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Zag Bank and Continental Bank file discontinuance applications
June 21, 2019
9:15 am
Doug
British Columbia, Canada
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As at May 31, 2019, and May 27, 2019, respectively two Schedule I (domestic) federally-chartered banks have either served notice of their intention to file or filed an application to discontinue their federal bank charter and continue, at least in the short- to medium-term, as a corporation under the Canada Business Corporations Act (federal corporations). Those banks, also respectively, are Desjardins-owned Zag Bank and Continental Currency Exchange Services-owned Continental Bank of Canada. Zag Bank has only served notice of its intention to file, so no effective date is specified, but Continental Bank's effective date is to be on or after July 1, 2019. Discontinuance applications are typically processed much more expeditiously than continuance or new bank applications, obviously. Given that Continental does not offer deposit services and is in the business of foreign exchange services, I expect discontinuance within a few weeks of that effective date.

Zag Bank has a modest amount of deposits on its balance sheet (less than $1 million). They're likely having difficulty finding customers and then getting them to early redeem their GICs without penalty (I can't imagine anyone has any Zag Bank GICs at 3.00%+ rates that they want to hang onto). Nevertheless, there may be provisions in the Bank Act that allows a bank to transfer non-respondent customer deposits to the Bank of Canada for safekeeping in advance of the normal 10-year inactive account transfer schedule when banks are seeking an accelerated wind up of their operations. As for their mortgages, as I alluded to earlier, I suspect they'd either sell those mortgages or transfer them to Desjardins and it seems like that is what they are going to do.

All told, I expect both Continental and Zag to cease being banks and CDIC members before the end of September 2019 and definitely by the end of this year. It will bring to a conclusion a storied history for Zag Bank, which traces its origins to Western Financial Group-owned Bank West and Prospera Credit Union-owned Ubiquity Bank of Canada (link is to the Internet Archive version of Ubiquity's term deposits rates page, for historical posterity) that Prospera ultimately sold the mortgages and deposits to Bank West and then wound down.

Continental Bank of Canada, meanwhile, is part of the Continental Currency Exchange Services, Limited, company that part-owned by Canadian gold bug Eric Sprott (of Sprott Asset Management) and which it was reported PACE Credit Union executives had allegedly tried to subvert DICO approval by trying to acquire a minority interest in. Interestingly, a previous Continental Bank of Canada, owned by Lloyds Bank of London, was acquired by HSBC Bank Canada in the late '80s or early '90s.

Cheers,
Doug

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