put in the deposit limit quite early, then it was not in response to Home Capital's crisis - although it could have been possibly to prevent a "run". But I don't see that a deposit limit prevents a run. Seems lo me that only withdrawal limits prevent that.
i think the strategy is simply to grow their client base by drawing deposits from as many people as possible to meet their loan obligations. Otherwise, there would be no advertising needed.

December 16, 2017
8:26 pm
NorthernRaven
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Loonie said
i no longer remember the exact sequence of events, but if, as NorthernRaven asserts, EQ put in the deposit limit quite early, then it was not in response to Home Capital's crisis - although it could have been possibly to prevent a "run". But I don't see that a deposit limit prevents a run. Seems lo me that only withdrawal limits prevent that.
i think the strategy is simply to grow their client base by drawing deposits from as many people as possible to meet their loan obligations. Otherwise, there would be no advertising needed.  

EQ's $500K grandfather date was Feb 21, 2016, not much more than a month after they launched. At 3% presumably they got a lot more "whale" money then they expected.

December 16, 2017
9:00 pm
User230
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NorthernRaven said

EQ's $500K grandfather date was Feb 21, 2016, not much more than a month after they launched. At 3% presumably they got a lot more "whale" money then they expected.  

It's more like they hit the amount they targeted. At a certain point 3 percent on a deposit doesn't make sense if you don't need that deposited money to back the loans you are giving.

They simply hit the amount they needed to back those loans they wanted to give and decided to implement measures to slow the amount of money being deposited. As they didn't need to give that 3% for deposits any longer. It probably had nothing to do with a run on the bank in my opinion, it wasn't a preventive measure to prevent a run. It was a preventive measure to prevent continuing lose of 3% on money they didn't need.

Another idea was that the 3% was just a promo rate and they wanted to keep it going as long as possible and so lowered the amount (500,000 to 100,000) to try and prolong the 3% promo.

December 17, 2017
12:42 pm
Doug
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Loonie said
i no longer remember the exact sequence of events, but if, as NorthernRaven asserts, EQ put in the deposit limit quite early, then it was not in response to Home Capital's crisis - although it could have been possibly to prevent a "run". But I don't see that a deposit limit prevents a run. Seems lo me that only withdrawal limits prevent that.
i think the strategy is simply to grow their client base by drawing deposits from as many people as possible to meet their loan obligations. Otherwise, there would be no advertising needed.  

Not in response to HCG's liquidity crisis, no, but I think it was forethought and prescience that prompted the change. The rationale is still the same. 🙂

Cheers,
Doug

December 17, 2017
12:43 pm
Doug
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Loonie said
i no longer remember the exact sequence of events, but if, as NorthernRaven asserts, EQ put in the deposit limit quite early, then it was not in response to Home Capital's crisis - although it could have been possibly to prevent a "run". But I don't see that a deposit limit prevents a run. Seems lo me that only withdrawal limits prevent that.
i think the strategy is simply to grow their client base by drawing deposits from as many people as possible to meet their loan obligations. Otherwise, there would be no advertising needed.  

Withdrawal limits only delay a bank run. If you have limited per customer balances, you limit your exposure to ongoing, daily withdrawals unless you bank every citizen in the country. sf-cool

Hope that clarifies things for you! 🙂

Cheers,
Doug

December 17, 2017
12:49 pm
Doug
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Respectfully, I wholly disagree with "User" and Loonie on the rationale on this. While I agree it was, in part, to limit the cost impact to paying a high rate of interest, I would highly doubt they launched their efficient, widely touted, electronic banking platform to achieve only a set amount of direct-to-consumer deposits. That would be highly bizarre and be akin to "shooting one's self in the foot." 🙁

I think it was them having the presence of mind to limit their exposure to HISAs. When (or if) they ever launch GICs, or registered plans, I think you'll see the wording of that limitation changed such that it is $100,000 per HISA account type, per customer to allow for higher balances in GICs and/or registered plans. 🙂

Cheers,
Doug

December 17, 2017
6:52 pm
Loonie
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I am puzzled by your analysis, Doug. I don't really want to take the time to look for it now, but the CEO himself said, in only very slightly veiled words, that they had reached their target early and therefore would lower the rate. There was clearly a limit on how much they could absorb in deposits. No doubt, over time,they intended, and still intend, to absorb more, but there is no point in paying out interest on money that you have not yet figured out what to do with. To me, THAT would be bizarre!

Withdrawal limits CAN prevent or limit a run. or postpone it until other measures can be put in place to discourage it They are a tool. Limits can be changed at any time - the amount, the frequency, % of assets etc., to achieve a desired result, even to the point of not allowing any withdrawals at all. This has happened in many countries during banking crises, as I'm sure you know. Only the law can limit the banks' ability to deny access to our funds.

that said, I don't think our arguing about the why's and how's matters much. They did what they did, and will do what they will do, and nothing we can do about it anyway!

So, I'm ready to let the discussion rest.sf-smile

December 18, 2017
11:41 am
Doug
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Loonie said
I am puzzled by your analysis, Doug. I don't really want to take the time to look for it now, but the CEO himself said, in only very slightly veiled words, that they had reached their target early and therefore would lower the rate. There was clearly a limit on how much they could absorb in deposits. No doubt, over time,they intended, and still intend, to absorb more, but there is no point in paying out interest on money that you have not yet figured out what to do with. To me, THAT would be bizarre!

