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Why do Manitoba credit unions give rates that good?
January 30, 2018
5:15 pm
Loonie
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Top It Up said
While I keep the big money in MB credit unions I also keep between $5,000 - $20,000 in my BIG 5 account for daily living and travel - for me CUs do lag the BIG 5 in offerings that matter to me, for my lifestyle.  

I do that too, but the MB online CUs were never intended to serve all our needs any more than Tangerine, owned by Scotia, was. I could probably do just as well at Meridian, but I'm lazy and TD is much closer to my house.

For people living in Manitoba, a lot of them seem to be able to get all they need from bricks and mortar CU branches, which the rest of us can't access. My friends in Winnipeg, for example, travel several times a year, at home and abroad, and use their bricks and mortar CU exclusively.

For some people, perhaps, such as snowbirds who like the availability of Cdn BigFive accounts which are more useful in the US, they may still be needed - although a lot of them keep their USD at Hubert between trips since they can't get any decent interest at BigFive.

January 30, 2018
6:07 pm
Wayno
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I just assumed that the Manitoba CU's had more risk compared to Ontario because there is no legislated requirement for the Manitoba government to provide financial support to the Deposit Guarantee Corporation of Manitoba in the event of a failure and DGCM was unable to pay.

I always assumed with DICO there was Ont. government support but I cannot find this statement on their web site. Do I have this correct?

January 30, 2018
7:23 pm
Loonie
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I have never heard that there is any backstop from Ont govt., but they are governed by legislation.
I'm not sure why you put "DGCM unable to pay" in bold, as it has never happened and I think it gives the wrong impression to the casual reader.

In understanding all this, it may also be relevant to remember that MB CUs are not permitted to advertise elsewhere, at least not in Ontario and I think not in any other province. I think this lack of presence makes some of us more inclined to be suspicious than the situation merits. If they advertised as much as Tang or Oaken or EQ, we might be more predisposed to view them positively - and that would also take real dollars out of their budget and thus out of depositors' pockets. We benefit from MB CUs' reduced spending.

January 30, 2018
7:46 pm
Norman1
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Wayno said
I always assumed with DICO there was Ont. government support but I cannot find this statement on their web site. Do I have this correct?  

The Ontario government provides DICO with a $400 million line of credit. This is from Note 14(b) of DICO's 2016 Annual Report:

Typically the Corporation ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 90 days, including the servicing of financial obligations, if any; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, 80 percent of the Corporation’s investments are held in highly liquid short-term instruments. Further, the Corporation maintains a line of credit approved by the Minister of Finance of $400 million that can be drawn down to provide liquidity to DICO as deposit insurer of credit unions in the Province of Ontario. The terms of the line of credit require DICO to liquidate its DIRF investments before it can borrow above $20 million. The revolving credit facility has a 5-year term effective from January 1, 2014 to December 31, 2018. Interest would be payable at an annual rate equal to the province’s cost of funds for borrowings for a three month term, plus an additional 0.575 percent, as determined by the OFA at the commencement of each three month period.

I've never seen any statement yet that the Ontario government guarantees DICO's liabilities. So, a DICO-insured deposit is not quite the same as a Province of Ontario bond.

January 31, 2018
6:56 am
Saver Guy_2018
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Hello Bill, here is a great article from Macleans explaining why Manitoba Credit Unions are a great place to invest your money. Hope you enjoy the article!!

http://www.macleans.ca/economy.....e-coffers/

January 31, 2018
7:05 am
Nehpets
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Saver Guy_2018 said
Hello Bill, here is a great article from Macleans explaining why Manitoba Credit Unions are a great place to invest your money. Hope you enjoy the article!!

http://www.macleans.ca/economy.....ffers/  

It's a great article, though somewhat dated... March 12, 2013.

Would be interesting to see a more up to date overview.

