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EQ New GIC Offering
May 9, 2021
4:40 pm
Norman1
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Banks are not hedge funds. Their mortgage lending makes money on just that: The guaranteed spread between the five-year mortgage and the corresponding five-year funding.

Those short term bridges of the mismatches don't really count. Lending HISA money on a five-year mortgage until the matching five-year deposits come in a month later is not significant.

Yes, the banks can try to "speculate" a bit by intentionally mismatching a bit. Like a business that only hedges 95% its US$ exposure when it feels like the US$ will rise or hedges it 105% when it feels like US$ will fall.

When they can leverage 10X+, the banks don't need to speculate and take on more risk. Their leverage allows them to turn a guaranteed 1.5% per annum spread into guaranteed 15% per annum return on capital.

The banks don't need to have five year bonds and GIC's for all the mortgages they originate. They only need those bonds and GIC's for the mortgages they keep for themselves. That's why it is obvious to me that Equitable Bank is not keeping those 1.83% five-year insured mortgages for itself when it is paying 1.9%+ on its five-year deposits.

The rest of the mortgages are sold to investors through funds or mortgage backed securities pool. The bank then collects fees for servicing the mortgages (collecting the monthly/semi-weekly/weekly payments and handing calls from the borrowers).

Servicing the mortgages for investors is not as lucrative as keeping the mortgages themselves. But, no funding or capital is required.

May 9, 2021
8:41 pm
Norman1
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Loonie said
So, all 3 of you are now agreeing with what I said in the first place, that the idea that each mortgage is matched with a GIC doesn't hold water. You all have different versions of this, but it amounts to the same thing from my perspective. Even Norman has now introduced additional sources of funds.

That is a simplified explanation of what happens. It is correct. The mortgages that the financial institution keeps for itself are bound to some matching funding eventually, if not right away.

The interim bridging with funds from various sources at the start of the mortgage or at the end of the mortgage is not significant.

Bank of Montreal, for example, could fund some of its five year 2.44% mortgages with its own shareholder capital. But, it doesn't make sense to do so. Its common shares come with a non-deductible 3.6% dividend!

If it needs to do so temporarily, the bank will replace that funding ASAP with some of its 1.1% five-year GIC's.

May 10, 2021
5:42 am
savemoresaveoften
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Yes, the banks can try to "speculate" a bit by intentionally mismatching a bit. Like a business that only hedges 95% its US$ exposure when it feels like the US$ will rise or hedges it 105% when it feels like US$ will fall.

Like I said, depends on which banks you worked at, some "speculate" a lot more than u think.
But yeah compare to the grand scheme of things, the amount of speculation is NOT the bulk of their earnings.

August 31, 2021
5:44 am
hwyc
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GIC rates up gently - going to be leader in 2yr (1.60%) & 3yr (1.80%) GIC column on the chart sf-smile

August 31, 2021
8:45 am
Kidd
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HWYC is correct.

Screenshot_20210831-114224.png

September 16, 2021
2:05 pm
snabeen
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My husband and I have a joint savings account at EQ Bank and out of that account I purchased a $100,000 GIC. EQ doesn’t offer jointly held GICs so the GIC is in my name only. If I were to deposit an additional $100,000 in our joint account would we have CDIC coverage for the total amount of $200,000?

I’ve spoken to an agent at their office plus I had an online chat with a different agent and have been told two different things. The first person said we would only be covered for a total of $100,000 insurance (not $200,000) because the GIC in my name only was purchased from the joint account with the same account number and the second person said the total amount of $200,000 would be covered because one deposit is jointly held and the other is in my name only. I think the answer from the second person is the correct one but I’m wondering if anyone has any comments.

I can’t see the answer to this specific question about insurance coverage in their FAQ section. Thanks.

September 16, 2021
2:12 pm
Bill
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You would have $200k coverage, $100k for you and $100k for you and husband.

September 16, 2021
3:32 pm
HermanH
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I think that both EQ answers are correct, because they answered to different things.

If you only have one EQ account and it is held jointly, then you do not have $200K coverage. The $100K CDIC cover is only for the account. Both of the joint holders cannot each claim $100K coverage from the same account.

If you had, say, three accounts. 'Jane', 'John', and (joint) 'John-Jane', accounts, then the 'Jane' and 'John' accounts each have 100K coverage. The 'John-Jane' joint account can claim a total of $100K coverage (I think it can be split amongst the holders.)

The situation you have outlined sounds like you only have a single joint account.
You put $100K into it and then bought a $100K GIC from that account.
A second deposit into the lone joint account would exceed the CDIC $100K limit.

If you place the second $100K deposit into a personal account for either 'John' or 'Jane', then it should be covered by an additional $100K CDIC coverage.

September 16, 2021
4:28 pm
snabeen
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Thank you both but I’m still confused.

The first EQ client rep I talked to today via the online chat said because the $100,000 GIC in my name only originally came from our joint savings account, then we would only have $100,000 coverage in total. He said if we put an additional $100,000 in our joint savings it would not be covered by CDIC. I told the rep that I’d phoned CDIC earlier and was told that if the bank doesn’t offer joint GICs and the GIC is in my name only then it has separate CDIC coverage from the money held jointly in our savings account. The EQ person then went to speak to a supervisor for clarification but our conversation was eventually disconnected before he returned with the answer.

I then phoned the bank and spoke to a different rep who told me that the online rep was incorrect and we would have $200,000 coverage in total because the GIC is in my name only, even though it was purchased from our joint account. I guess I need to phone again and ask to speak to a supervisor. I would feel more comfortable if I had the answer in writing. My husband and I actually do have accounts in our own names as well, each with a 0 balance. When I originally purchased the GIC from the joint account I thought it was held jointly and only found out later that EQ doesn’t offer joint GICs. We could put the additional $100,000 in one of our accounts but we want it to be in a joint account.

September 16, 2021
4:30 pm
Loonie
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I agree; you would have 200K coverage. The GIC is, from the point of view of insurance, yours alone; and the savings are owned by another "person", namely the two of you.

Note, however, that if you have 200K invested, accruing interest will not be covered by CDIC. You might want to withdraw the interest on the savings account monthly, but you can't change the GIC now.

September 16, 2021
4:48 pm
Norman1
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It is current ownership of the deposit that determines the CDIC coverage and not the previous ownership of the money.

While the money is in the non-joint EQ Bank GIC, the money will be under a separate $100,000 CDIC limit from the joint EQ Bank savings account. When the GIC matures and the money is deposited back into the joint EQ Bank savings account, the money will no longer be under a separate $100,000 CDIC limit.

September 16, 2021
5:11 pm
snabeen
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Thanks for your help! I agree and have sent the question to them in an email just to see it in writing.

I just now read this on their website -

Are my deposits with EQ Bank covered by CDIC?
Yes—deposits made under EQ Bank and Equitable Bank are aggregately eligible for CDIC protection up to $100,000, per insured category, per depositor, as outlined in CDIC’s "Protecting Your Deposits". For example, you’re covered for up to $100,000 combined across your individual Savings Plus Account, GICs, US Dollar Account, and any deposits in your name that you have with Equitable Bank. Eligible deposits in your joint account are insured separately.

That last sentence seems to confirm that we should have a total of $200,000 CDIC coverage regardless of where the money originated.

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