I'm puzzled how you see a difference between what you're saying and what I'm saying. However, there's no such thing as "being able to 'absorb' x number of dollars in deposits". Yes, they may end up with too much capital but how is that a bad thing? If they're paying a daily interest savings account rate that is too high, then either: (a) lower it or, ideally, (b) implement interest rate "tiers" such that balances over x (i.e., $1 million, $500,000 or even $100,000, though that's too low, in my opinion) earn a different, lower rate of interest on the portion of the balance above that defined threshold. Many banks and credit unions already do this, including Motive Financial (i.e., over $1 million). Barring new deposits is not customer centric and counter to a business model of attracting new deposits and customers! Also, their system was built from the ground up to be highly efficient and scalable from technical perspectives so that doesn't wash with me. It's simply an incongruent rationale. I'm kinda surprised that you would defend EQ Bank's odd and peculiar deposit gathering strategy and business practices. 🙁

Withdrawal limits CAN prevent or limit a run. or postpone it until other measures can be put in place to discourage it They are a tool. Limits can be changed at any time - the amount, the frequency, % of assets etc., to achieve a desired result, even to the point of not allowing any withdrawals at all. This has happened in many countries during banking crises, as I'm sure you know. Only the law can limit the banks' ability to deny access to our funds.

Yes, I get that and that's what I said. I actually said that's far more effective than EQ Bank's strategy of placing maximum balance limitations on customers to limit exposure per customer, which also has the effect (but to a lesser degree) on limiting the exposure that a single customer can withdrawal. Think about it for a minute. 🙂

Have I convinced to "rethink" some of your position(s) a bit? sf-cool

Cheers,
Doug

December 18, 2017
6:19 pm
Loonie
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In a word, no.
I wasn't defending them.
No point in taking in deposits and paying interest for them if you don't yet have enough loan customers to absorb the deposits.
I think we should just let it be at this point. I don't think it's worth pursuing. They will do what they wil do.

December 20, 2017
10:55 am
Doug
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Loonie said
In a word, no.
I wasn't defending them.
No point in taking in deposits and paying interest for them if you don't yet have enough loan customers to absorb the deposits.
I think we should just let it be at this point. I don't think it's worth pursuing. They will do what they wil do.  

I see your point in that there is no point in taking in extra deposits if you don't need the capital but this also runs counter to the strategy of literally every other Canadian bank. If banks have too much capital, they can either buy back common shares, preferred shares, increase dividends to common stockholders or make acquisitions. Or, simply, they can "sit on it" and wait for loan growth to come. The problem has more to do with EQ Bank likely paying an interest rate that they cannot afford to profitably pay so, rather than cut the rate or, heck, apply interest rate "tiers," they put in place arbitrarily low balance limitations. This makes no sense! Their virtual online account opening process, free bill payments, five (5) free Interac e-Transfers per month are all attractive offerings but, frankly, a $100,000 maximum customer balance limitation makes me look elsewhere, to the Alterna Bank(s), WealthONE Bank of Canada(s), Motive Financial(s), etc. should I need a further high interest savings account, instead. sf-cool

But, yeah, I'm fine with leaving it rest...I just hope that you can at least see my point(s). 🙂

Cheers,
Doug

December 20, 2017
11:15 am
Bill
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Help me understand: If they can't "profitably pay" an interest rate using the $300,000 I deposited with them how can they make a profit when they pay the same rate on the $100,000 (limit) I deposit with them?

Another advantage of account limits I see is EQ can accept 3 $100K balance customers instead of one $300K customer which gives you more people to sell your other products & services to.

Also there's a difference between using a HISA as a regular account or for high interest savings only. In my case I don't care about all, or even any, of the features, I use my TD chequing account for day-to-day banking and my other 15 or so HISA accounts are there to keep my HISA money at the ones paying the best rate at any time. You're very likely going to need to compromise on rate if you're looking for the HISA that also has the features you need for daily transactions.

December 20, 2017
3:56 pm
Loonie
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I can see the point about building a larger customer base, except that EQ doesn't offer anything else except the HISA. Nor have they tried to sell me anything from parent company.

It may be true that other banks don't operate this way, but it would be wrong to assume therefore that what they are doing makes no sense. If it didn't make some kind of sense, they wouldn't be in business. We just don't know what kind of sense. Perhaps a shareholder can enlighten us after raising this at AGM.

December 20, 2017
8:22 pm
User230
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Loonie said
I can see the point about building a larger customer base, except that EQ doesn't offer anything else except the HISA. Nor have they tried to sell me anything from parent company.

It may be true that other banks don't operate this way, but it would be wrong to assume therefore that what they are doing makes no sense. If it didn't make some kind of sense, they wouldn't be in business. We just don't know what kind of sense. Perhaps a shareholder can enlighten us after raising this at AGM.  

They operate differently and that's a good thing. I don't want them phoning me everyday trying to sell me a credit card or a line of credit.

I'm not a share holder.

I did read someone once that said they knew someone from inside the company. They said something like once interest rates rise they will drop out of the HISA business as they cant keep competeing at a high rate.

I found this to be wrong though. They are developing the quality of their account. Even if it were like 1.8% like most of the other HISA right now I'd stay with them. Just based on their strong no fee attitude. They have advanced features like linking 10 external accounts (the most I know of), payee options for a savings account, extremely simple interface, they don't bother me or if they do it's to tell me I transferred money (so something I actually care about).

They don't have bells and whistles like TFSAs or other stuff. But if you do one thing very well, people will start noticing.

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