Provincial deposit insurance, Manitoba rates, etc | Page 3 | General comparisons | Discussion forum

That's not where I read it, but, alas, I don't remember where.

I believe they do still have debt from WW2, though, which is not just the cost of war but the cost of rebuilding, which, as you can perhaps imagine, was astronomical, and it took many many years. No doubt some other countries had the same problem, but i don't know the details. Certainly the bombardment of England was much more extensive than that of , say, France, Poland or Czechoslovakia, which did not hold out very long.

There is another thread regarding Casera where the topic of the relationship between the Deposit Guarantee Corporation of Manitoba and the Manitoba government is discussed at length out of context.
To conclude this discussion, I offer below the response I received today from the CFO of DGCM. I hope this is helpful.

Thank you for contacting the Deposit Guarantee Corporation of Manitoba (DGCM).

The Province defines our organization as a government agency, or government business enterprise. We are included in the government reporting entity within their consolidated financial statements.

The Credit Unions and Caisses Populaires Act of Manitoba does not explicitly require financial assistance from the Manitoba government. However, there are mechanisms in place, within legislation, to request financial assistance. As well, the Auditor General is of the opinion that as the Province appoints the Board of Directors and sets the mandate for DGCM, it effectively controls our organization and has a constructive obligation to provide financial assistance. This is evidenced with deposits placed with Manitoba credit unions being a contingent liability in the Province’s consolidated financial statements.

As noted above, the Manitoba government appoints the Board of Directors and sets the mandate for DGCM. As well, the Financial Institutions Regulation Branch regulates Manitoba credit unions and the caisse, oversees DGCM’s operations, and is empowered through legislation in a number of areas on guaranteeing deposits.

Regards,
___________________________________________
S. Joe Nowicky, CPA, CMA, ICD.D
Chief Financial Officer
Deposit Guarantee Corporation of Manitoba

I was not able to find any evidence to support the contents of the e-mail that GR received.

The four volumes that make up the Manitoba's latest 2018 annual report are available from the Manitoba's Department of Finance web site.

DGCM is a government business enterprise. Its finances are not consolidated with the province.

Instead of contingent liability, I found this zero contingency statement on page 98 of Volume 1:

7. CONTINGENCIES
…

C. Government Business Enterprise Guarantees
…
The Deposit Guarantee Corporation of Manitoba has guaranteed $27 billion in credit union deposits at the end of December 31, 2017 (December 31, 2016 - $26 billion). Based upon its ongoing monitoring procedures, the Corporation has concluded that a provision for such contingencies does not need to be established at this time.

DGCM's financial statements start on page 347 of Volume 4, Section 1. Note #12 on page 368 is similar:

12 Contingent Liabilities

As at December 31, 2017, DGCM guaranteed $27.4 billion (2016: $26.3 billion) in credit union deposits. Based on its ongoing monitoring procedures, DGCM has concluded that a provision for such contingencies does not need to be established at this time.

As at December 31, 2017, DGCM has provided a loan indemnification with a maximum exposure of $480 (2016: $545). DGCM has concluded that a provision for loss does not need to be established at this time.

Not that it affects me but my 2 cents after reading the above is that based on the lack of a clear declaration that the gov't of Manitoba will bail out the DGCM if needed (which I'd think would be highlighted front-and-centre to depositors if it was the case) I'd operate on the assumption it won't. Just to be conservative.

Bill said
Not that it affects me but my 2 cents after reading the above is that based on the lack of a clear declaration that the gov't of Manitoba will bail out the DGCM if needed (which I'd think would be highlighted front-and-centre to depositors if it was the case) I'd operate on the assumption it won't. Just to be conservative.

I would operate on the assumption that any bail out may not be a full one. DGCM's FAQ page clearly says the government is not obligated to help:

Is the Deposit Guarantee Corporation of Manitoba part of the Manitoba Government?
No. The Deposit Guarantee Corporation of Manitoba is established under The Manitoba Credit Unions and Caisses Populaires Act. A Board of Directors, appointed by the Lieutenant Governor in Council of Manitoba, oversees the Deposit Guarantee Corporation of Manitoba.

Does the Government of Manitoba also cover deposits?
No. There is no legislated requirement for the Manitoba government to provide financial support to the Deposit Guarantee Corporation of Manitoba.

In the unlikely chance it would be needed, I'm sure there is a communication channel that DGCM could use to request help from the Manitoba government. But, that doesn't mean the government will just send money to cover 100% of the shortfall.

I suspect that's done not to avoid helping out. But, so that the government has the legal position to set any appropriate terms for the money.

Loonie said
It's significant that it's so difficult to get clarity on this issue.
And it's sad that you basically have to be a lawyer with a specialty in this area in order to even be sure you are interpreting correctly.
And even if you were such a lawyer, you would probably only come up with what COULD happen, not what WILL happen.

Seems to me that the CEO of DGCM is naturally inclined to interpret things in a way that is favourable to his organization and its member institutions. Unfortunately, he does not offer chapter and verse to support his assertions. The auditor-general's opinion, which he cites, is not likely a legal opinion, unless the auditor-general is also a lawyer, although I would guess that he/she may have lawyer(s) on staff. And it is not clear which auditor-general is being cited - current or past?

