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Email this12:20 pm
December 20, 2016
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As we know, DICO will increase deposit limits for Ontario Credit Unions to $250K from $100K effective January 1, 2018.
Might we expect to see a marketing strategy by affected financial institutions to offer enticements in the form of increased deposit rates to encourage depositors to take advantage of the higher Ontario limits?
If so, might we see Manitoba CU's retaliate by offering their own enticements to compete with Ontario CU's.
Is this all wishful thinking, or is there any evidence to support these scenarios?
1:06 pm
October 21, 2013
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I had similar thoughts, but, then, I reminded myself that they also have to have borrowers to soak up the new deposits. I think the balance between deposits and loans will be more influential on rates than the new limits will be. Over time, though, it should help them grow their business.
5:23 pm
December 12, 2009
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I'll "chime in" here: this is the sort of inconsequential "noise" that matters not. 
If you are worrying about deposit insurance limits in deciding where to park your cash for the best return, don't. Also, have some mercy on your executor(rix), please! If they have to cross five sub-national geographic boundaries in Canada and speak with 20 (or more!) different financial institutions in terms of certified true copies of wills, death certificates, proceeds of crime/AML identity verification, set-up of online banking profiles (if the FI offers it for deceased accounts; HSBC does not) and multiple contacts in order to manage, and ultimately, settle your Estate, they're probably going to be cursing your name as they mutter it under their breath!
Cheers,
Doug
7:38 pm
September 11, 2013
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Just like those personalized ads that pop up on the right or left side of my screen after I've googled something, sometimes I wonder if the internet via sites like this is trying to "groom" me to become comfortable with putting more than CDIC insured amounts on deposit so that the next time there's a financial crisis someone can harvest all those uninsured deposits. It's been bondholders that have had the "haircuts" in recent financial crises, maybe they're looking to other sources of covering loans losses in future financial upheavals. More likely I'm just paranoid, but I do notice I'm now regularly considering exceeding insured limits whereas a few years ago I assumed the insurance is there for a reason, i.e. it is of some use, it is not superfluous, and so I never used to consider depositing a dollar more than the insured limits.
8:03 pm
April 6, 2013
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Deposit insurance is still useful.
The insurance is very useful with financial institutions that won't or don't qualify for good debt ratings.
On the other hand, the insurance does not make much of a difference with financial institutions that, on their own, have credit ratings that are on par with the provincial governments.
10:26 pm
December 12, 2009
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Norman1 said
Deposit insurance is still useful.The insurance is very useful with financial institutions that won't or don't qualify for good debt ratings.
On the other hand, the insurance does not make much of a difference with financial institutions that, on their own, have credit ratings that are on par with the provincial governments.
Great points and well said, Norman1, especially that last point. 🙂
Cheers,
Doug
2:13 am
October 21, 2013
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It was my understanding from things Norman has said earlier that CUs, because of their corporate structure, don't have conventional credit ratings, so how is this relevant? We're not talking about CDIC insurance or banks.
I can't make much sense out of Doug's first post. Seems to me that if you are concerned about driving your execs nuts with too many FIs all over the place, you'd be glad of increased insurance limits, especially if they were available in the province in which you happen to live. I am; but I will be looking for good rates too.
And I will hope this allows me to reduce the number of FIs I deal with, and keep them closer to home. The only out-of-province that I deal with now is Hubert. I do like Hubert, and they have some features that I can't get in ON, but, still, ultimately I hope to close that one down.
I agree with your concern about what I will call "deposit creep", Bill. I have had the same experience, and the same questions. The awareness that others are doing it tends to make it seem more credible.
Also, greed is probably a factor. If, for example, I can get an amazing rate of over 3% for 3 months, I am more likely to be able to convince myself that it will be safe to go over limits for such a short period. I figure I can see 3 months out at least, and that nothing untoward is likely to happen during that period Hah! See 1929, 2008, onset of WW1, fall of Berlin wall, "dormant" spewing volcanos, freefall in tulip market etc etc.
