Would CIBC cover Simplii if Simplii failed? | Page 2 | Simplii Financial | Discussion forum

So the relationship between Simplii and CIBC is not replicated with Tangerine and Scotiabank?
Scotiabank could let Tangerine fail?

Doug said
Related newsworthy item: CIBC has provided regulatory notice to OSFI and the Minister of Finance to legally dissolve their mortgage corporation subsidiaries into the parent company or CIBC Trust Company (can't remember which), so people who held mortgages or deposits with the affected CIBC mortgage corporation subsidiaries may have their CDIC deposit insurance limits affected in accordance with the CDIC provisions for financial institution legal mergers.

Likewise, Scotiabank is doing the same with ADS Canadian Bank (formerly Hollis Canadian Bank and, before that, Dundee Bank of Canada), merging it into The Bank of Nova Scotia Trust Company ("Scotiatrust").

Cheers,
Doug  

Why do you think these changes are happening, Doug?

According to the August 29, 2012 Reuters news release, Bank of Nova Scotia paid ING Groep NV $3.14 billion for ING Bank of Canada that was doing business as ING Direct Canada.

After deducting the excess capital in ING Bank of Canada, the net cost was around $1.9 billion to the Bank of Nova Scotia.

Doug said
In this way, Simplii Financial could not fail without all of CIBC failing.

That’s exactly it. While Tangerine can technically fail on its own if BNS stands on the sideline, Simplii can not fail unless CiBC goes under.

The downside is the Simplii deposit is covered under the same $100k deposit insurance under the Cibc name.

AltaRed said
Technically yes, but BNS would suffer severe reputational damage. It is pretty certain BNS itself would need to be at significant financial risk before they'd let Tang go down on its own.  

More or less, yes, but in addition to this, there are provisions in the CDIC Act which would require either (a) the parent company to either (i) financially support or stabilize the subsidiary or (ii) offload it to CDIC or (b) the CDIC to stabilize the financial institution. I'm not aware of a single instance since CDIC's inception where depositors who held more than their CDIC deposit limit lost savings above that limit. In all likelihood, CDIC would interim manage Tangerine Bank, bringing in an external consultancy to sell it or have an acquiring bank, and there would be plenty of willing takers.

This probably wasn't the best example, since Tangerine Bank has a very low mortgage book. Its deposits are an important source of capital / funding that, collectively, help Scotiabank Group in terms of its overall capital adequacy and deposit ratio levels.

Cheers,
Doug

canadian.100 said
So much contemplation in this blog that Tangerine might/could go under if Scotiabank does not "save" it. After looking at the financial statements of Tangerine on the OSFI site, it would appear Tangerine is doing just fine. A reasonably strong Balance Sheet, good financial results (profit) from Interest, Fees etc. (the Tangerine Mutual funds bring in good regular management fee revenue). Tang operates with a low overhead (no branches). We know they are not a rate setter on HISA and GICs - their mortgage rates are a bit better than the competition. Some friends recently refinanced with Tangerine for 5 years. I think they are doing just fine.  

Not saying tangerine will fail (I routinely has way more than limit there), but at the same time it’s the low probability risk that people don’t pay attention to that will bite u hard and hurt the most. When it comes to financial situation, things can go ugly much quicker than one can assume. The whole financial system would have collapsed within a month back in 2009 if there were not decisive intervention at the global level to backstop all the remaining systematically important banks.

As well, there would be little reputation damage for Scotiabank should it turn out not make financial sense to put more money into Tangerine Bank in the unlikely event Tangerine Bank would fail.

It is not seen poorly to refuse to throw good money after bad, like BCE refused to do with its real estate subsidiary, BCE Development, years ago.

According to Toronto Star (Nov. 5, 2013): ING Direct renames itself Tangerine, Scotiabank deliberately did not chose a Scotia name for ING Direct Canada to keep Scotiabank and Tangerine separate in the marketplace:

The one name that wasn’t on the table was anything that included the word Scotia, said Robin Hibberd, executive vice-president, retail products and services, Canadian Banking, Scotiabank.

“That was absolutely not one of the options right from the point where we purchased ING Direct,” Hibberd said. “We did not want to integrate the two brands or the two operations. We bought ING direct because of the value of its brand and customer relationships and all the things that were unique about that.”

So, Tangerine has been deliberately not marketed as a Scotiabank business.

In such an unlikely event, CDIC would cover the insured deposits.

Reputational damage from the losses on uninsured deposits would be transferred to those who said Scotiabank would support Tangerine Bank no matter what.

Maybe we can take some comfort from what happened during the trust company debacle in 2008. Every distressed trust company was bought by a bank and no depositor lost money.

Kidd: no CDIC (or provincial credit union insurance) coverage on amounts over the insurance limits would be available from another insured institution unless you had made a completely separate deposit. For example, to get 100+100 from Home Trust/Home Bank, you'd have to have separate accounts set up. As an Oaken depositor, for example, you have the choice of where to put each amount you give them - HT or HB.
RetirEd