Why do Manitoba credit unions give rates that good? | Page 4 | General comparisons | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
Why do Manitoba credit unions give rates that good?
June 26, 2018
7:44 am
Bud
Member
Members
Forum Posts: 1147
Member Since:
February 20, 2018
sp_UserOfflineSmall Offline

Re: Cdic backed by gov taxation

I don't believe so technically.

The most secure investment during the financial crisis was CSBs Canada Savings Bonds of all things you had the physical certificate, even Canada bonds are in the street name of the brokerage so technically if say td securities failed u'd be wiped out as they were holding the canada bonds in their name for you.
Not csb u held physically.

Those who held CSBs at the time did well with the interest rate something like 4% escalator or more cashable was it every 6mths for a few years as rates dropped like a rock after a brief rise.

They got rid of the client "hold physical certificate" system for stocks and bonds so in the next crisis where are investors to go. Pulling money from bank holding large amounts of cash at home is risky robbery etc..

June 26, 2018
8:34 am
Bill
Member
Members
Forum Posts: 1987
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Jon, if you're saying that guaranteed, implicit or explicit, backstop by gov't (insurance) means people will tend to disregard risk and thus exacerbate the problem of people herding their money to riskier fi's, then I can't really disagree with that. But Canadians have been "taught" for some time now that when bad things happen to us the correct response is to look to someone else for help and support, so I suppose it's all in sync.

June 26, 2018
9:07 am
NorthernRaven
Moderator
Moderators
Forum Posts: 457
Member Since:
August 4, 2010
sp_UserOfflineSmall Offline

hotmony said
Re: Cdic backed by gov taxation
I don't believe so technically.

You believe incorrectly. CDIC is an "Agent of the Crown" (per section 3(2) of the CDIC Act). CDIC's obligations are ultimately the government's, should it ever come to that.

Provincial guarantee corporations seem not to be designated agents of their provincial crowns in the same way, thus the lack (explicitly noted by Manitoba) of a government guarantee. However, they are directly established by legislation, their boards are appointed by the governments, and they are enabled to act in effect as a primary regulator of credit union activities.

June 26, 2018
9:37 am
snoopy
Member
Banned
Forum Posts: 34
Member Since:
June 9, 2018
sp_UserOfflineSmall Offline

hotmony said
Re: Cdic backed by gov taxation

I don't believe so technically.

The most secure investment during the financial crisis was CSBs Canada Savings Bonds of all things you had the physical certificate, even Canada bonds are in the street name of the brokerage so technically if say td securities failed u'd be wiped out as they were holding the canada bonds in their name for you.
Not csb u held physically.

Those who held CSBs at the time did well with the interest rate something like 4% escalator or more cashable was it every 6mths for a few years as rates dropped like a rock after a brief rise.

They got rid of the client "hold physical certificate" system for stocks and bonds so in the next crisis where are investors to go. Pulling money from bank holding large amounts of cash at home is risky robbery etc..  

I agree about bonds with you

But wee then can you put your money that is safe
What has changed about Canada is that so many rating agency and a like have warned that the lending in Canada is to large and inappropriate .

With such an unstable situation once again not my view but moody and many others were is a safe place to put money ?

Because theses agency are warning that consumer lending , is likely to collapse !

What a mess we have created here

June 26, 2018
9:53 am
NorthernRaven
Moderator
Moderators
Forum Posts: 457
Member Since:
August 4, 2010
sp_UserOfflineSmall Offline

Jon said

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.  

There's some rather silly theorizing out of context in here. First, the bulk of consumer depositors are not equipped to analyze the state of health of a provincial system of credit unions, and will never be. Second, all provincial CUs operate under similar guarantee regimes, and their CDIC-regulated counterparts actually DO have an explicit guarantee, so if anything the CDIC firms have the "competitive advantage". Third, credit unions are relatively small beer - the entire Manitoba system has under $30 billion in deposits, while Tangerine alone has more than that. In national terms, they aren't and won't become "too big to fail". At a provincial level, the government has an interest and responsibility in maintaining their financial sector, even in the absence of an explicit guarantee. In fact, the absence of a guarantee would aid them in the resolution of any systemic crisis, giving them leverage to force painful changes before any government assistance might be added.

