Will January 2018 DICO Limits Affect GIC Rates? | Page 2 | GIC discussions | Discussion forum

Norman1 said
Nothing prevents any borrower, including credit unions, from apply for ratings from the debt rating agencies.

For example, Vancouver City Savings Credit Union (BC) and Affinity Credit Union (Saskatchewan) both have an R-1(low) from DBRS rating on their short term debt. That's the same DBRS rating the Province of Newfoundland & Labrador has on its short-term debt.  

Great point, Norman. And, to many credit unions, there's a cost to that. Also, consider that many credit unions will borrow through their provincial credit union centrals, which, generally, as far as I know, have their debt rated.

Then there's the debt ratings agencies. If you're relying on those as indicative of the "safety" of an institution, I'd refer you back to 2008, when they all had to suddenly "revise" their reports dramatically when they realized they'd not seen things coming.

Also, if I had Vancity deposits, or even subordinated unsecured debt, I'd still trust that more than Newfoundland & Labrador sub-national government debt.

Cheers,
Doug

Loonie said

Oh, I see. I didn't know, or forgot, that they'd have to apply. Probably most don't bother, and probably what you meant earlier was just that the ratings don't exist. Waste of money probably, from CU point of view.  

In Regina Leader-Post: DBRS gives Affinity Credit Union “satisfactory” credit rating, the CFO of Affinity Credit Union said the DBRS rating helpful when large institutional depositors came knocking. That is in spite of the fact that there is unlimited deposit insurance from Saskatchewan's Credit Union Deposit Guarantee Corporation.

Deposit insurance guarantees that one will receive one's deposit money eventually. But, I don't think that's always good enough.

For example, a business, parking their payroll money, prefers to have that money available as expected on each payday and not have to tell their employees to tough it out until the deposit insurance pays out.

Personally, I would not be as forgiving as Norman. What is the point of these ratings agencies if they can't figure out what we need to know?

The problem with people buying houses they couldn't afford was NOT unknown before 2008 by any means. I remember discussing it with a friend visiting from the US in the summer of 2007. We both remarked that it couldn't continue; that something major would have to give.
If the ratings agencies are to be credible to me, they need to be at least watching the things I can see for myself, and they ought to be watching things I cannot and providing new information to back up their assessment.
The ratings agencies are a business, like any other, selling a product. They do not have divine insight. They have their strengths and weaknesses, insights and blind spots - and profit margins.
It remains an open question as to what it is that they are currently not noticing.

I would say it was the ratings agencies' job to look ahead enough to see what would happen in this instance. It was all predictable to an astute observer; you just had to figure out which way the dominoes would fall. They should have been asking themselves what would happen next if they knew that a certain percentage of houses in various areas were financed by unjustified mortgages. I don't see what their value is if they can't figure that out.

This is not comparable to the situation in Toronto, since it is much more difficult to get a mortgage in Canada, compared to 2007 USA. Prices may fall in TO by some unknown percentage (it appears to me that they already have come down a little), but it will not be for the same reasons. What happens here will likely be due to legislative actions and/or failures in the wider economy.