I have a lot of respect for the unexpected. If it didn't happen, we wouldn't have a familiar word for it. I also figure there's a lot I don't know and never will know. Even the insiders seem not to be able to predict reliably.
5:30 am
September 11, 2013
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Norman1, you mention fi's that "don't qualify for good debt ratings". You then mention fi's whose debt ratings are "on par with the provincial governments". To you are these two the same standard or level of debt rating, or is one superior to the other?
Do you know of any fi's listed or regularly mentioned on this site that do not qualify for good debt ratings?
9:42 am
December 12, 2009
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Thanks for the reply, Loonie. Upon reflection, I can see the peculiar juxtaposition of the two diverging narratives in not wanting to send executors(trix) criss-crossing the country to settle your estate but also not to worry about deposit insurance limits. Let me explain and attempt to clarify.
If you're worrying about deposit insurance limits to try and eliminate your risk (the risk is almost nil anyway if you're in all GICs and cash), let's face it, deposit insurance is a useful job-justification exercise on the part of well-heeled CDIC staffers and provincial Crown corporation staffers. If a major financial institution collapsed, first of all, neither CDIC nor provincial deposit insurance scheme would need to be tapped - they would step in and force an amalgamation with another regulated member. In the 0.0000000000000001% chance that it could not, there would be such a huge outcry from the public, politicians would act swiftly and either have government step in directly or work with the private sector, provincial/federal deposit insurers and so forth that would see the three of them make people whole.
And, if a major Canadian bank collapsed, or even a major credit union in the "top 10" by assets like Meridian, Vancity, Coast Capital Savings or the like, collapsed, a similar move would occur. These provincial deposit insurance schemes are just that...a marketing scheme over federally-regulated banks.
Don't get me wrong, I don't mind that as I want to see credit unions build significant market share but my question would be to DICO...if you can go to $250,000, why not $1 million or unlimited like the other provincial deposit insurers? 😉
And, if a "Big 5" bank did go down, you've also got "bigger fish to fry" than "is my money protected?", like, erm, "what's my dollar worth today? Can I buy a loaf of bread for $6 or is it going to cost me $50, $100, maybe $1000 tomorrow?" 😉
Cheers,
Doug
Footnote: This talk on "debt ratings" is getting in to the weeds a bit and matters not in terms of a financial institution's health. What matters is their capital adequacy and Tier 1 Common Equity, Tier 1 and Total Capital Ratios.
Although only semi-related, you might also be interested in the coordination activities of provincial deposit insurers by way of their Credit Union Prudential Supervisors Association, which is a sort of a combined "OSFI(/CDIC) of the provinces," if you will. 🙂
5:11 pm
October 21, 2013
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I don't think DICO gets to say how much insurance it offers. I believe it is legislated. I could be wrong, but I have a recollection of having read the new legislation online at one point. There is a compromise in the new arrangement with DICO, as they used to offer unlimited coverage for RSPs, and now that too is limited to 250K. However, that will not be a concern for me as I have been cashing it out to maximize the lowest tax bracket I will ever be in.
I realize various things would be put in place before DICO would pay out. However, when I consider all the other kinds of insurance I pay for (and at a cost I consider quite high), and all the ways they have of avoiding paying out, deposit insurance seems like a bargain. The cost of it is, after all, related to the likelihood of having to pay out; and the cost, which I've never heard is onerous, is borne by the FIs. Basically, I'll take all I can get. It may or may not prove useful in an eventuality, but it's better than not having it. My father once did benefit from it during one of those long-ago FI failures - and that benefit has accrued to me in due course. Things may have changed, but if it was useful once, it could be useful again.
Except for Blue Cross and OHIP, I've never collected on any of the insurance I've paid for over the years - and it has cost me plenty. It typically comprises the largest part of category "Other" on my CC bills, except for when we travel. If I were a stock market investor, Fairfax Financial would be at or near the top of my list!