February 1, 2018
5:32 pm
Nehpets
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February 23, 2018
6:48 pm
Doug
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I just noticed this in Peter's "savers round up" blog post so I haven't followed this discussion but I will add my "two bits". We've had similar discussions about this in the past. 🙂

I wouldn't say Manitoba CUs are inherently more risky than some of the other CUs across the country (i.e., a small Manitoba CU bears about the same risk as a small CU in northern Ontario). It's definitely not because they're more efficient, as Peter's blog post indicated some in this thread have postulated.

I suspect the reasons are two-fold:

  1. More difficult access to capital and funding sources, owing to Manitoba's smaller, often very rural and remote - not very dense - populations. Manitoba, I would imagine, has an older than average population on a province-wide basis, surpassed only by one or two of the Atlantic Canada provinces or, on a region basis, the Okanagan valley in the southern Interior of B.C.
  2. As a result of all of the above, it's harder and harder for them to compete. So, the second reason is for competitive reasons. They don't have the big ad budgets of the Meridians, Coast Capital Savings, Vancitys, Tangerines, and Simplii Financials so they have to resort to higher rate offerings to maintain a consistent customer base. Also, by growing virtually, they can maintain their rural branches that have declining local memberships.

Cheers,
Doug

February 23, 2018
6:54 pm
Doug
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Norman1 said

The Ontario government provides DICO with a $400 million line of credit. This is from Note 14(b) of DICO's 2016 Annual Report:

Typically the Corporation ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 90 days, including the servicing of financial obligations, if any; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, 80 percent of the Corporation’s investments are held in highly liquid short-term instruments. Further, the Corporation maintains a line of credit approved by the Minister of Finance of $400 million that can be drawn down to provide liquidity to DICO as deposit insurer of credit unions in the Province of Ontario. The terms of the line of credit require DICO to liquidate its DIRF investments before it can borrow above $20 million. The revolving credit facility has a 5-year term effective from January 1, 2014 to December 31, 2018. Interest would be payable at an annual rate equal to the province’s cost of funds for borrowings for a three month term, plus an additional 0.575 percent, as determined by the OFA at the commencement of each three month period.

I've never seen any statement yet that the Ontario government guarantees DICO's liabilities. So, a DICO-insured deposit is not quite the same as a Province of Ontario bond.  

I don't know that any provincial government guarantees their credit union deposit insurer. That being said, if the province of Ontario, as highly indebted as it is, I would question the Province of Ontario bonds (you might end up with "warrants," or IOUs, as happened with California a number of years ago) before I'd question sounder credit unions. Many credit unions are better managed and more solvent than provincial governments. I'm not blaming the provincial governments; just expressing a belief. In fact, there's blame to be shared by the feds for downloading of responsibilities and not properly funding things while they have their "airey fairy" projects going in the NCC, Canadian Heritage, the Canadian Polar Commission (scrap the damn thing finally!!!) and even BDC. There's a bit of a boondoggle in its own right. 🙁

Cheers,
Doug

February 23, 2018
6:59 pm
Doug
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Wayno said
I just assumed that the Manitoba CU's had more risk compared to Ontario because there is no legislated requirement for the Manitoba government to provide financial support to the Deposit Guarantee Corporation of Manitoba in the event of a failure and DGCM was unable to pay.

I always assumed with DICO there was Ont. government support but I cannot find this statement on their web site. Do I have this correct?  

I believe you are correct on both counts but, as per my above post, many credit unions are more sound than provincial governments. In the event of a financial calamity and meltdown larger than 2008, 1987 and 1929 combined, the federal government would probably have to move in swiftly to rescue them all. The Bank of Canada may be tapped to guarantee all deposits and an interim conservator would likely be appointed for the provincial credit union deposit insurers that would govern the country's credit unions. Membership equity shares would be lost, interest payments even be withheld and interest rates set at 0.00%. Capital controls on withdrawals would be put in place but deposits would be protected. However, these sort of "worst case scenarios" of deposit insurers failing and such are never helpful, in my view. It's kind of fun to ponder but they are so remote.

