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Email this9:37 am
December 12, 2009
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Loonie said
If CDIC's liabilities were an obligation of the crown, there would be no need for it to be a crown corporation, as I see it.
Happy to be corrected by hard info though.
That is not the main reason, or even a significant reason, why Crown corporations are established. A lot of the reason for establishing Crown corporations is related to governance and independence, or perceived independence, from and of government.
There is a reason these agencies have limits or limited funds, and I would submit that that is because the respective gov'ts don't want to commit themselves further.
Yes, as a matter of the ordinary course of business and for accounting purposes, that's true. What this fails to consider is cataclysmic financial events. In other words, no one expected government to bail out corporations and financial institutions in 2008, but the consequences from not acting would've been far greater.
It's important to remember that no one has ever lost a dollar in deposits, including amounts about deposit insurance limits, from the few financial institution failures. The CDIC even says so on its website. Have people lost money from holdings in shares, preferred shares, debentures, or other obligations of a financial institution (bank or credit union)? Sure, but not insured and uninsured deposits. 🙂
That to me says it all it all and is all the comfort I, and the vast majority of Canadians, should ever need. No need to try digging up and trying to make sense of legal documents, written by lawyers, as you quite rightly put it. 
Cheers,
Doug
2:47 pm
March 30, 2017
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seh said
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. Â
To me its the other way round, a small one may fail and still deplete the FSRA, but no domino effect and thus govt not care as much. A much bigger player failing can bring down the whole system, thus govt is more likely to step in and not let it fail at all. My goal is for the govt to step in that the FI that I have my money is "protected" due to its size.
5:22 pm
April 14, 2021
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Size didn't save Lehman Brothers in 2008.
7:28 pm
November 15, 2018
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But it did save its much bigger brother Goldman Sachs.
3:56 am
March 30, 2017
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dommm said
But it did save its much bigger brother Goldman Sachs. Â
Exactly, once the Fee realized they are in deep ‘$hit’, they turn on the cash tap to save the rest.
This is the first time ever so the Fed did not have any experience… it will be remembered, just look at what global CB did to backstop the Covid impact to banks.
I was in the industry during the Lehman collapse, and we were busy to try to tally our exposure. Within a week, the inevitable happened.
8:57 am
April 6, 2013
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That's not the case with credit unions. No credit union in Canada is systemically important.
Credit unions don't have deposits with each other. They don't clear items through another credit union. Nor are they counterparties in contracts with each other.
If there is any pressure, it will only be political pressure after a major credit union failure. That political pressure can be dealt with in unexpected ways.
If 90% of the members in the failed credit union have $50,000 or less in deposits, then the government can offer to make everyone's first $60,000 whole and put it to a membership vote. Of course, 90%+ will vote in favour as a class.
90%+ of the votes in the next election will be preserved. Really unfortunate for those who had $250,000 or $1 million in deposits and will only get their first $60,000 back.
10:32 am
November 23, 2017
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Norman1 said
That's not the case with credit unions. No credit union in Canada is systemically important.Credit unions don't have deposits with each other. They don't clear items through another credit union. Nor are they counterparties in contracts with each other.
If there is any pressure, it will only be political pressure after a major credit union failure. That political pressure can be dealt with in unexpected ways.
If 90% of the members in the failed credit union have $50,000 or less in deposits, then the government can offer to make everyone's first $60,000 whole and put it to a membership vote. Of course, 90%+ will vote in favour as a class.
90%+ of the votes in the next election will be preserved. Really unfortunate for those who had $250,000 or $1 million in deposits and will only get their first $60,000 back. Â
Good analysis Norman1, and your suggestion how it may play out politically seems entirely plausible. Might be time to remove the higher balances at Meridian.
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