LBC Digital HISA interest to be tiered starting January 2020 | LBC Digital | Discussion forum

... B2B as well. But $500K to me seems well above the CDIC coverage.

Norman1 said
LBC Digital HISA will become a tiered-rate account in the new year, according to their product page LBC Digital High Interest Savings Account:

ACCOUNT BALANCE	INTEREST RATE
Up to and including $500,000	3.30%
$500,000.01+	1.25%

How is the tiered interest calculated?

The 3.30% interest rate applies to deposits up to and including $500,000 and the 1.25% interest rate applies to deposits above $500,000. The applicable tier interest rate applies to every dollar in the tier. Interest rates are annual. Interest is calculated daily on the closing balance and paid monthly on the last day of the month into the account. All rates are subject to change at any time without prior notice.

  

That's fair. I'd even be fine if they made the cap on the premium rate of $250,000. In fact, I prefer this strategy to Alterna Bank's strategy of outright limiting customer balances to $250,000 across all accounts It's the main reason why I've, sadly, ruled making Alterna making my day-to-day bank. 🙁

Also, this is a really well worded fine print. Motive should take note.

Cheers,
Doug

* Not that Alterna's HISA and GIC rates are anything to write home about...

Doug, I agree, I wouldn't rule out provincial gov't defaults in the not-so-distant future. Whether or not Federal gov''t would be in a position to bail out like when Alberta defaulted 90 or so years ago is in question in my mind too. We all know govt's are in debt to the tune it's never pay back-able.

And you must do a heck of a volume of day-to-day banking to rule out Alterna for that function on the grounds it limits you to $250K in its accounts.

Norman1 said
What has changed in Newfoundland and Labrador since September?

DBRS wrote the following in their September 26 press release. Doesn't seem like looming default to me in September:

Newfoundland has forecast a surplus of $1.9 billion in 2019–20 as a result of a renewed Atlantic Accord. Excluding the Atlantic Accord, the budget shortfall would have been $577 million, down from a peak shortfall of $2.2 billion in 2015–16. Despite the significant progress in addressing the budget gap, the outlook remains challenging and requires further structural measures to recast the government’s expenditure profile and ease annual spending pressures.

The DBRS-adjusted deficit is projected to be 2.4% of gross domestic product (GDP) in 2019–20, falling to 0.5% of GDP by 2022–23. As a result, the debt-to-GDP ratio is now forecast to rise to about 56% by 2020–21 (the highest debt burden among provinces) before gradually declining thereafter. This is a lower peak than anticipated by DBRS last year and meaningfully below the projected peak of 65% when DBRS downgraded the Province’s ratings in 2016. DBRS notes this outlook remains subject to downside risks, including the outlook for commodity prices and the possibility that the full costs of the Muskrat Falls project are not recovered through the electricity rate base. Regardless, DBRS expects the debt outlook to remain within an acceptable range for the current ratings.
…

  

I'm not sure, but I wouldn't rely on DBRS ratings reports. They're notoriously unreliable in that they're biased to the positive to the corporations and governments that pay them. Remember 2008?

Note, too, how they significantly downplay the costs of the Muskrat Falls by characterizing it as only a possibility ratepayers won't cover the costs. This story from CBC News elaborates on this, and could be, in part, what those market forecasters and economists are alluding to. I tend to think they're right.

Cheers,
Doug

Doug, totally agree, the bond rating agencies have a checkered past when it comes down to it. Anyway, there is info out there that everything's fine, debts are manageable, and then there's other info that we're in dire straits re gov't debt, you can always find views everywhere along the spectrum. All I know is when we have had persistently low interest rates for well over 10 years now and there's even increasing talk of negative rates (never in my life heard of that before) it's clear to me the patient's on life-support and it's only a matter of time. To me, to have money locked up and inaccessible in GICs is an extremely risky strategy in this environment when the next crisis could ignite sudden inflation, thus the appeal to me of the HISAs featured on this site for some of my money.

Norman1 said

COIN said
The DBRS ratings has Alberta and Saskatchewan (both AA) higher than Ontario AA(low). Interesting.

Maybe Motive is less risky than LBC and B2B?

…

Motive Financial accounts are deposits with CDIC member Canadian Western Bank. Canadian Western Bank has the same DBRS debt rating A(low) as Laurentian Bank of Canada. So, the estimated risk is about the same.

B2B Bank does not have a DBRS debt rating. I haven't found a statement from Laurentian Bank that they unconditionally guarantee the deposits of B2B Bank, like TD Bank does for deposits of some of its subsidiaries. So, the estimated risk is unknown.

One shouldn't read too much into small differences within the same rating category such as AA(high), AA, and AA(low). All three are AA for "superior credit quality". Some are around the middle of the range and given AA. Some are a bit better and given AA(high). Some are not as good as the middle and given AA(low).  

Actually, Norman, Laurentian Bank, as shareholder of B2B Bank, would implicitly being guaranteeing B2B Bank's deposits by virtue that OSFI and CDIC could step in and seize B2B's or Laurentian's assets if they failed to put up the required regulatory capital.

Lots of issuers don't have DBRS ratings because they don't issue bonds on the secondary market, so there's no need. That doesn't make them less risky. It's simply false to say, though, that Laurentian would not be required to backstop B2B Bank—they would, if they wanted to protect their own capital and assets from seizure by banking regulators.

Cheers,
Doug

Norman1 said

Doug said

Actually, Norman, Laurentian Bank, as shareholder of B2B Bank, would implicitly being guaranteeing B2B Bank's deposits by virtue that OSFI and CDIC could step in and seize B2B's or Laurentian's assets if they failed to put up the required regulatory capital.

Lots of issuers don't have DBRS ratings because they don't issue bonds on the secondary market, so there's no need. That doesn't make them less risky. It's simply false to say, though, that Laurentian would not be required to backstop B2B Bank—they would, if they wanted to protect their own capital and assets from seizure by banking regulators.
…

There's no such implicit guarantee and there is no such regulatory power.

Bank Act subsection 18(1) specifically insulates bank shareholders just as other corporation acts do:

No personal liability

18 (1) The shareholders of a bank are not, as shareholders, liable for any liability, act or default of the bank except as otherwise provided by this Act.

The most CDIC or OSFI could do is ask Laurentian Bank to put in more capital or else face loss of their B2B Bank shares. Laurentian Bank can inform the regulators not bother with a court order. Just come by in two hours. We'll have the B2B Bank share certificates endorsed and ready for you to pick up.  

I never said it was a Bank Act power, but per the powers afforded to CDIC vis-à-vis bail-in, my understanding is CDIC, whether independently or in tandem with other regulators, do have the power (either directly, or through court petition) to seize the assets of controlling shareholders.

Cheers,
Doug