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Why do Manitoba credit unions give rates that good?
June 24, 2018
5:35 am
Jon
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Snoopy, this is what can be describe as good old morals hazard as the risk of the CU is transferred to an entity implicitly gareentee by the government of Manitoba. It also illustrates why it is not a good idea to expand deposit insurance beyond certain degree, despite deposit insurance encourage competition as it put big guy on the same footing with small guy in terms of risk.

June 24, 2018
6:44 am
snoopy
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But there are different types of deposit insurance is not the CDIC better insurance than DGCM . the federal government has a better balance sheet than the Manitoba one .

And in talking to the DGCM they do not check for fraud . in the book of their FI . so what happened at home capital could easily happen at their FI , their seemed to be no outside oversight of how the money is lent . The CEO could lend it all to his wife and then bankrupt the FI .

But I do not know if in the federal system it is any different

What I see is that the customers at the federal FI who dose not meet the news standards can no longer qualify for the preferred customer discount . and so can get a lower rate mortgage from a cu.

This moves the riskiest people from the federal system to the provincial. increasing the risk of failure in the credit union and de risking the federal FIs

In addition when I pointed out that at home capital they were unable to sell the mortgage contract because they could find no buyer I was told that they expected the mortgage contracts to sellable in any failed FI and only keep about 10% of the value of all their FI in the fund .

Dose the CDIC do better than this ?

June 24, 2018
10:14 am
Bud
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Cdic is more secure than dico technically. Don't assume feds will bail out provincials. What's concerning is the suggestion by the past administration in Ontario that they'd spend at all costs. I expect the new admin will shore up the books.

June 24, 2018
1:53 pm
Bill
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I think all this has been covered here before, if anyone wants to search.

DGCM is not part of the Manitoba gov't, CDIC is a federal crown corp thus is part of the federal gov't. Neither the federal gov't nor the Manitoba gov't has any connection to guaranteeing Manitoba provincial credit unions, as far as I know.

Can anyone clean up the title of this thread? Makes it look like we're not very bright.

June 24, 2018
2:51 pm
Jon
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Bill, when fece hit the fan, government will have to bail out deposit insurance scheme unless it want to face massive political blowback that will easily pull down the government, hence, there are implicit government gareentee for all deposit insurance scheme dispite there is no explicit gareentee.

I will be suprise if no bright people raise this point before.

June 24, 2018
3:30 pm
snoopy
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A crown corporation is a company owned by the federal government
That is not a part of the federal government

And any government could choose not to bail out an insurance plan
At any time their would be blow back if they did as well . in addition this government would have to be able to raise the money to do so .

If their were no assets of value in the FI could the feds or the provinces of Manitoba cover all the deposits in the FI

I asked DGC of Manitoba say the fund is 10 % of all deposits approx

I also asked if a deposit they covered was the same risk as a government bond .
The answer was no they are not selling government bonds when you purchase a GIC in one of their FI

So you may think there is an implicit grantee by the DGCM but they do not . But I guesses you are brighter than the person running the fund and I suspect every person you have met or ever will meet .

Why be insulting to people ?

The tread has value to me it has shown me that there are other with the same concern and that they have limited their . investment in Manitoba credit union because of it .

June 24, 2018
3:52 pm
Top It Up
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snoopy said

The tread has value to me it has shown me that there are other with the same concern and that they have limited their investment in Manitoba credit union because of it.  

NOPE ... I'd venture that lots of individual savers have 7 figures in cash, at MB CUs ... not very many are interested in chasing around the country to find 10-15 FIs to park that money at and keep track of it for yearly tax and estate purposes.

June 24, 2018
4:22 pm
Jon
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Perhaps my hubris get the better side of me, and if apology is need, i am willing to give.

However, implicit guarantee is a thing, that's the reason why Fannie Mae and Freddie Mac turns into gigantic monster before it collapse as investor believe their security are guarantee by Washington, which allow them to enjoy lower cost of borrowing compare with their Wall street rivals.