Cheers,
Doug

February 23, 2018
7:02 pm
Doug
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Saver Guy_2018 said
The answer to this question is very simple. It's because they want the business!!  

Saver Guy_2018 is, although a bit vague, bang on. He wins the award for best, most likely answer in this thread. *applause* sf-cool

I would give myself the "runner up"/"honourable mention".

Cheers,
Doug

February 23, 2018
7:10 pm
Doug
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NorthernRaven said

If there were unknown risks, they wouldn't prompt a need for higher rates, since the target customers wouldn't know them. If there were known risks, you'd just have to ask some of the many Manitobans who save with CUs why they are putting their family finances at risk.

Credit unions have been generally required to limit their bricks and mortar customer base to residents of their province. I've never been able to confirm it, but I suspect that for whatever reason, the Manitoba regulators haven't discouraged the online outreach to the rest of the country, whereas other provinces may have been formally or informally less enthusiastic.

Also note, if you offer higher interest rates but are lending at similar rates, your interest margin is reduced, and you have to ensure your operations are designed to sustain this. There's a measure called the efficiency ratio which measures operating expenses over interest income and a couple other factors.  

That's not correct, NR. My understanding is some provinces all their CUs to seek members who reside outside the province while others do not.

As I've stated elsewhere, the following provinces do not permit CUs to sign up new members from outside the province (other than through deposit broker/agency relationships for things like deposits and mortgages):
- B.C.
- Alberta
- possibly Quebec, but it's a whole other "animal" 😉

Saskatchewan, Manitoba and Ontario do permit it. Practically though, most credit unions in those provinces opt not to or require a branch visit to become a member. For instance, Conexus Credit Union and Cornerstone Credit Union in Saskatchewan require finalization in branch. Only Innovation Credit Union allows all-digital account openings from new members outside that province and they're becoming a federal credit union in 2019.

In Ontario, FirstOntario Credit Union permits non-Ontario residents to become members but requires a branch visit. Only Meridian Credit Union, Alterna Savings & Credit Union Ltd and DUCA, I believe, permit all-digital account openings from non-Ontario residents and Alterna Savings & Credit Union steers its non-Ontario customers to their Alterna Bank subsidiary while Meridian Credit Union is, supposedly, incorporating a chartered bank subsidiary like Alterna.

Cheers,
Doug

February 26, 2018
9:07 am
moneyhelp
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NorthernRaven said

Credit unions have been generally required to limit their bricks and mortar customer base to residents of their province. I've never been able to confirm it, but I suspect that for whatever reason, the Manitoba regulators haven't discouraged the online outreach to the rest of the country, whereas other provinces may have been formally or informally less enthusiastic.

  

My understanding is that this is not correct. CU regulators prohibit advertisement to outside provinces, although some credit unions, including MB, will accept prospective members who reside outside of province to become members.

Case-in-point was Hubert got into some financial hot water for this very reason. I am a member of Hubert where I store some of my USD cash since they have the best rate in Canada (correct me if I'm wrong).

February 26, 2018
10:04 am
NorthernRaven
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moneyhelp said

My understanding is that this is not correct. CU regulators prohibit advertisement to outside provinces, although some credit unions, including MB, will accept prospective members who reside outside of province to become members.

Case-in-point was Hubert got into some financial hot water for this very reason. I am a member of Hubert where I store some of my USD cash since they have the best rate in Canada (correct me if I'm wrong).  