I think people forget that the system is guaranteed, even without an explicit government commitment behind it. If some extreme circumstance caused the guarantee to fail, there would be no possibility of interesting anyone in using a credit union again, and that sort of collapse would be worth a fair bit of effort to avoid. Remember, it the CUs themselves who are responsible for financing the guarantee, so the government might merely have to provide a few years of liquidity or loan guarantees while the fund is refilled with higher levies, etc. And again, people keep waving around "failure" without specifying any sort of ballpark particulars on the size or origin of the equity holes required to actually break the guarantee fund.

June 26, 2018
10:42 am
snoopy
Member
Banned
Forum Posts: 34
Member Since:
June 9, 2018
sp_UserOfflineSmall Offline

The consumer is not warming of failure moody investor services is

They asses risk

And others who also judge risk , I recall the central bank of central bank warning Canada about the lending in our economy

They are warning of a collapse . due to high indebtedness and inappropriate lending and borrowing

So you know more than moody ?

a large collapse is more likely than it has ever been in Canada

and the guarantees on product support by consumer lending which is the problem are more important than ever

because the risk in the Canadian economy are higher may than ever

at other times I have never seen so many warring about poor lending in Canada

is their any amount of warring before you would be concerned about getting your money back ??

June 26, 2018
3:13 pm
Norman1
Member
Members
Forum Posts: 3402
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

snoopy said
The consumer is not warming of failure moody investor services is

They asses risk

And others who also judge risk , I recall the central bank of central bank warning Canada about the lending in our economy

They are warning of a collapse . due to high indebtedness and inappropriate lending and borrowing

Where is Moody's and the Bank of Canada warning about a collapse?

I've seen warnings of increased risk from increased indebtedness. I think you are the one who is putting the word "collapse" in the mouth of Moody's and the Bank of Canada.

I agree with NorthernRaven about the silliness of the theories presented here. The theories show an incomplete understanding of what deposit insurers like CDIC and the provincial guarantee corporations are.

They are not passive insurers, like a life insurance company, who just sit idly by waiting for the death of a financial institution and issue payout cheques to the depositors.

Unlike a life insurance company, CDIC and DGCM have legal powers to take control of an insured before death occurs. Those powers kick in once financial institution fails to meet minimum capital levels. That is before assets dip below liabilities and before losses have burned through all the share capital.

It is nonsense that deposits are backed up by just the funds on hand at CDIC or DGCM. Deposits are backed up first by all the assets of the financial institution.

June 26, 2018
9:43 pm
Loonie
Member
Members
Forum Posts: 6415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Excellent points, Norman.

What do you think would happen to the value of the Canadian dollar in the event of such extreme situations?

June 27, 2018
7:33 am
snoopy
Member
Banned
Forum Posts: 34
Member Since:
June 9, 2018
sp_UserOfflineSmall Offline

Norman1 said

snoopy said
The consumer is not warming of failure moody investor services is

They asses risk

And others who also judge risk , I recall the central bank of central bank warning Canada about the lending in our economy

They are warning of a collapse . due to high indebtedness and inappropriate lending and borrowing

Where is Moody's and the Bank of Canada warning about a collapse?

I've seen warnings of increased risk from increased indebtedness. I think you are the one who is putting the word "collapse" in the mouth of Moody's and the Bank of Canada.

I agree with NorthernRaven about the silliness of the theories presented here. The theories show an incomplete understanding of what deposit insurers like CDIC and the provincial guarantee corporations are.

They are not passive insurers, like a life insurance company, who just sit idly by waiting for the death of a financial institution and issue payout cheques to the depositors.

Unlike a life insurance company, CDIC and DGCM have legal powers to take control of an insured before death occurs. Those powers kick in once financial institution fails to meet minimum capital levels. That is before assets dip below liabilities and before losses have burned through all the share capital.

It is nonsense that deposits are backed up by just the funds on hand at CDIC or DGCM. Deposits are backed up first by all the assets of the financial institution.  

The word collapse come from the central bank of central banks warning in the news not to long ago , they warned that economy like Canada with this level of indebtedness are prone to collapse . that is were the word collapse come from

AS to moody most recently they had warned on car loans were a borrower would have a car he owed money on say 3 thousand and would want to buy a new car cost ten thousand and the bank would give him a 13 thousand dollar loan against a 10 thousand dollar care . this cycle would repeat causing the borrower to fall futher in debt and the bank dose not have an asset that is worth the value of the loan this moody to warn about this type of loan in Canada

All this info has been in the news

I do agree that first assets at a bank or credit union are baked by their loan but the warning that have come out have said that they have made bad loan in Canada . so the assets are not good . that is what the warning is from these entity

June 27, 2018
7:16 pm
Norman1
Member
Members
Forum Posts: 3402
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

snoopy said

The word collapse come from the central bank of central banks warning in the news not to long ago , they warned that economy like Canada with this level of indebtedness are prone to collapse . that is were the word collapse come from

Bank for International Settlements didn't say that.