It also seems likely to me that this would be a political football if it ever came up. Governments are certainly not immune to taking actions that are legally questionable and may even end up in the Supreme Court.

All of this leads me to think that we don't know what they'd do if push came to shove, and that it could very easily involve a long legal battle and class actions, which will be no use to me at my age.

On the other hand, it is always in the interests of a sitting government not to alienate the voters on whom it depends. I have read in the past that CU membership in MB is very high, and that a very substantial portion of people's funds are held there, I think more than half, but not sure. This would be in part because so many banks pulled out of so many communities or were never present in the first place. I wish I could verify or disprove this, but I have not been able to and would welcome it if someone else can.
Out of province members will matter less and could, theoretically, be treated differently, but it may also depend on what percentage of members are out of province.
I have also read that banks have proven more vulnerable than CUs during times such as the Great Depression, but can't find that reference either. I think it referred to the US. May not still hold, with different regulatory influences and more open bond CUs. I truly wish I could find the reference, but it was quite some time ago now. I'd like to know!

For the most part, I keep only shorter term money in MB, i.e. one year cashable or less. That's my way of trying to deal with the reality that we don't know.

Is there anyone here who lives sins MB who would like to pursue this question with their MLA?  

Thanks for your added comments, Loonie, as always.

Indeed, provincial credit union deposit insurance does suffer from a lack of clarity in terms which governments are formally on the legal hook for liabilities of their provincially-owned Crown corporation deposit insurers. From what I've been able to discern, DICO (or its successor, the FSRA when it becomes the Deposit Insurance Fund administered by the FSRA of Ontario) and possibly Quebec seems to have the strongest governmental ties in terms of deposit insurance liabilities.

To your point about credit union penetration being relatively high in Manitoba, this is true, and I suspect it's indeed in large part due to banks having pulled out of many smaller Manitoba towns, villages, and rural communities. As well, I get the sense that Manitoba communities share a strong sense of social connection, perhaps in part due to the vast geographic area over which they're distributed and not easily connected by rapid transit networks and/or an inter-city bus service. Aside from British Columbia and Quebec, it's quite likely Manitoba has the third highest penetration of credit union membership as a percentage of their population.

While it doesn't draw a definitive, absolute, and direct link between this strong credit union membership penetration in Manitoba, I can offer up the Credit Union Central of Manitoba's 2018 annual report, which I've read to a considerable degree in the past month or two, that offers a few facts. (As a point of fact, credit union central annual reports are wonderful documents for providing additional granularity in terms of assets and liability mix, membership growth year-over-year, and the like that the national trade association, Canadian Credit Unions Association, semi-annual system reports simply do not provide.)

On page 2, on a province-wide basis, the credit union membership grew by 10,000 members to 643,000 from 633,000 in 2017. The report notes that 1 in 2 (50%) of Manitoba's roughly 1.3 million population is a member of a credit union. Since these are, presumably, total member numbers, this would include non-Manitoba residents who've joined a Manitoba credit union; however, given the data I've discerned from several of the Manitoba credit union annual reports that have virtual banking branches, this is likely not a significant number (likely 1-3% of total members do not reside in Manitoba). Likewise, in some areas where there are more than one Manitoba credit union, it's possible a Manitoba resident is a member of more than one Manitoba credit union. However, also on page 2, the report notes that credit unions have branch locations in 108 communities, 67 of which (more than two-thirds) have no other financial institution in town (bank or credit union), which likely adds to the idea that Manitoba credit unions are an important part of the social fabric of Manitoba communities. And, a final note, while the number of separate credit unions has declined from 48 in 2008 to 27 in 2018, which will further decline to 26 with the merger of North Winnipeg Credit Union into Carpathia Credit Union in 2019, the number of branch locations has held firm - declining by a single branch from 182 in 2008 to 181 in 2018. And, at times, it even rose above 182 in 2008, which suggests credit unions are keen to cut costs and streamline their operations whilst maintaining their branch presence. (This will decline by a further one, to 180, in 2019, as Sunova Credit Union closed the former Oak Bank Credit Union branch located a few blocks away in the town of Oak Bank, but it actually may not as several credit unions have added branches.)

If you're curious, on page 3, loans, mortgages, and investment assets owned by the credit union increased by $1.7 billion to $30.29 billion, while member deposits grew $1.68 billion, to $27.46 billion. If all Manitoba credit unions were a single financial institution, they would equivalent in size to Canada's 10th largest chartered bank, slightly ahead of Manulife Bank and behind Tangerine Bank.

Given that strong affinity and popularity, while it may not be a guarantee from the Manitoba government that it would backstop the DGCM should its credit facilities and cash and marketable securities be fully tapped, it would political suicide for any Manitoba government to see mass credit union branch closures and Manitoba and out of province residents losing their hard earned savings. It would likely do what it takes, whether it be forced amalgamations to providing loan guarantees and outright cash outlays, to make depositors whole. Members may well lose all or part of their equity in their credit unions in such a scenario, but equity shares have never professed to be guaranteed.

