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Deposit Insurance
June 11, 2021
7:05 am
lhsaid
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Couple questions:
1- I'm a bit skeptical about what some CU call "100% guaranteed deposits", is this really true in all circumstances ? What if everything collapses, who is going to pay ?
2- Wondering how did people managed their deposit limits in old days before all these virtual banks appeared. At the time, there was only a handful of banks and people are limited on the number of accounts they could have. Do people go over the limits (CIDIC) ?

June 11, 2021
7:16 am
HermanH
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I raised a similar discussion over on the Achieva sub-forum and contacted the DGCM. I was told, in general terms, that by the time DGCM could not pay (and the province refused to step in and cover), the entire system would have already collapsed and we would be back in a stone age.

June 11, 2021
7:58 am
Bud
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I would imagine the same treatment as the big 6 banks who were bailed out again.

June 11, 2021
8:31 am
Dean
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HermanH said

I raised a similar discussion over on the Achieva sub-forum and contacted the DGCM. I was told, in general terms, that by the time DGCM could not pay (and the province refused to step in and cover), the entire system would have already collapsed and we would be back in a stone age.  

    This ⬆

For more details, go here https://dgcm.ca/
.

    Dean

sf-cool " Live Long And Prosper " sf-cool

June 11, 2021
1:11 pm
Norman1
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lhsaid said

1- I'm a bit skeptical about what some CU call "100% guaranteed deposits", is this really true in all circumstances ? What if everything collapses, who is going to pay ?

It is true. The deposits are 100% guaranteed by both the CU and the deposit insurer.

Should it ever turn out that CU and the insurer run out of money, then that's it. No-one else is obligated to pay.

2- Wondering how did people managed their deposit limits in old days before all these virtual banks appeared. At the time, there was only a handful of banks and people are limited on the number of accounts they could have. Do people go over the limits (CIDIC) ?

The "old days" were never gone. Large employers and pension funds still go over CDIC limits all the time. Not really practical to get $5 million/month, for example, in payroll for employees or that much in pension payments to the retirees deposit insured. So, they don't bother.

Instead, they learn to assess the risk of debt. One of the things they use is debt ratings from firms like DBRS, Moody's, and S&P.

June 11, 2021
10:55 pm
Loonie
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CDIC can also run out of money, and we have no guarantee that the Feds will bail them (and us) either. If any government had wanted to accept full responsibility for losses, they would not have needed to set up a separate insurance corporation.

By the time any of this happens, our Canuckbucks will be worth very little anyway, and the US will not be much better off. I read the other day that government of El Salvador has authorized cryptocurrency to be acceptable form of payment, which I find alarming but not entirely surprising - it's just happening sooner than I would have anticipated.
In the event of a world financial crisis of greater proportions than 2008, I don't really see any safe havens. Unfortunately for me, this is what I suspect will happen sometime in the next 10 to 20 years. I hope I'm wrong, of course!

I keep my money about equally in both CUs and banks, as it happens.

June 12, 2021
7:16 am
AltaRed
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The difference being the Canadian government can print money and provinces cannot. Provinces will be bankrupt long before Ottawa runs out of money.

The reason there are insurance deposit corporations as separate agencies is to extract fees from member institutions to build cash reserves to bankroll failures as a buffer to relying on the Treasury directly, and to provide regulatory oversight over their members. CDIC insurance is more robust than any CU deposit insurance scheme by definition, but I agree that may well be semantics if the financial system gets to the point there are so many FI failures that the deposit insurance agencies run out of money to backstop deposits. These CU vs bank discussions tend to get to be like arguing about religion or politics with most people dug in on one side or the other.

June 12, 2021
1:12 pm
Norman1
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No-one has to print money. There are lots of ways to provide support.

Should the need arise, a province can decide to issue a direct guarantee on some of the deposits which effectively converts them to provincial bonds.

It will be up to the federal or provincial governments to look at the situation and decide what is appropriate, instead of being forced to make the depositors whole when that may not be appropriate.

The mistake many people make is that they believe there are only two choices for the governments:

  1. Let the system fail.
  2. Make the depositors 100% whole.

That won't be the case. There will be lots of possibilities in between. Some of them will give certain depositors serious financial indigestion.

June 12, 2021
6:19 pm
Loonie
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Nobody has talked about making customers whole per se. We are just talking about insured limits. People with larger deposits should know those funds are always at risk.
The bigger headache, for governments, might be what to do about large corporate accounts where institutional diversification is not practical. This includes everything from large private corporations to pension plans.

As for the structure of CDIC, the federal government could have set it up differently than being funded by the banks if they had wanted the responsibility, but they did not. They could have imposed a special tax on them. They could have regulated it directly if they had chosen to do so. I suspect the more likely scenario is that the banks and the feds reached a deal as to how it would be set up. The banks would have lobbied hard against being directly overseen by government. That is likely why the Board of Directors of CDIC is equally divided between government and financial sectors.

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