Full text search of the latest June 2018 BIS Quarterly Review finds no occurrences of the word "collapse".

The four occurences of the word in the previous March 2018 BIS Quarterly Review refer to historical events. There is mention of increased vulnerability to a banking crises in the next three years for Canada because of early warning indicators like high credit-to-GDP gap and high debt service ratio.

That's essentially it.

AS to moody most recently they had warned on car loans were a borrower would have a car he owed money on say 3 thousand and would want to buy a new car cost ten thousand and the bank would give him a 13 thousand dollar loan against a 10 thousand dollar care . this cycle would repeat causing the borrower to fall futher in debt and the bank dose not have an asset that is worth the value of the loan this moody to warn about this type of loan in Canada

Moody's said in their March 13 research report that those kinds of loans are a threat to the current strong credit quality of the car loan portfolios, with a 1.5% delinquency rate. Moody's didn't say the loans are a threat to the financial system and leading to a collapse in Canada.

It is no secret to the banks how quickly cars depreciate. The borrower in the example likely would have qualified for a $5,000 unsecured borrowing. So, lending such a person $3,000 over value of the collateral is not any riskier.

Bank probably sees the "car loan" as a bundle of a traditional $10,000 car loan and a $3,000 cash advance from a credit card. Interest rate would be blended, perhaps around 10/13 x 6% + 3/13 x 18% = 8.77%.

June 27, 2018
8:27 pm
Norman1
Member
Members
Forum Posts: 3402
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Loonie said
What do you think would happen to the value of the Canadian dollar in the event of such extreme situations?

I think it would depend on what caused such an extreme situation and how widespread the crises was.

Maybe a large asteroid hits Manitoba causing massive damage to infrastructure and collapse in property values.

Afterwards, it turns out the asteroid is made of some alien material, never seen before, that resembles the Black Panther comic book material vibranium! That's why it didn't break up in the atmosphere.

Manitoba becomes the sole source of vibranium in the world. Canadian dollar would jump because the vibranium extraction companies in Manitoba would want to be paid in Canadian dollars. sf-laugh

June 27, 2018
9:32 pm
Loonie
Member
Members
Forum Posts: 6415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

...not to mention the profits to be made from everything which depends on updating the Periodic Table!

I don't think I realized you had such a vivid imagination, Norman! You have provided a new interpretation of "every cloud has a silver lining".

I was wondering about more "conventional" crises.

June 28, 2018
8:51 pm
Norman1
Member
Members
Forum Posts: 3402
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Loonie said

I was wondering about more "conventional" crises.

I do think the impact on the Canadian dollar would depend on what caused the funding crises in a deposit guarantor.

I can't see a likely event that would causes losses that burn through the loan book and the share capital of a financial institution, so quickly, before the deposit insurer could take control.

In the situation with Home Trust last year, there was no significant losses in the loan book. Just a liquidity crunch from the withdrawals of HISA funds. At worst, CDIC just had to provide short-term bridge financing until the mortgages matured and were paid off within few years. CDIC didn't have to absorb any losses because there weren't any losses. Home Trust assets were more than the deposit liabilities.

Perhaps you had a kind of "conventional" crises in mind?

June 28, 2018
11:45 pm
Loonie
Member
Members
Forum Posts: 6415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I was just thinking of a kind of contagious situation with Cdn financial institutions. HCG was a one-off, specific to them and their management. I'm thinking of something that might leave the deposit insurers scrambling. and having us all wondering if they were going to be able to contain the situation. There are various economic scenarios that could trigger this, I suppose.

June 30, 2018
6:59 pm
Norman1
Member
Members
Forum Posts: 3402
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Loonie said
I was just thinking of a kind of contagious situation with Cdn financial institutions. HCG was a one-off, specific to them and their management. … There are various economic scenarios that could trigger this, I suppose.

I think it is possible. But, can't sketch out the details of what the trigger would be.

Financial contagion would require at one of the big banks to be affected. Can't imagine something happening to a small institution which then fails and triggers a failure in a large bank.

I think that is the challenge. It won't be something the people are expecting!

