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Have the Big 5 lost their privilege
March 26, 2020
8:52 am
Bud
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I mean can they still be counted on much above the cdic deposit limit. Yes of course but I felt compelled to break a gic with one of them during the turmoil. I didnt. If their balance sheets are levered 10:1 is one dollar enough of a buffer. Governments appear to have rescued the system once again how many more cycles calamities can they be counted on.

March 26, 2020
9:43 am
Norman1
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Balance sheet numbers don't account for the fact that lots of investors with significant money are fans of the Canadian banks.

I wrote earlier that CIBC easily issued $3 billion of common shares in 2008. Half of those shares were allocated to retail investors. The $1.5 billion of CIBC common shares for retail investors sold out within one business day.

March 26, 2020
12:57 pm
canadian.100
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CMHC to take more mortgages off banks' books to free up cash for loans amid COVID-19 crisis (per CBC.ca).
This is a great gift to the banks - they can up their loans, with the govt picking up existing mortgages off banks' books. This will be great news for bank profits.
This is why it is not likely a big risk to exceed cdic limits at least for the major banks.

March 26, 2020
1:04 pm
Doug
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canadian.100 said
CMHC to take more mortgages off banks' books to free up cash for loans amid COVID-19 crisis (per CBC.ca).
This is a great gift to the banks - they can up their loans, with the govt picking up existing mortgages off banks' books. This will be great news for bank profits.
This is why it is not likely a big risk to exceed cdic limits at least for the major banks.  

Yes, for years the government capped CMHC's insurance limit at $600 billion, but now it's been raised to $700 billion. To make use of their capped limit, CMHC changed rules regarding portfolio insurance—where the banks pay the CMHC premium to derisk their balance sheet—so as to ensure their available insurance limit was mostly used for homebuyer-paid CMHC insurance and help homebuyers. If the banks are being offered up to $100 billion of portfolio insurance, without having to pay a premium, that's totally wrong. I'm fine with increasing the insurance limit, but make them pay the applicable premium. 🙂

When you add in the CMHC's $600, potentially $700 soon, billion insurance limit and the CDIC's insured deposits of ~$750 billion, the federal government has at least $1.5 trillion CAD so-called contingent liabilities over and above all its other debts and other contingent liabilities.

The federal government has also provided a guarantee on 75% of the private insured mortgages from Genworth and Canada Guaranty, too.

Cheers,
Doug

March 26, 2020
1:51 pm
Norman1
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According to CBC: CMHC to take more mortgages off banks' books to free up cash for loans amid COVID-19 crisis, CMHC is only buying insured mortgages.

There wasn't any risk to the bank from those mortgages anyways.

March 26, 2020
2:50 pm
Doug
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Norman1 said
According to CBC: CMHC to take more mortgages off banks' books to free up cash for loans amid COVID-19 crisis, CMHC is only buying insured mortgages.

There wasn't any risk to the bank from those mortgages anyways.  

Okay, that's something different. I thought this was a portfolio insurance transaction. This is about buying the already CMHC-insured, or presumably privately-insured mortgages—so-called "high-ratio mortgages"—that are funded on balance sheet through various vehicles like the Canada Mortgage Bond program.

Essentially, CMHC's main business is underwriting high-ratio mortgages and, secondarily, underwriting conventional, standard ratio mortgages through portfolio insurance, but they also have a securitization program that allows National Housing Act approved lenders to sell their mortgages into one of the off-balance sheet securitization vehicles. There's usually a fee that the lender pays to do this, but perhaps CMHC is waiving that fee.

Nevertheless, ultimately, this frees up capital the bank would otherwise be required to hold for the mortgages held.

Some lenders are almost entirely off-balance sheet lenders (i.e., First National Financial, RFA Bank of Canada, and others). In Denmark, I believe it was you that this is almost entirely how banks operate. There's pros and cons to on- and off-balance sheet lending in terms of profitability and revenue generation, but in this case, it's about trying to free up capital for banks to lend.

Cheers,
Doug

March 26, 2020
3:36 pm
canadian.100
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Norman1 said
According to CBC: CMHC to take more mortgages off banks' books to free up cash for loans amid COVID-19 crisis, CMHC is only buying insured mortgages.

There wasn't any risk to the bank from those mortgages anyways.  

I was not talking about risk to the BANK.
I liked the idea that the banks would be able to increase their loans to customers and increase profitability potential - which is good for GIC purchasers and investors in bank shares etc. Since banks had higher profitability potential, GIC purchasers can have less concern when exceeding CDIC limits, and buyers of bank shares have more confidence the shares will fare well when profitability potential is enhanced.
I see that Doug has picked up that you misinterpreted my post.

March 26, 2020
4:09 pm
Norman1
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There is no increase in loans for the banks. Just recycling of the money loaned.

When its sells the mortgage to CMHC, the bank loses the mortgage, both the risk and the benefits of that mortgage. It's not like the bank gets its money back and then continues to receive the mortgage interest.

It looks like the bank continues to receive the mortgage interest. But, what happens is that the bank continues to debit the borrower's account for the payments. The bank then sends the payments to CMHC less a servicing fee. That servicing fee is nothing compared to the interest it was collecting.

Now, the bank needs to find another borrower for that money. Otherwise, it is stuck with paying the interest on the GIC's that funded that previous mortgage while having to park the money in treasury bills that pay 0.25%.

March 26, 2020
5:15 pm
Oscar
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So when a home buyer gets a CMHC backed mortgage at a bank the bank gets the interest although the mortgage is insured by CMHC.
Now the CMHC is going to buy some of these mortgages from the banks to free up money for the banks to lend again.
Who decides , the bank or CMHC on what mortgages are bought by CMHC ?
Why would the bank want to sell if mortgages are insured ?
Why does the CMHC allow banks to make interest off CMHC mortgages instead of providing the mortgage in the first place and letting the banks administer them ?

March 27, 2020
8:23 am
Norman1
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The bank sends in an offer to CMHC for the insured mortgages the bank is willing to sell. CMHC looks at all the insured mortgages offered and decides which to buy.

The big banks do not normally want to sell their insured mortgages. The alternate lenders do because they have to pay higher rates on deposits. The spread on an insured mortgage is half of what the alternate lender would be able to get on a mortgage that cannot be insured.

It takes effort to raise the deposits and other funding for the mortgages. It also takes effort to meet with home buyers and explain the mortgages to the home buyers. All that work and the interest the bank pays for the deposits and other funding has to be paid for. That's why the banks get the interest on the CMHC-insured mortgages.

Otherwise, CMHC would have to do all that work and fundraising.

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