And, I would just point out that a similar situation exists with CDIC. The CDIC reports that for its most recent fiscal year, it has guaranteed some $730 billion in insured deposits (not the total amount of deposits as many more are uninsured) and only has about $5 billion in cash & marketable securities (mostly AAA rated bonds) and access to a ~$22 billion federal government credit line from the Consolidated Revenue Fund and/or private funding sources. The CDIC is, as I understand it, an agent of the Crown and thus its liabilities guaranteed by the Government of Canada, but my point is that in such a catastrophic scenario and an unprecedented global calamity the likes of which we've never seen, even CDIC would, too, exceed its available funds. Like the Manitoba scenario, I take comfort in knowing it would political suicide for the federal government to let Canadians lose their figurative shirts (or at least their deposits). 😉

Cheers,
Doug

Loonie said
It's significant that it's so difficult to get clarity on this issue.
And it's sad that you basically have to be a lawyer with a specialty in this area in order to even be sure you are interpreting correctly.
And even if you were such a lawyer, you would probably only come up with what COULD happen, not what WILL happen.
…

It is difficult to try to find something that's not there.

There's no evidence to back up the message that GR received.

If the Auditor General does feel that the deposits are a contingent liability of the government and that is not in the government's audited financial statements, I would expect the Auditor General to mention that difference of opinion in its qualified opinion letter.

Furthermore, neither the Auditor General nor the CFO of DGCM speak for the government. The Auditor General is a watchdog on the government. The CFO of DGCM is not a government minister.

Politically, the government does not have to make all the depositors whole. It could split the depositors. Sort of like having its political cake without having to pay the full price for the cake.

It might turn out that depositors would need to take a 30% haircut because the deposit guarantee corporation does not have enough money. The government could make a proposal to the depositors, similar to what was made to investors involved the asset-backed commercial paper fiasco years ago:

• 100% of deposits $80,000 or less.
• 70% of anything above $80,000 is exchanged for a non-interest bearing government bond that matures in 15 years.
• One vote per depositor.

Turns out over 90% of depositors have less than $80,000 at stake. So, the proposal passes with 90%+ votes in favour.

90% of the depositors and and their votes preserved. The remaining 10%? Well, can't make everyone happy in politics.

Loonie said
Thx, Doug. These figures help put the matter in perspective re: the MB economy being dependent on CUs. It's not just depositors that would be in difficulty. What would happen to the people who have mortgages? It's my understanding that MB CUs are only permitted to loan out within the province, so, if that's correct, then presumably all the loans would also be in flux.

Yes, that's my understanding as well. Whether it's in provincial legislation, in the regulations governing credit unions, in internal supervisory policies of either DGCM or the Financial Institutions Regulation Branch of the Ministry of Finance, or simply in the bylaws and credit union rules of credit unions that lending to non-Manitoba residents is prohibited, I'm not exactly sure. We can see, though, that even Sunova offers mortgages through its virtual banking Hubert Financial division except to non-Manitoba residents.

[...]

From my point of view at least, suffice it to say that we would be dealing with an extreme situation, and in such a situation anything can happen.  

I think that's the best advice, which is why I don't lose much sleep over whether or not deposit insurance is a contingent liability of the provincial government overseer. 😉

In such a catastrophic scenario, there would be worrying signs well in advance and, as we've seen when the Harper government successively reduced maximum mortgage amortizations from 40, to 35, to 30, and then to 25 years, it did so with no advance warning and without any consultation of any kind. If Canada and the world were going to proverbial hell and a handbasket (and some might argue we're already there, but let's set that aside - I'm talking such an extreme situation), government would have an inkling of what's to come. After trying to make the macro-prudential regulatory changes necessary to stabilize financial institutions by (a) requiring more risk capital be held, (b) further changing mortgage rules, or (c) some other change and working with the regulators to merge non-viable financial institutions with a larger one (just as the provincial regulators would be doing with credit unions), they could take one of two future options, depending on how big they wanted the government's balance sheet to balloon:
(1) they could cut, or eliminate, CDIC deposit insurance effectively at a certain date; or,
(2) they could substantially increase CDIC's credit line with the federal government, fully expecting it would likely need to be tapped (which, I'd add, would be unprecedented since most, if not all, financial institutions have been resolved by a merger or acquisition with a larger competitor)

Do I think such a scenario is likely? No, not at all. My point is, though, that as much as we worry about the provincial government deposit insurance guarantees, the federal government has the power to make whatever changes it likes to CDIC. None of us have crystal balls and cannot predict the future. A certain degree of trust is required that governments will, at least in this case, do what's right in terms of making sure its citizens are not left penniless (or nickelless). If we don't have even the smallest amount of trust, then, arguably, we should not be saving our money in bank or credit unions. We should not also be saving our money as money under our mattress or in cookie jars, either. We should be buying copious amounts of gold and stocking up on ammunition for the rifle beside our bed. 😉

I hope it doesn't come to that, at least not in my lifetime.

Cheers,
Doug