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DICO insurance coverage for RRSPs
August 26, 2014
7:05 pm
Loonie
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According to the DUCA credit union website, "All deposits made to RSP plans are fully insured through the Deposit Insurance Corporation of Ontario with no limit on the maximum amount."

I had been under the impression it would be limited to $100,000, but apparently not.
Subject to verification from DiCO.

August 26, 2014
7:33 pm
Jack Manning
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Loonie, I saw that too but I am still wary about putting more than $100,000 per type of account. I rather be cautious than sorry.

It is possible that the federal government has given permission for credit unions in Canada to be able to expand to all provinces because it could put a similar $100,000 deposit insurance limit for provincial credit unions.

I don't know if the CDIC and federal government can and will do that but we shall see.

Right now CDIC has separate $100,000 CDIC deposit insurance coverage for each different named RRSP, RRIF, RESP, TFSA etc. per different named financial institution in Canada.

August 26, 2014
8:11 pm
Loonie
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You might find this article relevant.
http://business.financialpost......ry-system/

They seem to be falling all over themselves trying to make credit unions look bad, but there it is. At no point do they actually identify how much is held in the various deposit insurance bodies, including CDIC. Nor do they get into any detail about how it might be backed up.

Disclosure is a valid point, but I don't think it makes any difference how much the ceiling is on individual accounts. What matters is how much in total is on deposit versus how much is held by the insuring body. There ARE other relevant factors, but I don't think that is one of them.

August 26, 2014
8:29 pm
Jack Manning
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Loonie, I think the federal government and CDIC $100,000 deposit insurance limit is a good benchmark to use but I can't predict what they will do. Interesting article Loonie and I learned in life everything has some sort of limit.

I believe that DICO does not have unlimited deposit insurance for non-registered accounts. It is $100,000 like CDIC has for non-registered accounts.

Another important thing I was thinking about is when CMHC changed the mortgage rules many times, like a 40 year amortization to 35, 30 and finally 25 years, credit unions probably did not go in lock step with banks, trust companies, mortgage companies all Canadian federally regulated financial institutions.

August 26, 2014
8:55 pm
Loonie
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But maybe the credit unions didn't need to lower their mortgage amortization limits. I don't know what they did, but I'm just raising the question.
I had the impression the banks had to do this because of the fallout from the US mortgage debacle. Maybe the credit unions were in a different situation.

August 27, 2014
4:34 am
NorthernRaven
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The $100,000 limit is specific to CDIC (and the federally regulated institutions it covers). The provincial credit union guarantee systems are completely separate, and they are free to set any limit (or none) as they see fit. In Ontario, DICO has $100,000 limits in some categories, but unlimited in RRSP and other retirement plans.

As for mortgages, my off-the-cuff impression from wandering through Manitoba ones a bit is that they (at least the big ones) don't seem to do high-ratio (>80%) mortgages unless they are insured, which would put the CMHC rules in place. I did see 30-year max amortization (rather than 25) at, say, Cambrian, but this would be with a 20% minimum down payment, so presumably there's less of an exposure. I don't know if this is a regulatory limitation, or just big-institution prudence, and I've no idea what the general situation is over the various provinces, or how common >25 amortizations might be.

August 27, 2014
5:16 am
xxxx
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Loonie said

You might find this article relevant.
http://business.financialpost......ry-system/

They seem to be falling all over themselves trying to make credit unions look bad, but there it is. At no point do they actually identify how much is held in the various deposit insurance bodies, including CDIC. Nor do they get into any detail about how it might be backed up.

Disclosure is a valid point, but I don't think it makes any difference how much the ceiling is on individual accounts. What matters is how much in total is on deposit versus how much is held by the insuring body. There ARE other relevant factors, but I don't think that is one of them.

As a CA, I think that article makes some valid points. I do not agree with your point "they seem to be falling all over themselves trying to make credit unions look bad..........." Disclosure on the part of CUs is weak compared to other financial institutions, and that needs to be improved in order to keep the Canadian financial system strong. I do have a problem with their "unlimited guarantees" they offer. (that point has already been discussed endlessly in this forum.)

August 27, 2014
6:31 am
Loonie
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Please explain what difference the unlimited guarantee makes, because I can't see how it makes a difference. Surely it is the ratio between total deposits versus reserves held by the insurer (plus whatever other moneys enter into backing them up, which were discussed in another thread) that matters. I can't see that it makes any difference if, for example, 5 people have each invested $20,000, or 1 person has invested $100,000 (and multiples thereof). It's the total that matters. As far as I can see, the problem with large deposits is not the guarantee; it's the investor taking the risk that he or she might have too much invested in one institution. As far as I am able to understand, all of these insurance systems are underfunded if there were really big losses. The more you have in one institution, the more you bet on the viability of that one institution.

