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Bank Bailed-in rules consultation
August 22, 2014
11:36 am
Brimleychen
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TAXPAYER PROTECTION AND BANK RECAPITALIZATION REGIME:
CONSULTATION PAPER

http://www.fin.gc.ca/activty/c.....rb-eng.pdf

I attached the above for your guys to understand why it is important to understand the new proposed bank bail-in rules. It will impact every deposit and citizen in Canada. There are valid concerns for credit agency to downgrade or concern about our banking system.

http://www.mondaq.com/canada/x.....lIn+Regime

http://financeiq.wordpress.com.....reat-ponzi/

August 22, 2014
12:43 pm
NorthernRaven
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1) Applies only to the six "domestic systemically important banks" - BMO, Scotia, Royal, TD, CIBC and National Bank of Canada. Does not apply to other banks, trusts, or provincial credit unions.

2) "Eligible liabilities of D-SIBs subject to the conversion power consist only of "long-term senior debt,"...Secured debt and deposits are specifically excluded. Therefore, the regime does not contemplate a "Cyprus-style" bail-in, whereby depositors could be asked to participate in the bail-in."
So deposits are unchanged and depend on CDIC as always. Over-limit deposits were always unsecured creditors in case of bankruptcy.

3) Downgrade does not indicate concern about safety of banking system, but risk to the precious bank investors, who would now have more at stake. Also reflects weakening of implicit government bailout expectation, now that an institution may no longer be "too big to fail" in all cases.

Verdict: Overhype, with the last link reference being completely loony... :)

August 22, 2014
8:40 pm
Jack Manning
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I have one point that nobody has ever mentioned anywhere on this forum or anywhere else. The CDIC currently has a $100,000 CDIC limit for each different named non-registered account, RRSP, RRIF, RESP, TFSA etc.

The last time CDIC deposit insurance was increased was in 2005 from $60,000 to $100,000. However, Since 2005 to now 2014, if you take into account all the C.P.I. inflation which I used the Bank of Canada website to figure this out, CDIC coverage should be now at least $140,000.

Just a little background CDIC was introduced in 1967 and started at $20,000. For real inflation adjusted dollars until 2014, it is $140,000 today to maintain this original $20,000 1967, CDIC deposit coverage.

The $40,000 less in real CDIC coverage is not a bail-in but until CDIC increases their deposit insurance coverage to reflect inflation now for the last 9 years+ and every year after that, we are all really not getting 100% CDIC coverage but 71.43% CDIC coverage, ($100,000/$140,000).

August 22, 2014
9:20 pm
Jon
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NorthernRaven said

1) Applies only to the six "domestic systemically important banks" - BMO, Scotia, Royal, TD, CIBC and National Bank of Canada. Does not apply to other banks, trusts, or provincial credit unions.

2) "Eligible liabilities of D-SIBs subject to the conversion power consist only of "long-term senior debt,"...Secured debt and deposits are specifically excluded. Therefore, the regime does not contemplate a "Cyprus-style" bail-in, whereby depositors could be asked to participate in the bail-in."
So deposits are unchanged and depend on CDIC as always. Over-limit deposits were always unsecured creditors in case of bankruptcy.

3) Downgrade does not indicate concern about safety of banking system, but risk to the precious bank investors, who would now have more at stake. Also reflects weakening of implicit government bailout expectation, now that an institution may no longer be "too big to fail" in all cases.

Verdict: Overhype, with the last link reference being completely loony... :)

At least this is a very good start, bank that receive implicit guarantee from the government because they are "too big to fail" are less efficient for the economy because they receive deposit for a lower interest and end up lending it out to places that are more risky. This implies the societies' money are not where it should be (use to help business with potential to increase their scale), but in speculation.

August 22, 2014
10:06 pm
Jack Manning
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Deposit insurance in Canada and many other countries were set up to provide confidence in the economy and for the financial, banking system.

If this is altered in some way where depositors have to take risk with their deposits below the CDIC limit at the expense of corporations, financial institutions, mortgage companies etc. then there goes stability and confidence as we know it in Canada.

Maybe the mattress looks good when you can't sleep at night because of financial greed, abuse from many sources in Canada and around the world.

