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Email this11:45 am
September 7, 2018
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I agree with Northern Raven assessment. We agree that the provinces are not legally obligated to support these Credit Union Guarantee Funds Agencies which operate separate from Govt. I believe we would only know the extent of the action of these provincial govts only if and when a financial disaster actually occurs.
For sure, CDIC is superior - it is a "govt guarantee" compared to the non-govt agencies (eg Manitoba) which guarantee Credit Union funds.
Frankly, I think it is very strange and unnecessary to give an unlimited guarantee as in Manitoba. DICO $250K is a more fiscally prudent limit. Bottom line - each of us decides on our tolerance for risk. I, for one, would definitely not put "unlimited" funds in Manitoba CUs even with the agency's unlimited insurance.
11:57 am
December 17, 2016
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canadian.100 said
Bottom line - each of us decides on our tolerance for risk. I, for one, would definitely not put "unlimited" funds in Manitoba CUs even with the agency's unlimited insurance.
As I wrote earlier "... I'd venture that lots of individual savers have 7 figures in cash, at MB CUs ... not very many are interested in chasing around the country to find 10-15 FIs to park that money at and keep track of it for yearly tax and estate purposes."
1:52 pm
September 11, 2013
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Top It Up, you really think "lots" of people, "savers" to boot, have over a million dollars sitting in bank accounts? You must operate in a different crowd than I do!
Personally, I'm fine having my savings money at a number of institutions. With a spouse you can have 3 accounts at each FI and so if you're set up at, say, 8 institutions, you can have well over $2 million safely in bank accounts. And lots more if you use Ontario credit unions too. And more if you use TFSAs or other registered accounts.
2:01 pm
December 17, 2016
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Bill said
Top It Up, you really think "lots" of people, "savers" to boot, have over a million dollars sitting in bank accounts?
I do and I got that vibe from being a POA/Executor for 2 of the most unsuspected individuals.
5:26 pm
February 17, 2013
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canadian.100 said
For sure, CDIC is superior - it is a "govt guarantee" compared to the non-govt agencies (eg Manitoba) which guarantee Credit Union funds.
Frankly, I think it is very strange and unnecessary to give an unlimited guarantee as in Manitoba. DICO $250K is a more fiscally prudent limit.
I agree...but the thing with CDIC is there is a 100K Max. Even doubling down (tripling?) with your spouse, that is not nearly enough coverage for the amount they say is required to retire (1 Mil, but I haven't checked lately) these days. The CDIC is sorely in need of updating.
That being said, if we get into a situation where any or all of them have to start paying out big time, we'll have bigger problems to worry about.
6:47 pm
October 21, 2013
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I don't have any problem with MB's (and others') "unlimited" coverage. There is no difference, in terms of funding, between 10 x 1000 and 100 x 100. The only issues are how much liability , in total, is the FI vulnerable for, and how much they can loan out. Financial vulnerability is covered by the regulations that require them to have X percentage on hand.
The way I see it, deposit limits would, potentially, limit the number of members, but not a big issue. While I am sure there are people who keep $1million or more there in insured deposits, I also don't think there are enough of them to create a need to limit members or limit deposits (insured or not). As I recall, some have or have had interest rates which are tiered negatively and thus discourage large deposits., so that is another way of regulating it other than limiting insurance.
You may indeed need $1million or more in order to retire happily but it does vary with lifestyle, frugality. and whether you want to make a bequest. However, the amounts cited usually assume that a large percentage is in RSPs (where the entire sum remains to be taxed, as opposed to non-registered where you will only be taxed on the income) and that you have no company pension. Proportionately less is required if your money is outside of RSPs and /or you draw a pension from work. RSPs will provide you another chunk of CDIC insurance coverage, although not a lot.
8:55 pm
September 10, 2018
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Thank you Northern Raven. Very informative and to the point. I did see that DICO is a "an agency of the the Province of Ontario" but your AG response that the the government is under no obligation to finance operations is not encouraging.
In BC, we have the Credit Union Deposit Insurance Corp that is managed by the Provincial Regulator, but owned and funded by the various credit unions. So no link yet to the Province - but I am pursuing.
I wonder how many depositors appreciate these nuances.
5:52 am
August 4, 2010
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For BC, you want the Financial Institutions Act, 271(5), which states that the government "may" provide a loan guarantee if the fund becomes impaired. So if the government of the day during a crisis was formed by the "We Hate Credit Unions" party, they could in theory let it go down the drain.
Given that CMHC covers a lot of held mortgages, and other buffers, I think people underestimate the size of economic meltdown it would take to break a provincial credit union system and its guarantee fund. But for anyone actually worried, just go with federal CDIC institutions.
2:51 pm
October 21, 2013
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It's my understanding that credit unions are not held to the new mortgage stress tests, just the banks. Can anyone confirm or refute?
3:47 pm
September 7, 2018
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Loonie said
It's my understanding that credit unions are not held to the new mortgage stress tests, just the banks. Can anyone confirm or refute?
Your understanding is correct.