That was physical advertising that got Hubert in hot water back in 2010- ads on the sides of buses and/or newspapers, etc. in Saskatchewan and Nova Scotia. They got their knuckles rapped since they can't advertise outside Manitoba. But an internet site is apparently not considered a physical advert in the same way, so there is nothing the provincial regulators can do. There are two main reasons that pretty much all the national CU online high-interest offerings are from Manitoba:

  1. The CU can't accept (even online) customers from outside the province. I think this was mostly all except Manitoba at one time, although Meridian in Ontario is now accepting national customers.
  2. The CU can't offer competitive rates to make it worthwhile doing this (or doesn't need the additional deposits). If someone in, say, Nova Scotia is willing to place their money with an online credit union, they likely won't be interested in 1.3% in a CU in province X if they can get 2% from any number of Manitoba alternatives. Meridian is the only non-MB CU on the list here, and at 1.4% I'm not sure how much national money-flow they might be attracting, unless they have other features of interest.

I have difficulty believing that the capital structures of Manitoba CUs are so different from all others that 7 of them find it worthwhile to do online HISA stuff, for well over a decade, and essentially none from BC, Saskatchewan, etc (with that Meridian exception) have, so I think you'll find that various combinations of those two reasons will explain things.

March 16, 2018
10:00 pm
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Alterna Bank is owned by a credit union and is on the list too. It's Ontario

March 17, 2018
1:24 am
Loonie
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Vatox said
Alterna Bank is owned by a credit union and is on the list too. It's Ontario  

Yes, but it is nonetheless a bank, operating separately from Alterna Savings CU, and is CDIC-insured.

March 17, 2018
10:59 am
Doug
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That's correct, NR. There's nothing materially different in the Manitoba capital structures (i.e., shares). There could be some differences in capital adequacy requirements, though. That's likely one of the reasons for the formation of the Credit Union Prudential Supervisors Association, to standardize or harmonize things like capital adequacy and liquidity requirements of provincially-regulated credit unions. sf-cool

Some provincial credit unions are incorporated with "Ltd" in their legal name, like Ontario, Alberta, Manitoba, and Saskatchewan, but that's not a material difference.

On the advertising point, yes, they may be prohibited from advertising outside their home province (their own website and social media site would not be, but banner ads on third party sites would be). That's be regulated by their home province, though, not other provinces; however, other provinces could potentially see that as advertising an unlicensed financial institution in their province. That's changing, though, especially as we adopt more inter-provincial trade agreements governing such things so I think you'll see much less, if any, "turf wars" like Hubert, unfortunately, had to endure. 🙁

Cheers,
Doug

June 22, 2018
7:25 pm
Bud
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The way I look at investing in Manitoba is each CU or all. For example, say you have 300k to invest it doesn't matter if you spread it out among the different CUs in Man. or just one of them because the Deposit Guarantee Corporation of Manitoba covers them all as one. Am I right to think this way? The only thing that makes me a bit more cautious out there is DGCM is backed by the CUs themselves not the Manitoba gov., although there has been suggestion the gov would step in to help if the CUs couldn't fulfill their guarantees. I don't like the way they play fast and loose out there you call in and all the CUs act like DGCM is backed by the gov.

June 23, 2018
11:06 am
snoopy
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I have the same kind of question as you what is the different in risk between any cu in Manitoba if they all DGCM as their guarantor ?

I have asked at the credit union an every one has answered the same when I ask about risk they say the DGCM give you back your money if we fail .

I contacted the DGCM and asked about this They say that deposit issuance is plan B and not a plan A . I pointed out that all credit union I have contacted all say the same when I ask about risk DGCM . they never speak of managing the credit union well or their themselves at all

Further their was one were I wrote to the ceo of one of them and asked about risk did get an answer she said they are not stress tested like the bank and that nearly every loan in their portfolio was connected to residential restate .

Since this was a city credit union ( branches only in Winnipeg ) I have been moving my capital out to credit unions who have branches in rural areas hoping that their lending is to farmers and not near all connected to residential real-estate .

If you are asking about the stability of any credit union in Manitoba I have questioned it myself . or why take a low rate from one when they are all the same risk ?

Are CDIC FI better than the DGCM ?

June 23, 2018
7:41 pm
Bud
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I got the same run around as snoop so i invest less amount with them. If it was clear Man. gov would step in id do more.

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