From what Top It Up and hotmoney described, that is sadly, the case here for Manitoba CU, where the implicit "unlimited amount" guarantee of the government of Manitoba allow those CU to absorb massive amount of deposit by giving them competitive advantage. When this privilege is abuse, which is likely as individual members have little knowledge and interest to monitor CU (Compare with banks in which large institutional shareholders keeping a close eye on everything). Depositors and tax payers of Manitoba will have to pick up the pieces. The later claim means the government will have to step in to ensure there will not be a total destruction of the industry and cost many more people to loss their saving and create a massive political and economical firestorm.

P.S: fix spelling mistake and grammatical error, as I was previously typing on my phone.

June 24, 2018
5:09 pm
Top It Up
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From the Globe and Mail -

Alternative mortgage lenders struggling to cash in on new stress-testing rules

Canada's alternative mortgage lenders are not getting the anticipated boost to business from the introduction of tougher mortgage qualification rules that took effect three months ago.

Credit unions and other non-bank lenders were expected to see a bump in business after Canada's banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), imposed new rules on Jan. 1 requiring banks and other regulated institutions to ensure borrowers can afford their mortgages even if interest rates were significantly higher than the negotiated rate.

The stress-test rule does not apply to lenders that are not OSFI regulated, including provincially regulated institutions such as credit unions, which were expected to lure customers who were turned away from the banks by the tougher new standards.

But home buyers have so far not moved in droves to alternative lenders, in part because real estate sales remain slow in major markets such as Vancouver and Toronto, cooling mortgage demand in the first quarter of 2018.

Banks are also working hard to keep clients, while many credit unions say they are taking a conservative approach to wooing customers who do not qualify for loans elsewhere.

http://www.globeinvestor.com/s.....NKMORTAGES

June 24, 2018
9:17 pm
Loonie
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FWIW, I don't think Jon was being insulting, just straightforward.

"There are four provinces in Canada in which credit union membership borders on half of the population: Manitoba, Québec, Saskatchewan, and British Columbia" -
http://anserj.ca/index.php/cjn.....le/236/142
This interesting article does not tell us what percentage of MB mortgages are held at CUs as opposed to banks, but if about half the population belongs to a CU, if CUs are the only FIs available in many smaller communities and rural areas, and if people shop around for the best deal and find it at CUs, then I wouldn't consider CUs an 'alternative lender' in the MB context unless they have a higher-than-average default rate. I would consider that they are better judges of risk than the banks because of their local knowledge.
Unfortunately, I have not been able to find the definitive answers to all these questions.

June 25, 2018
4:56 am
Top It Up
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June 25, 2018
4:57 am
NorthernRaven
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June 25, 2018
5:26 am
Top It Up
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There is also THIS lending facility in Manitoba -

Manitoba Agricultural Credit Corporation: The Manitoba Agricultural Credit Corporation is a provincially-operated corporation which provides funds to farmers. District offices are located at a number of locations in Manitoba, each having a loans officer to assist the applicant in processing the loan application. The Manitoba Agricultural Credit Corporation may make loans to farmers to assist them in the following ways:

- to diversify the farming operation

- to carry on or improve a farming operation

- to relocate on new land whereby the farmer will be better able to carry on a farming operation

- to establish or develop a farming operation that will assist the farmer in the farming operation.

http://www.realestatemanitoba......_class.htm

https://www.masc.mb.ca/masc.nsf/lending.html

June 25, 2018
7:39 am
Bill
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From the CDIC website:
"We are the federal Crown corporation – a part of the Government of Canada - that protects eligible deposits........."

From the DGCM website in response to the question "Is the DGCM part of the Manitoba government?":
"No. The Deposit Guarantee Corporation of Manitoba is established under The Manitoba Credit Unions and Caisses Populaires Act. A Board of Directors, appointed by the Lieutenant Governor in Council of Manitoba, oversees the Deposit Guarantee Corporation of Manitoba."

The DGCM site goes on to make clear that "There is no legislated requirement for the Manitoba government to provide financial support to the Deposit Guarantee Corporation of Manitoba."

What a government of the day would do in response to an inability by either CDIC or DGCM to meet its commitments is speculation.

