DICO legally dissolved; FSRA assumes operations | Page 2 | General financial discussion | Discussion forum

Norman1 said
It is quite reasonable for the Deposit Insurance Reserve Fund not to keep most of its $320 million funds in cash.

There's no immediate need for the $320 million. According to Note #3, about $250 million is in money market instruments and about $65 million is in a ladder of government bonds.  

$320 million seems not a very large amount, I thought some CUs were operating in the billions ?

From the document I have read the insurance fund covers .79% of the deposits that the fund is insuring. There are 5 other provinces that have similar funds & all of them are over 1% coverage per covered dollar with some being over twice as covered (Alberta 1.78%) per covered dollar. To make maters worse the document is dated back to 2020 & the coverage per dollar had dropped between 2017/2020.

I had a look at some figures from 2020 and specifically I saw that Meridian had about 385000 members and assets over 28 billion. For simplicity if one assumes an average balance of $1000.00 per member, this is already more than the reserve fund can bear. Are members considered to be unsecured creditors ?

hwyc said

$320 million seems not a very large amount, I thought some CUs were operating in the billions ?  

Its an insurance. You dont need 100% asset against 100% exposure/ liabilities.

I have long been aware that many, perhaps most, maybe all, Ontario CUs tell their members that Govt of Ontario guarantees their insured deposits. Their reasoning has been that since DICO was a Crown Corporation, then the 'Crown' in the form of the Ontario govt, whose creature it is and who has oversight of it, is responsible for its debts. I imagine the same is true for FRSO.
However, nobody has ever proven to me that this is so.
I am under the impression (could be wrong) that FRSO does not have guaranteed borrowing capacity in the way CDIC does.

I imagine that other provincial systems are similar.

However, just because the provinces may not be required to back the CU insurance programme doesn't mean they wouldn't. They spend money on all kinds of things that aren't required by law - and they are the guys who get to change the laws anyway.

I don't have the numbers handy but the reality is that no deposit insurance in the country has enough in its coffers even with borrowing privileges, to cover massive losses.
There is no 100% completely safe place to put your money. If you put it under the mattress, you might have a fire or flood - and you will be investigated if you ever try to deposit it anywhere because you've likely got way more than 10Kg, not to mention funds in registered plans which you don't actually see.

The bottom line is that your best protection is a strong well regulated banking system covering banks, CUs, pension plans etc. If you care about your money, you should advocate for this and keep an eye on developments in this area.
Other than that, spread your money around and stay within insured limits.. Attend all CU AGMs. Get involved. Pay attention to reserve funds. Take a course. Find out what's going on. Read all documents that come your way. And so on.

As I understand it, CDIC is only somewhat better. The govt of Canada does not guarantee it but allows it to borrow, but the borrowing has a ceiling.

The crown agency arguments for crown liability are not airtight.

I looked into this previously. Treasury Board gave the example of the Bank of Canada. Government of Canada would be liable for any Bank of Canada shortfalls from Bank of Canada interventions in the currency markets. But, not for any shortfalls involving building leases the Bank of Canada enters into.

One just have to decide if there is a ‘implied’ guarantee by the province / fed if something really bad happens. Esp with banks, it’s a domino effect so the fed will have no choice but to step in as CDIC will be depleted relatively quickly. As for CUs at the provincial level, stay with the largest one, for exactly the same reason.

Loonie said
Deciding whether there is an implied guarantee could be what the courts will be debating if it comes to that.
I can only reiterate that if they intended to guarantee it, they would have said so. They didn't.
This doesn't mean they won't but it does mean it's up to their discretion, a political decision.  

My thoughts are even if they intend to guarantee it, they wont say it. They cant simply because banks are "owned" by investors, and publicly traded. There is already so much hate for banks that no politicians in power is dumb enough to explicit say the government will "guarantee" any banks.
From an armageddon scenario, government will intervene and step in AND wont need to wait for any legal proceeding. Just like what happened during the financial crisis, COVID. Govt will step in to "help" before it gets to the point of no return.
As for CUs esp unlimited guarantee at the provincial level, I am less comfortable with that.....

savemoresaveoften said
One just have to decide if there is a ‘implied’ guarantee by the province / fed if something really bad happens. Esp with banks, it’s a domino effect so the fed will have no choice but to step in as CDIC will be depleted relatively quickly. As for CUs at the provincial level, stay with the largest one, for exactly the same reason.  

Actually, wouldn't that be a reason NOT to stay with the largest one? Failure of a small CU might easily be covered by FSRA, and if not, the government could easily step in without too much publicity or fanfare, but FSRA would definitely not have the funds to cover failure of the largest (Meridian), and that would be a very big, headline splashing debate for the government to open the coffers.