I quite agree that in the case of major bank failure, we will have much bigger things to worry about, and inflation will be a top concern due to a falling CDN$. But, for smaller CUs, like perhaps Northern or Talka, DICO is ideal, and costs me nothing extra.
5:37 pm
September 11, 2013
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Doug, CDIC's website indicates 42 fi failures over the years they've participated in. You indicate above that if there's a failure CDIC funds would not need to be tapped, they would force an amalgamation, etc. Was that the case in these 42 failures, i.e. no payouts from CDIC funds, all just amalgamated with other fi's?
7:28 pm
April 6, 2013
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Loonie said
It was my understanding from things Norman has said earlier that CUs, because of their corporate structure, don't have conventional credit ratings, so how is this relevant? We're not talking about CDIC insurance or banks. …
Nothing prevents any borrower, including credit unions, from apply for ratings from the debt rating agencies.
For example, Vancouver City Savings Credit Union (BC) and Affinity Credit Union (Saskatchewan) both have an R-1(low) from DBRS rating on their short term debt. That's the same DBRS rating the Province of Newfoundland & Labrador has on its short-term debt.
7:43 pm
April 6, 2013
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Bill said
Norman1, you mention fi's that "don't qualify for good debt ratings". You then mention fi's whose debt ratings are "on par with the provincial governments". To you are these two the same standard or level of debt rating, or is one superior to the other?
For DBRS, "Good" does mean on par with the provincial governments. The provincial governments have DBRS ratings A, AA, and AAA that DBRS considers as Good, Superior, and Highest.
Do you know of any fi's listed or regularly mentioned on this site that do not qualify for good debt ratings?
I suspect that uninsured deposits of many of the smaller, unrated institutions to be below A. They are likely BBB, which DBRS describes as Adequate.
10:08 pm
August 4, 2010
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Bill said
Doug, CDIC's website indicates 42 fi failures over the years they've participated in. You indicate above that if there's a failure CDIC funds would not need to be tapped, they would force an amalgamation, etc. Was that the case in these 42 failures, i.e. no payouts from CDIC funds, all just amalgamated with other fi's?
This seems to be spiralling back into deja vu territory. There's also a CDIC document, "An Overview of CDIC's History and Evolution" that has some relevant info. Finally, Appendix A of "Deposit Protection in Canada" (1992) has gross and net losses from the failures up to that point, but you'd have to hunt for details on which they had to do resolution workouts. Some of them certainly cost CDIC.
The CDIC annual reports for 1997, 1998 and 1999 are online and have some more numbers on the later failures.
4:03 am
October 21, 2013
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Norman1 said
Loonie said
It was my understanding from things Norman has said earlier that CUs, because of their corporate structure, don't have conventional credit ratings, so how is this relevant? We're not talking about CDIC insurance or banks. …Nothing prevents any borrower, including credit unions, from apply for ratings from the debt rating agencies.
For example, Vancouver City Savings Credit Union (BC) and Affinity Credit Union (Saskatchewan) both have an R-1(low) from DBRS rating on their short term debt. That's the same DBRS rating the Province of Newfoundland & Labrador has on its short-term debt.
Oh, I see. I didn't know, or forgot, that they'd have to apply. Probably most don't bother, and probably what you meant earlier was just that the ratings don't exist. Waste of money probably, from CU point of view.
4:07 am
October 21, 2013
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Could the CDIC discussion be moved to a different thread? It is confusing the issue of DICO insurance.
7:24 am
May 15, 2007
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The discussions and quoting seem to be intertwined between CDIC and DICO in this thread, so let's first try to make any new CDIC comments in a different thread such as this other one.
7:57 am
April 6, 2013
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Bill said
Do you know of any fi's listed or regularly mentioned on this site that do not qualify for good debt ratings?
Home Trust Company, who are behind Oaken Financial.