August 23, 2014
3:47 am
Jon
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Jack Manning said

Deposit insurance in Canada and many other countries were set up to provide confidence in the economy and for the financial, banking system.

If this is altered in some way where depositors have to take risk with their deposits below the CDIC limit at the expense of corporations, financial institutions, mortgage companies etc. then there goes stability and confidence as we know it in Canada.

Maybe the mattress looks good when you can't sleep at night because of financial greed, abuse from many sources in Canada and around the world.

CDIC was crucial, what I want to say is that shareholder and creditor of banks have to pay full responsibility in the time when bank suffer from huge lost because it is their own fault to not monitor their own investment.

August 23, 2014
7:40 pm
Loonie
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I seem to recall that when the CDIC got around to increasing the limit to 100,000, it was already way behind the 8-ball and people had been expressing the opinion that it ought to be raised for some time before that.
So it may not be too surprising that they are not keeping up with inflation now either.
But it could be a bad sign that, as Jack suggests, it is not being flagged as an issue. One sure way to make it meaningless over time is to let it fritter away in value, although I doubt that will happen. Still, few of us are wealthy enough to have exhausted the limit at all the insured institutions, so there are still options, albeit not always desirable ones.

I'm inclined to think a bigger risk, really, to the economy overall, is the amount of money people have in the stock market, where there is no salvation at all when things go bad.

August 23, 2014
8:12 pm
AltaRed
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Loonie said
Still, few of us are wealthy enough to have exhausted the limit at all the insured institutions, so there are still options, albeit not always desirable ones.

I cannot imagine anyone (at least couples) running out of CDIC room in the big 6, never mind the top 10 or so. A couple is good for up to $500,000 in one institution alone (2xRSP, 3xnon-taxable)...not counting TFSAs, and a big bank like RBC alone has at least 3 companies.... for $1.5 million.

August 23, 2014
8:26 pm
Loonie
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AltaRed said

Loonie said
Still, few of us are wealthy enough to have exhausted the limit at all the insured institutions, so there are still options, albeit not always desirable ones.

I cannot imagine anyone (at least couples) running out of CDIC room in the big 6, never mind the top 10 or so. A couple is good for up to $500,000 in one institution alone (2xRSP, 3xnon-taxable)...not counting TFSAs, and a big bank like RBC alone has at least 3 companies.... for $1.5 million.

I think you meant 3xtaxable (not 3xnon-taxable)?

It does get a little trickier when you are dealing with the multiple corporations under the one Big Bank umbrella though. I had some dealings with TD a while ago and wanted to split the money into their various entities accordingly, but it was not possible as not all entities offered the same kinds of investments. It was also more difficult than it ought to have been to discover which entity operated which accounts. This information should be on every bank statement, for starters, but it is not.

The money is no longer with TD.

August 24, 2014
6:41 am
xxxx
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Loonie said

I'm inclined to think a bigger risk, really, to the economy overall, is the amount of money people have in the stock market, where there is no salvation at all when things go bad.

When you say "economy overall", do you mean just the Canadian economy or including economies of other countries too? (In the scale of things, the Canadian economy is pretty small.)
Lucky for Canada it is located next to the US - and right now the US economy is showing nice economic growth - Canada should benefit from this eventually.
PRUDENT stock market investing (in GOOD Canadian, US and foreign companies) is not necessarily "gloom and doom" if that is what you mean when you say " ...there is no salvation at all when things go bad."

August 24, 2014
10:45 am
AltaRed
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Loonie said

I think you meant 3xtaxable (not 3xnon-taxable)?

It does get a little trickier when you are dealing with the multiple corporations under the one Big Bank umbrella though. I had some dealings with TD a while ago and wanted to split the money into their various entities accordingly, but it was not possible as not all entities offered the same kinds of investments. It was also more difficult than it ought to have been to discover which entity operated which accounts. This information should be on every bank statement, for starters, but it is not.

Yes, meant taxable. Not sure why you find 'multiple corps under one umbrella' difficult. The HISAs and GICs clearly indicate the issuing company (bank, mortgage company or trust) and that is all that matters.

