1. Deposit Guarantee Funds A Sound Investment Deposit Guarantee Funds A Sound Investment L. R. (Bobby) McVeigh June 27, 2009 52 nd Annual International Convention Caribbean Confederation of Credit Unions

2. Deposit Guarantee Funds A Sound Investment 2 Agenda The Canadian Credit Union System Deposit Guarantee Programs Consumer Protection Lessons Learned

3. Deposit Guarantee Funds A Sound Investment 3 The Canadian Credit Union System Credit Union Central of Canada affiliates 5 million members 440 credit unions $114 billion in assets Desjardins caisses populaires in Quebec 5.2 million members 492 caisses populaires $102 billion in assets

4. Deposit Guarantee Funds A Sound Investment 4 Canada’s Co-operative Banking System CANADA 11,222,000 Members (33% of pop.) $226 billion BC 1,681,5000 members (37% of pop.) $45.4 billion AB 642,600 members (18% of pop.) $16.5 billion SK 515,700 members (52% of pop.) $12.6 billion MB 553,000 members (47% of pop.) $14.4 billion ON 1,600,000 members (13% of pop.) $26.9 billion NB 285,100 members (38% of pop.) $3.4 billion NS 167,573 members (18% of pop.) $1.6 billion PE 64,008 members (46% of pop.) $699 million QC 5,560,000 members (68% of pop.) $102 billion NL 47,250 members (9% of pop.) $699 million Results include non-Central affiliated credit unions & caisses populaires Q4 2008

5. Deposit Guarantee Funds A Sound Investment 5 One Community Local, Provincial, National Local Credit Unions 440 credit unions/caisses populaires 1,734 locations 5, 052,900 members 8 Centrals & 1 Federation National Co-operatives Credit Union Central of Canada - CUSOURCE ® Credit Union Knowledge Network The Co-operators Credential Financial - Northwest & Ethical Investments L.P. Concentra Financial The CUMIS Group

6. Deposit Guarantee Funds A Sound Investment 6 Credit Union Central of Canada’s Role National trade association Federally regulated Active in Ottawa on policy issues Provides forum for credit unions Voice of the national system Owned by provincial centrals

7. Deposit Guarantee Funds A Sound Investment 7 Credit Union Services Most offer full retail services including financial planning and investment services and retirement savings plans Network of 1,700 ATMs Online banking systems Debit and credit card products

8. Deposit Guarantee Funds A Sound Investment 8 Regulatory Framework General regulatory principle –Frameworks should be responsive to the sector that is being regulated and the reasons for its regulation Canadian financial services regulation –Designed to promote stability of the financial system which in turn ensures savings and investments are safeguarded

9. Deposit Guarantee Funds A Sound Investment 9 Regulatory Framework Canada is a federal country with 10 provinces – constitution provides provinces with powers over certain financial services Credit unions are regulated by the provinces Generally regulations are not as complex as those for federal banks More responsive to local needs Recognition that financial co-operatives are different from commercial and retail banks

10. Deposit Guarantee Funds A Sound Investment 10 Two Types of Funds Stabilization Funds: –Funded and operated by credit unions –Objective is to stabilize credit unions in distress –Financial and operational assistance to ensure credit union does not fail Deposit Insurance Regimes: –Sponsored by government – funded by credit unions –Objective to protect individual depositors –Financial payments to individual depositors in the event of default of credit unions

11. Deposit Guarantee Funds A Sound Investment 11 Stabilization Funds Canada has stabilization and deposit insurance or a combination of both Characteristics of stabilization funds (e.g. Quebec, British Columbia, Saskatchewan): –All credit unions belong to stabilization pool –Board of governors is elected by members –Fund is generally 1% of system assets –Powers to inspect and supervise if necessary –Provide technical and financial assistance

12. Deposit Guarantee Funds A Sound Investment 12 Deposit Insurance Funds Common characteristics of deposit insurance agencies (e.g. Canada, Ontario, British Columbia, Alberta): –Agency of government –Limits on insured deposits (some have 100% coverage) –All credit unions are members –Board of governors is selected by government –Fund is generally less than 1% of insured deposits –Power to establish standards of business practices –Broad powers to inspect and supervise if necessary –Power to liquidate

13. Deposit Guarantee Funds A Sound Investment 13 Deposit Insurance Key Elements of Programs: No deductible Insurance premiums sometimes based on risk Authority to set minimum standards for safety and soundness Risk assessment - off-site monitoring & on- site inspections Authority to issue compliance orders

14. Deposit Guarantee Funds A Sound Investment 14 Deposit Insurers Key Elements of Programs: Authority to intervene in affairs of institution if standards/rules are not followed –Supervise –Administer –Liquidate Obligation to pay depositors in the event of a failure of an institution Requirement for an insurance fund

15. Deposit Guarantee Funds A Sound Investment 15 Amount of Insurance British ColumbiaUnlimited AlbertaUnlimited SaskatchewanUnlimited ManitobaUnlimited Ontario$100,000 Quebec$100,000 New Brunswick$250,000 Nova Scotia$250,000 Prince Edward Island$125,000 Newfoundland and Labrador $250,000

16. Deposit Guarantee Funds A Sound Investment 16 Bank Insurance Banks in Canada are federally regulated Deposits are insured up to $100,000

17. Deposit Guarantee Funds A Sound Investment 17 What is Covered Saving accounts and chequing accounts Term deposits and guaranteed investment certificates Money order, certified cheques Deposits held in one name Deposits held in joint names Deposits held in trust Registered savings plans

18. Deposit Guarantee Funds A Sound Investment 18 What is Not Covered Member shares and investment shares issued by the credit union Mutual funds Stocks, bonds and debentures Treasury Bills Foreign currency deposits Contents of safety deposit boxes Securities held for safekeeping

19. Deposit Guarantee Funds A Sound Investment 19 Who Pays for Deposit Insurance? Programs are funded by credit union insurance premiums

20. Deposit Guarantee Funds A Sound Investment 20 Public Relations Benefits Deposit insurance puts credit unions on equal footing with banks Reassures potential members In many provinces the higher coverage than that provided for banks gives credit unions an advantage

21. Deposit Guarantee Funds A Sound Investment 21 Lessons Learned Intervene early to avoid surprises and control / manage the failure to minimize losses (This generally results in holding all other creditors whole) Avoid distressed sales – especially bankruptcies - (Administer, then sell seasoned / proven assets through a going concern sale) Utilize a planned, managed bankruptcy resolution strategy only where dictated by the magnitude of uninsured depositors and unsecured creditors

22. Deposit Guarantee Funds A Sound Investment 22 Questions?