DBRS upgraded the company's ratings recently. Ratings are better. But, not good yet.
Home Trust is now rated BB(low) for uninsured long-term deposits and R-4 for short term ones.
Descriptions of the ratings from their rating scales documents:
BB
Speculative, non-investment grade credit quality. The capacity for the payment of financial obligations is uncertain. Vulnerable to future events.
R-4
Speculative credit quality. The capacity for the payment of short-term financial obligations as they fall due is uncertain.
10:10 am
December 12, 2009
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Bill said
Doug, CDIC's website indicates 42 fi failures over the years they've participated in. You indicate above that if there's a failure CDIC funds would not need to be tapped, they would force an amalgamation, etc. Was that the case in these 42 failures, i.e. no payouts from CDIC funds, all just amalgamated with other fi's?
A lot has changed since then, Bill. The failures you're referring to are mostly named "mortgage investment corporations" and even smaller trust companies. Capital adequacy and liquidity rules were not the same and we had not had had 2008 happened. Also, do you know the results of each of those listed failures? In other words, do you know which ones, if any, were liquidated and CDIC's deposit insurance regime tapped?
Relying on superfluous data without any context is dangerous, in my view.
Thanks,
Doug
10:19 am
December 12, 2009
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Loonie said
I don't think DICO gets to say how much insurance it offers. I believe it is legislated. I could be wrong, but I have a recollection of having read the new legislation online at one point. There is a compromise in the new arrangement with DICO, as they used to offer unlimited coverage for RSPs, and now that too is limited to 250K. However, that will not be a concern for me as I have been cashing it out to maximize the lowest tax bracket I will ever be in.I realize various things would be put in place before DICO would pay out. However, when I consider all the other kinds of insurance I pay for (and at a cost I consider quite high), and all the ways they have of avoiding paying out, deposit insurance seems like a bargain. The cost of it is, after all, related to the likelihood of having to pay out; and the cost, which I've never heard is onerous, is borne by the FIs. Basically, I'll take all I can get. It may or may not prove useful in an eventuality, but it's better than not having it. My father once did benefit from it during one of those long-ago FI failures - and that benefit has accrued to me in due course. Things may have changed, but if it was useful once, it could be useful again.
Except for Blue Cross and OHIP, I've never collected on any of the insurance I've paid for over the years - and it has cost me plenty. It typically comprises the largest part of category "Other" on my CC bills, except for when we travel. If I were a stock market investor, Fairfax Financial would be at or near the top of my list!I quite agree that in the case of major bank failure, we will have much bigger things to worry about, and inflation will be a top concern due to a falling CDN$. But, for smaller CUs, like perhaps Northern or Talka, DICO is ideal, and costs me nothing extra.
Loonie, I note that you mention Blue Cross and OHIP, the former of which was likely paid by your employer at great cost, though you may have continued an individual plan at an even greater cost, and the latter of which is Ontario's medical services plan. In terms of "value" for your dollars invested I'd argue that OHIP provides the best return on investment for each individual. Now, when it comes to efficiency and and excess costs in the system, our whole health care system generally gets a D grade, at best. 😉
Also, yes I know DICO's deposit insurance regime is limited but who limited it? Ontario MPPs, likely based largely on recommendations from DICO executives and any paid, third-party consultants that produced any needed reports. Given the remoteness of a failure, why not just offer an unlimited coverage in the first place as other provinces do since, realistically, taxpayers will ultimately be on the hook in the event of a major failure as significant lost deposits by depositors would cause such an outcry to their MLAs, MNAs, MPPs and MPPs offices that swift regulatory and legislative change would happen. However, as I've said, it would not likely come to that scenario in any event. Just as we should not rely on past performance as an indication of future returns in an individual stock, mutual fund or ETF, we should not do the same for financial institution failures - especially when we don't know the end result of each of those failures or what changes have been put in place since then. Nothing operates in a vaccuum.
Cheers,
Doug
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