August 24, 2014
12:18 pm
Loonie
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Brian said

Loonie said

I'm inclined to think a bigger risk, really, to the economy overall, is the amount of money people have in the stock market, where there is no salvation at all when things go bad.

When you say "economy overall", do you mean just the Canadian economy or including economies of other countries too? (In the scale of things, the Canadian economy is pretty small.)
Lucky for Canada it is located next to the US - and right now the US economy is showing nice economic growth - Canada should benefit from this eventually.
PRUDENT stock market investing (in GOOD Canadian, US and foreign companies) is not necessarily "gloom and doom" if that is what you mean when you say " ...there is no salvation at all when things go bad."

Not just Cdn economy.
There is no salvation when a stock tanks. Nortel.

August 24, 2014
12:21 pm
Loonie
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AltaRed said

Loonie said

I think you meant 3xtaxable (not 3xnon-taxable)?

It does get a little trickier when you are dealing with the multiple corporations under the one Big Bank umbrella though. I had some dealings with TD a while ago and wanted to split the money into their various entities accordingly, but it was not possible as not all entities offered the same kinds of investments. It was also more difficult than it ought to have been to discover which entity operated which accounts. This information should be on every bank statement, for starters, but it is not.

Yes, meant taxable. Not sure why you find 'multiple corps under one umbrella' difficult. The HISAs and GICs clearly indicate the issuing company (bank, mortgage company or trust) and that is all that matters.

It's not that I find the concept difficult. But my bank account statements do not include this information. At the time, this mattered.

August 24, 2014
4:24 pm
Jack Manning
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Loonie, I understand what you mean about stock markets falling and there is no salvation meaning any help from government or anyone else but I don't still can't believe it that in this day and age people are still so financially illiterate about investing, diversification etc.

Don't they understand that you have to hold equities and stock type investments for decades to really have a good chance to really be in a good or better position.

We personally currently have very little maybe 8% of all our money in stocks, equity funds, equity ETF's etc. because in the last 12 years we focused on debt reduction and savings, investments in RRSP's, TFSA's, RESP's.

We may look into it but after 2007-2008, we don't want to caught up in a situation where we still have a big mortgage and worrying about possibly falling market value of our investments.

August 24, 2014
4:35 pm
Jack Manning
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Another important point I forgot to mention is I read many articles and hear many horror stories of people in U.S and Canada using borrowed money to invest in stocks, equity ETF's, REIT's etc. and paying $400+ a month in interest on $100,000.

Some even put their house on the line which would freak me out to even to think about doing that. About the new government proposals, consultation, I always thought that investors buying bank bonds, bank shares etc. were taken risk and on were on the hook for losses.

This is why people that did not want principal or capital loss put their money in term deposits, GIC's in banks, trust companies, credit unions under CDIC, CUDIC, DICO etc.

August 24, 2014
9:01 pm
Loonie
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As I recall, the idea of borrowing against the assets you have and need in order to invest in things that are at worst speculative and at best not guaranteed was heavily promoted by Garth Turner in print and media for several years. I think his main emphasis was real estate but can't remember details, as it is some years back. Eventually people learned the pitfalls of this notion but too late for many. He had been (briefly) a Conservative Minister of National Revenue, so he came with perhaps some credibility. He gave lots of well-attended seminars.
The urge to take these kinds of risks just shows how easily people can be led to do things which are not in their best interests. There's one born every minute.
I think you've taken the most prudent path, Jack. There is nothing better than getting rid of debt. By the time you pay down mortgage and student debt, most people don't find there's much left for quite a few years.

August 24, 2014
9:13 pm
Jack Manning
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Loonie, I would say you agree that low interest rates, mortgage rates etc. and low savings accounts, GIC, bond rates on the saving, investing side have driven many people to desperation and speculation, more risk to try to make 8% to 10% annual rates of return.

Just 15 to 20 years ago, you could deposit money in a term deposit, GIC and earn 6% to 9% without even thinking about it.

Now, some people are using borrowed money in real estate before it was stocks, equities etc. to make easy money that does not exist.

Loonie, it sounds like you have taken a prudent financial path as well.

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