Per the January 2018 Rate Spy publication:
"Credit unions aren’t bound by OSFI’s game-changing “stress test” (which applies to borrowers with 20%+ equity). Instead of forcing you to prove you can afford a rate that’s two-plus points higher, some CUs qualify you on (i.e., measure your ability to afford) the contract rate you actually pay. That flexibility has industry-folk projecting a 5% to 20% surge in CU mortgage volumes this year."
5:17 pm
September 10, 2018
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I agree - DBRS makes the same point. Does this mean that a Credit Union mortgage portfolio will have higher risk mortgages?
5:25 pm
December 17, 2016
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canadian.100 said
Your understanding is correct.
Per the January 2018 Rate Spy publication:
"Credit unions aren’t bound by OSFI’s game-changing “stress test” (which applies to borrowers with 20%+ equity). Instead of forcing you to prove you can afford a rate that’s two-plus points higher, some CUs qualify you on (i.e., measure your ability to afford) the contract rate you actually pay. That flexibility has industry-folk projecting a 5% to 20% surge in CU mortgage volumes this year."
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Recycled from an earlier post
From the Globe and Mail -
Alternative mortgage lenders struggling to cash in on new stress-testing rules
Canada's alternative mortgage lenders are not getting the anticipated boost to business from the introduction of tougher mortgage qualification rules that took effect three months ago.
Credit unions and other non-bank lenders were expected to see a bump in business after Canada's banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), imposed new rules on Jan. 1 requiring banks and other regulated institutions to ensure borrowers can afford their mortgages even if interest rates were significantly higher than the negotiated rate.
The stress-test rule does not apply to lenders that are not OSFI regulated, including provincially regulated institutions such as credit unions, which were expected to lure customers who were turned away from the banks by the tougher new standards.
But home buyers have so far not moved in droves to alternative lenders, in part because real estate sales remain slow in major markets such as Vancouver and Toronto, cooling mortgage demand in the first quarter of 2018.
Banks are also working hard to keep clients, while many credit unions say they are taking a conservative approach to wooing customers who do not qualify for loans elsewhere.
5:26 pm
September 10, 2018
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Thank you Northern Raven for the link I need to read, but I broadly agree with your point of sticking to CDIC.
My problem is that I am looking for a CDIC insured non-personal deposit taker that is not a major bank because their rates are not attractive. I can only find Alterna Bank and MCAN Mortgage that will take small incorporated business deposits that will be CDIC insured. Any suggestions by anyone ???
6:38 pm
February 17, 2013
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Hornby said
Thank you Northern Raven for the link I need to read, but I broadly agree with your point of sticking to CDIC.My problem is that I am looking for a CDIC insured non-personal deposit taker that is not a major bank because their rates are not attractive. I can only find Alterna Bank and MCAN Mortgage that will take small incorporated business deposits that will be CDIC insured. Any suggestions by anyone ???
Motive is with CDIC
8:30 pm
April 6, 2013
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Loonie said
It's my understanding that credit unions are not held to the new mortgage stress tests, just the banks. Can anyone confirm or refute?
The new mortgage stress tests are from OSFI. OSFI only has jurisdiction over federally regulated financial institutions, like the chartered banks, trust companies, and federal credit unions.
OSFI has no jurisdiction over credit unions that are under provincial jurisdiction. But, that won't prevent such credit unions from quietly adding a similar stress test to their underwriting.
8:46 pm
April 6, 2013
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Hornby said
I agree - DBRS makes the same point. Does this mean that a Credit Union mortgage portfolio will have higher risk mortgages?
No, the credit unions don't want higher losses in their mortgage portfolio either.
Risk of default is not the same as risk of loss as mortgage defaults don't necessarily lead to losses. Lenders to the house-rich but cash-poor can recover the money lent and legal expenses after a foreclosure. They just need the strong stomach needed to kick a defaulting family out of their home.
7:08 pm
February 18, 2016
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Bill said
Top It Up, you really think "lots" of people, "savers" to boot, have over a million dollars sitting in bank accounts? You must operate in a different crowd than I do!
I doubt a 'lot' of people have 1Mil in the bank. Really doubt. Every time I mention 'do you plan to pay cash for new car' I get looks like I am completely crazy, even worse than idiot trump.
No, a LOT of people do not have 1mil in the bank. They have few grands at most...
And for happy retirement, yes, 1mil is just plenty. And you are not touching it actually but live from interest. You get about $28K a year, split with spouse, pay 0 tax and enjoy life.
Can you live for 28K/yer. You bet. My yearly living expenses are about 25k including everything (food, clothing, insurance, bills, presents, etc.) so I can have 3k left for vacation and not pay a cent to justin and his lavish vacations...
12:14 pm
September 10, 2018
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Can you suggest a CDIC insured financial institution that will take small incorporated business deposits and pay an interest rate better than the big 5 banks ?
I Have learnt that EQ Bank, Simplii, Tangerine, Alterna Bank and Motive (CWB) do not accept non-personal accounts – not even GICs – there is a huge market opportunity here - think of small business, dentists, doctors, real estate
Thanks Bob
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