What I meant when I said they seemed eager to paint CUs in a bad light was that they did not give any info about the reserves and other ways in which the deposits might be backed up, and how those ratios compared to CDIC.

August 27, 2014
10:19 am
xxxx
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Loonie said

As far as I can see, the problem with large deposits is not the guarantee; it's the investor taking the risk that he or she might have too much invested in one institution. As far as I am able to understand, all of these insurance systems are underfunded if there were really big losses. The more you have in one institution, the more you bet on the viability of that one institution.

If you say the problem is with the investor - then you support my concern that the "guarantee" may not be as strong as one assumes it is when these CUs say "fully guaranteed with no limits".

With CDIC I know I am Fed govt guaranteed my $100K, but with CUs, I don't know how much I am guaranteed. (although they claim that coverage is "unlimited".) In conclusion, I do not know the client makeup of CUs, but CUs may be serving those with modest deposits/assets so maybe not of concern to people with "large deposits". Actually people with large deposits generally have no problem at all exceeding the CDIC limits if depositing in our major banks i.e. BMO, BNS , CIBC, TD, Royal.

August 27, 2014
11:26 am
NorthernRaven
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CDIC covers the full banking system, with lots of corporate and institutional cash with the big banks, and would have a much different profile than a provincial credit union system. Only 32% of total deposits in CDIC institutions are covered within the $100,000 limits. In contrast, around 75% of Ontario CU deposits are within DICO's $100K limits. You can see something similar even within CDIC, where the "Consumer" subgroup of institutions has 88% coverage, and the "Residential" subgroup has 75% coverage.

Extending guarantee coverage to 100% is much less of a stretch for a provincial CU system (disregarding possible moral hazard issues and whatnot) than for, say, CDIC.

August 27, 2014
2:39 pm
Loonie
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I read somewhere recently that the MB CUs are in fact seeing larger deposits because of the guarantee, but don't know where I read it. I also noticed that at least one of them offers a significantly LOWER interest rate if you have a big investment - I think it was over 1 million - so they appeared to be effectively putting a cap on deposits. I don't know why that would be so, but presumably it would have something to do with the CU needing to know it could lend the money out at a reasonable return. An enormous influx of money would be hard for them to handle and might also put them in jeopardy with the insurance corp?

August 27, 2014
4:16 pm
xxxx
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Loonie said

I read somewhere recently that the MB CUs are in fact seeing larger deposits because of the guarantee, but don't know where I read it.

Yes - the MB CUs are seeing larger deposits - it is more likely because of the higher rates they pay rather than the "unlimited guarantee". Actually, deposits appear to have increased at the big banks too. Canada is an affluent nation relative to others.
The boomers and older are chasing interest rates for income while the younger generation prefer convenience and do not chase around after interest rates. Different generation - different clientele - different approach.

August 27, 2014
4:48 pm
Loonie
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Also, for younger people, the difference in rates is not yet very significant, as they have less money. It will matter more to them when they are older. Really, you need to have at least 100,000 for it to make much difference, and maybe more, depending on your perspective.

August 27, 2014
8:35 pm
Jack Manning
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Unlimited deposit insurance and others promising more than $100,000 but should be $140,000 with inflation taken into account seems to be a desperate attempt to grab deposits from other provinces as things have changed with the Federal government and credit unions.

Nothing significant has changed from 4 or 5 years ago that credit unions in Ontario and other provinces can give unlimited deposit insurance. Everything has a limit and for me the $100,000 CDIC deposit insurance limit, principal and interest included is a good number to use.

Why is the IMF all of a sudden interested in provincial credit union's affairs in Canada? It is like they know there is a problem waiting to happen.

August 27, 2014
9:25 pm
Loonie
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I too wondered why the IMF was interested. The IMF is generally seen as a neutral force, but not all people have seen it that way. There are books that question how it operates, I know, but I have not read any of them.

August 27, 2014
9:41 pm
Jack Manning
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Loonie, any organization that wants to monitor the whole world about economics, finances, regulations etc. has some agenda that may not be good for Canadians in general.

We already have 3 governments plus their agencies in Canada. World Bank, WTO, UN etc. I can go on. The last thing we need is more government and other organizational bodies controlling our lives.

August 27, 2014
9:50 pm
Loonie
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Yes, I think that was the kind of criticism that has been registered by a lot of people in countries on the receiving end of IMF loans etc with many conditions that they did not think were beneficial, but, again, I have not read this material.

August 27, 2014
11:34 pm
Jack Manning
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Loonie, our democracy and freedom is being limited more and more everyday and they say it is for our own good. It is always good people that suffer the consequences of a few bad people, government, organizations, companies etc.

Please write your comments in the forum.