June 25, 2018
8:55 am
NorthernRaven
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This topic cycles around and around. CDIC has an authorized borrowing limit of $23 billion, which would be something like a humongous 350 basis points of insured deposits. CDIC is a Crown agent, so its debts are the governments. No worries there.

Manitoba large credit unions have healthy equity reserves, and between that and CMHC insurance on a chunk of their loans, it would take a very heavy catastrophe to send one insolvent. DGCM has a fund of over $300 million, or about 115 basis points of deposits, which could clean up a lot of damage. I think FDIC in the US proportionately burnt through more that that at the worst point, but the books of Canadian credit unions aren't going to have that sort of synthetic toxic sludge.

Non-resident online investors presumably don't care about the destruction of Manitoba's financial system, jobs wiped out, etc., as long as things can be liquidated out and their deposits returned, which would seem likely. If one wishes to believe the Manitoba government (or the federal financial system, for that matter) would be as unconcerned as to let things get that far without providing some stability, feel free.

Going on about deposit guarantees without being willing to do a little basic quantitative thinking is rather pointless.

June 25, 2018
3:12 pm
Loonie
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Top It Up said
There is some credit union / bank "comparing" information in this CCUA publication -

https://www.ccua.com/~/media/CCUA/member_corner/publications/pdfs/2017%20Community%20and%20Economic%20Impact%20Report.pdf?la=en  

Thanks.
Page 20 shows loan losses as a percentage of amounts loaned by credit unions to be less than half the losses of banks over a 20 year period. Further, the loss rate of CUs is far less volatile.
There are various reasons for this and banks are a somewhat different kettle of fish, but this does point to sound risk-taking on the part of CUs. They may be called "alternative lenders" with a somewhat disparaging tone because they sometimes take clients who are rejected by the banks but I don't think this negativity is warranted.

June 25, 2018
5:35 pm
Bud
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Simply put why Manitoba pays higher rates.

""The DGCM site goes on to make clear that "There is no legislated requirement for the Manitoba government to provide financial support to the Deposit Guarantee Corporation of Manitoba.""

This means Manitoba technically doesn't have any government deposit insurance its like the investment dealers association. Why I would limit my deposits out there. I worry that a radical leftist or corrupt gov as we've had a taste of in another province would say "the rich can afford to pay a bit more". The rich use to be 220k+ now its 100k+ Horwaths new benchmark.

June 25, 2018
8:35 pm
Jon
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Bill, Hotmony and NorthernRaven, what I am trying to say is even when there are no explicit guarantee by the government. If people treated FIs as if it is guarantee by the government, this will cause investors to neglect their risk assessment process and create competitive advetange for FIs covered under this scheme. This imply those FIs can become very large AND investor of those FIs will be more incline to allow those FIs to make risky decision as they believe they no longer bear the risk.This is a recipes for disaster and government will need to step in because those FIs are more likely to fail AND they are now too big to fail, which cause such assurances by the government become self fulfilling prophecy.

This is the type of mentality NorthenRaven demonstrate when he/she say:

If one wishes to believe the Manitoba government (or the federal financial system, for that matter) would be as unconcerned as to let things get that far without providing some stability, feel free.

It is perfectly possible to debate the utility and fallacy of policies in an abstract and conceptual manner.

I do agree with the implicit message of Snoopy and Hotmony to educate people that such guarantee does not exist, but I doubt how useful this will be until people learn it the hard way, in which the government are disincline to do so. The road to hell is paved with good intentions, after all.

June 26, 2018
6:01 am
Top It Up
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Of course, you can always keep your money at home stashed in the matrimonial mattress, bearing in mind, your house insurance won't cover your loses should there be a catastrophic event at your residence.

June 26, 2018
6:50 am
snoopy
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Is the CIDC backed by the power of taxation ?

The same as a government of Canada bond ?

When I buy a GIC in an FI coved by the CDIC there is no different between that GIC and a government of Canada bond .

As to putting money under the mattress . well you could put your money in a government bond and have it back by the power of taxation .

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