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Changes proposed to "strengthen" Ontario credit unions
February 16, 2016
9:43 pm
Loonie
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https://news.ontario.ca/mof/en/2016/02/enabling-credit-unions-and-caisses-populaires-to-meet-the-evolving-needs-of-their-members.html

Among many other things, this should significantly increase deposit insurance coverage. CDIC take note.

February 20, 2016
5:00 am
Keith1
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It should be noted that as of right now all eligible deposits in a registered account (RRSP TFSA etc) are covered with no maximum. So a limit of 250,000.00 would be a set backwards. As to existing non registered cash accounts the new limit is well over due.

February 20, 2016
11:36 am
xxxx
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Definitely a step backwards for registered accounts coverage by DICO from unlimited to $250K.

February 20, 2016
3:24 pm
Norman1
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The full November 2015 report to the Ontario Minister of Finance is available at Credit Unions and Caisses Populaires Act, 1994 - LEGISLATIVE REVIEW.

The report definitely recommends removing the unlimited deposit insurance on registered accounts. Apparently, no-limit deposit insurance is considered contrary to best practices:

.... International best practices recommend certain design features of a deposit insurance scheme, such as setting a fixed limit on the dollar amount of deposits covered. Unlimited deposit insurance or deposit insurance limits that are set too high may give rise to moral hazard, the situation when financial institutions have incentives to take on more risk because they are insulated from the consequences of their actions. Well-designed deposit insurance systems need to mitigate against moral hazard. Ontario continues to endorse these international best practices as articulated in the Core Principles for Effective Deposit insurance Systems set out by the International Association of Deposit Insurers.

February 20, 2016
4:14 pm
Norman1
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The Core Principles for Effective Deposit Insurance Systems from the International Association of Deposit Insurers is at

http://www.iadi.org/aboutiadi......spx?id=105

There is an interesting distinction made between protecting depositors and protected the money deposited. Under "Principle 8 – COVERAGE", it recommends that deposit insurance should fully protect most depositors and not fully protect all the money deposited:

.... The level and scope of coverage are set so that the large majority of depositors across banks are fully protected while leaving a substantial proportion of the value of deposits unprotected.17 In the event that a substantial proportion of the value of deposits is protected, moral hazard is mitigated by strong regulation and supervision, as well as by the other design features of the deposit insurance system.18

February 20, 2016
6:11 pm
Loonie
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The comparison made in the report is to the Maritime provinces, trying to convey the impression that this is the desired norm. She never mentions that it's quite different in MB, which would have been more fair and less skewed. I don't see that the MB CUs have fallen to the temptations of "moral hazard". Does anyone?

personally, I think a more reasonable limit for RSPs would be 500K. I pick this figure because, whenever you read stories about people who are reassessing their financial situation, almost all of them have RSPs less than that amount. What is the point in forcing people to do business with more than one institution by underinsuring them?

Why is CDIC still offering so little in insurance?

February 21, 2016
5:22 am
xxxx
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For those dealing with the small banks in Canada (eg Peoples, Cdn Western, Home, Equitable etc.), I can understand why they would want the $100K increased.
Banks in Canada are heavily regulated and monitored by OSFI - I think that is likely more important than raising the $100K "govt guarantee" - at least for those who deal with the big 5 banks which are considered among the strongest in the world.

February 21, 2016
10:42 am
Saver-Mom
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Brian, with such poor rates from the big banks, I don't keep a large amount there, so the CDIC limit there is not an issue. It is an issue for investing in potentially riskier smaller banks. Instead of all the work involved in spreading money around, it would make sense to have a larger coverage, like $500,000, as Loonie suggested.

February 21, 2016
1:24 pm
xxxx
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Saver-Mom said

Instead of all the work involved in spreading money around, it would make sense to have a larger coverage, like $500,000, as Loonie suggested.

While some people do chase rates and "spread their money" around, reality is most people do not. Some colleagues have told me it is just easier and safer to deal with one of the large banks - and while yes the rates are lower, there is a feeling of security which is a reasonable approach for them. Of course, it will differ from person to person - and whether one has $1000 or $1,000,000 deposited with a bank.

February 21, 2016
5:09 pm
NorthernRaven
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Remember, banks pay insurance premiums to CDIC on insured deposits ($280 million in 2015), and the premium rates are increasing over the next few years as CDIC strengthens its ex ante fund. Only 30% of all deposits are covered by CDIC, and the big banks for instance may have little incentive to want to pay premiums on another $100-$400K of all the big uninsured wholesale/corporate deposits that aren't going anywhere anyway, and see their high-interest competitors made more attractive to large deposits.

Provincial credit unions likely have much fewer giant deposits (DICO seems to run between 70-80% of total deposits being insured), so having a larger limit or no limit has fewer implications.

Note that after their crisis emergency coverage programs were lifted, Australia retained an A$250K per-institution guarantee, but over all accounts, so that's the total coverage someone gets at a bank including their share of joint accounts. New Zealand doesn't actually have a deposit-insurance program at all.

I suspect the number of RRSP accounts held at a single DICO-insured institutions that have >$250K of insured deposits is quite small, especially considering the joint provisions. The confusion factor of having different rules on registered accounts may override accommodating a few big GIC portfolios.

February 24, 2016
6:12 am
Keith1
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As far as insurance goes the limit is really a mute point. CDIC has 3.1 billion in assets to cover 700 billion of insured deposits and DICO has 185 million to cover insured deposits of 25.2 billion. If I were to consider a failure and which insurance, with some government backing, could best cover my insured deposits I would go with credit unions in Ontario based on their smaller size and the ability for governments to cover such a debt.

February 24, 2016
8:05 am
NorthernRaven
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Well, in actuality, CDIC has a $20 billion borrowing authorization on the books. Added to the fund, that would represent around 300 basis points of insured deposits - I think the US FDIC didn't go more than 1.5% of deposits temporarily at their worst point during the last crisis. It is also a agent of the Crown, whose obligations (presumably including paying out any guarantee claims) are obligations of the federal government. About as gold-plated as you are going to get.

Ontario's DICO is, to the best of my knowledge, not similarly an agent of the Ontario government. While I doubt that any Ontario government could politically survive not finding some resolution to keep insured deposits whole, in theory I think they could let DICO sink on its own.

More to the point, the vast majority (~90%) of CDIC insured deposits are with the big 5 (or six) "too big to fail" institutions. Any one of these going insolvent enough to threaten insured deposits means a crisis with bigger problems than CDIC, and will be triggering bail-ins, bail-outs, etc. In effect, CDIC's fund is most likely to be used (if ever) to clean up small or medium problems - aggressive subprime mortgage lenders, for instance.

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