July 1, 2018
4:56 am
Kidd
Member
Members
Forum Posts: 552
Member Since:
February 27, 2018
sp_UserOfflineSmall Offline

MY OPINION.

Could a banking crisis happen in Canada. Yes.
Will it happen? I believe it will.

Could be,
A computer hack, billions if not trillions go missing. Place, anywhere
A Stock market crash, a sense of lost wealth. Place, DOW
BOC interest rate increase, default on 2 trillion in loan repayments. Place, Canada
Housing market correction. Place, Canada
A recall on bought debt. Place, USA
A major conflict. Doesn't need to be a nuke, could be chemical, could be one bullet.
Major earthquake, east coast falls into the ocean.
Recessions happen, depressions happen, cause loss of jobs, lost income

One event could trigger another, causing a chain reaction to occur. Bank rates, cause a housing collapse, causes a default on debt, cause stock market crash, cause depression, cause major conflict.

July 1, 2018
7:49 am
Norman1
Member
Members
Forum Posts: 3402
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Except for the east coast falling into the ocean, most of those have happened in the past. Instead of a computer hack, there were billions of losses from those lesser-developed country loans all the banks made in the 1980's.

CDIC wasn't overwhelmed in any of them. One of the things to keep in mind is that violating minimum capital and liquidity does not necessarily lead to actual losses for a deposit insurer. The situation with Royal Trust is one such example.

Because of real estate loans that went bad, CDIC eventually took control of Royal Trust. Royal Bank eventually agreed to assume all deposits liabilities in return for the some of the desirable assets, such as the good loans, the trust business, the retail banking business, and the physical Royal Trust branches.

There were assets left over, like the distressed real estate loans. CDIC returned them to the former parent company Royal Trustco, who then changed their name to Gentra. Gentra became a specialist in distressed real estate workouts!

I was both a Royal Trust customer and a Royal Trustco/Gentra shareholder.

Postscript: The Royal Trust example may be imperfect.
According to "Royal Trustco's demise a hot potato" (The Globe and Mail; May 13, 1994; page B3), Royal Bank bought Royal Trust's operations in mid-1993 and a "taxpayer-funded bailout" was headed off. Unfortunately, my memory and the article are not clear about CDIC's involvement in the resolution. I'm not 100% certain on whether (1) CDIC took control of Royal Trust and brokered the deal with the Royal Bank or (2) Royal Trustco negotiated the deal with Royal Bank before CDIC needed to take control.sf-embarassed

July 1, 2018
1:54 pm
Loonie
Member
Members
Forum Posts: 6415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Yes, I guess that makes sense., Norman.

September 11, 2018
7:08 am
Hornby
Member
Members
Forum Posts: 18
Member Since:
September 10, 2018
sp_UserOfflineSmall Offline

Maybe this topic should be renamed: "Deposit Insurance - CDIC and Credit Unions"

I am trying to avoid CUs beacuse they are not CDIC insured, but they are insured by their Central Credit Union in the relevant province and I am told the Central Credit Union is then backed by the relevant Provincial Government as the regulator. In BC I have tried to track down this Provincial backing, but it becomes very murky and unclear.

If anyone knows any better, please advise.

September 11, 2018
7:56 am
NorthernRaven
Moderator
Moderators
Forum Posts: 457
Member Since:
August 4, 2010
sp_UserOfflineSmall Offline

There's various threads here and elsewhere about provincial "backing". Manitoba for one explicitly states there isn't a government guarantee as such. My own digging leads me to believe that none of the provinces legally backstop their credit union guarantee corps the way that the feds do with CDIC ("crown Agent"). Alberta might be an implicit exception, based on the wording I found in their statutes, but I wouldn't count on it.

In Ontario, specifically, I got this reply from the Auditor-General's office:

DICO is in fact classified as a “Trust” and therefore its results are not consolidated in the Province’s financial statements (Public Accounts). Typically, an agency is classified as a Trust when the government is under no obligation to finance their operations, but rather that responsibility rests with the agency’s stakeholders.

I think BC looked like a similar case. In general, it is unlikely that a well-provisioned guarantee fund (certainly Manitoba's >100 bps fund) would be insufficient to handle all but the biggest meltdown, in which case it would be far cheaper for the government to do some bridge funding or other aid rather than have a chunk of their financial system unravel. Personal opinion only, but I'd want to see an argument with some pretty well reasoned numbers to be swayed otherwise.

No permission to create posts

Please write your comments in the forum.