1. Self-Regulation Desjardins perspective Supervision: a responsibility to share May 2014 Previously presented: June 2012 May 2014 Previously presented: June 2012

2. 2 Presentation Agenda Financial Cooperatives Surveillance (components) Prevention Supervision Protection History ( Supervision and ‘Security fund’ interlinked) Supervision models (Costs consideration) Question Period

3. 3 Prevention Legal Framework (adequate) Supervision Internal control system Inspection (mostly on-site control) External audit Protection Security/Stabilization Fund vs Deposit Insurance Surveillance components (3)

4. 4 1932-1949 1932 - Inspection department and creation of the Federation; 1948 – 1949 Coops (2) liquidation and bankruptcies 1949- 1979 Establishment of the first Stabilization fund 1980-1985 Independent corporation start-up 1985-1996 Development of the corporation 1996 to present (Fund strengthening and Consolidation) Supervision highlights at Desjardins

5. 5 1949-1979 Appearance of the first Security Funds

6. 6 1982 496 out of 1 465 (1/3) caisses running deficits Special, exceptional fees = 1/10 of 1% of caisse assets 1980-1985 Founding and start-up of an independent corporation

7. 7 1986-1995 Development of the corporation

8. 8 1996 to present Fund Strengthening and Consolidation Year Number of caisses Caisse Assets ($million) Caisse Assessment ($million) Subsidies paid ($million) Number of caisses subsidized Net Value ($mil- lion) Net Value / caisses assets (p.b.) Net Value Objective (p.b.) 19961 30753 58529,523,650332,862100 2011402127 02540,300757,160 between 55 and 65

9. 9 Net worth ratio (2000-2011) in % of caisses assets

10. 10 1949-1979Appearance of the first security funds 1980-1985Founding and start-up of an independent corporation : Corporation de fonds de sécurité de la Confédération Desjardins 1986-1995Fund Growth 1996 - …Fund Strengthening and Consolidation History (Recap)

11. 11 Internal supervision (or self supervision) By the apex organization in a federated/integrated network External (or direct) supervision By the regulatory authorities in charge of the financial cooperatives sector Parallel supervision Integrated supervision (2 types) Auxiliary Delegated Supervision models (supervision used with the meaning of ‘inspection’)

12. 12 Prevention Legal Framework (adequate) Supervision Internal control system Inspection (mostly on-site control) External audit Protection Security/Stabilization Fund vs Deposit Insurance It’s about….. Risks assessment and risks management

13. 13 Primary Coops member’s savings protection Trust and credibility Various stakeholders Government authorities Federations and Networks Financial sustainability It’s about…..

14. Question Period

15. Fonds de sécurité Desjardins Desjardins Security Fund May 2014 First presented: June 2012 May 2014 First presented: June 2012

16. 16 Presentation Agenda What is the ‘‘Fonds de sécurité Desjardins’’? History Capitalization Structure  Regulatory Framework  Administrative Structure A Few Financial Statistics Question Period

17. 17 A Unique Organization within the Financial System Exclusive to Desjardins Caisses in Québec ‘‘Caisse Life Insurance’’ A Collective Reserve for Caisses Ex Ante / Ex Post Approaches An Inalienable Asset Base Security Fund vs Deposit Insurance What Is the Desjardins Security Fund?

18. 18 A Few Financial Statistics as at December 31, 2011 Net Value$757 million Ratio of net fund value to caisses assets0.60 % Investments portofolio$774,5 million

19. 19 Established by government Protects depositors by reimbursing deposits ($100,000 max.) in case of bankruptcy of their financial institution Seeks to limit losses by liquidating financial institutions Maintains public confidence in the financial system Established by FCDQ Protects caisses against insolvency by subsidizing the deficit Maintains financial institutions in operation whenever possible Maintains public confidence in the Desjardins network of caisses Deposit InsuranceSecurity Fund Deposit Insurance vs Security Fund in Quebec

20. 20 Involves direct governmental intervention either in the form of endorsement of or financial support Protection limited to the government’s financial capacity Net value of the deposit insurance fund managed by the Autorité des marchés financiers (AMF) : $478 million as at March 31, 2011 Avoids governmental intervention, allows more freedom of action by managers of the financial institution Protection limited to the financial capacity of the security fund Net value of the Desjardins Security Fund : $ 787 million as at June 30, 2012 Deposit InsuranceSecurity Fund Deposit Insurance vs Security Fund in Quebec

21. 21 Unity and dependability of the institution Public confidence in the caisses Network autonomy and management flexibility for Desjardins Enhances financial and other problems solving capacity Credibility of the caisses Capital recognition of the Fund into overall network capitalization Group credit rating Tax issues Lower premium paid to the Regulator (AMF) – premium paid in 2010:  en 2010: $14,4 million  en 2011: $15,1 million  en 2012: $15,8 million Benefits of a Security Fund

22. 22 Mission The mission of the Desjardins Security Fund is to create and administer a security, liquidity and mutual assistance fund for the benefit of member caisses, to be used for : subsidizing the deficit of a member caisse whose reserves have been exhausted contributing to members’ compensation for their losses in the event of a caisse liquidation participating in the overall caisse network capitalization

23. 23 Powers Act respecting financial services cooperatives set and require assessments or special fees from member caisses make loans and grants to a caisse make a management agreement with a caisse acquire some or all of the assets of a caisse act as a provisional administrator, liquidator or sequestrator of a caisse

24. 24 Inspection visits  oversight fees paid to the Bureau de la Surveillance du Mouvement Desjardins  access to inspection report Monitoring of caisses under greater financial stress Participation in caisse network capitalization Organization of last recourse exhausted Fédération support exhausted caisse reserves payment of subsidies management agreement  recovery plan  the caisse’s financial progress follow-up Preventive Role Curative

25. 25 1949-1979Appearance of the first security funds 1980-1985Founding and start-up of an independent corporation : Corporation de fonds de sécurité de la Confédération Desjardins 1986-1995Fund Growth 1996-…Fund Strengthening and Consolidation History

26. 26 1949-1979 Appearance of the first Security Funds

27. 27 1982 496 out of 1 465 (1/3) caisses running deficits Special, exceptional fees = 1/10 of 1% of caisse assets 1980-1985 Founding and start-up of an independent corporation

28. 28 Grants paid to caisses

29. 29 1986-1995 Development of the corporation

30. 30 1996-... Fund Strengthening and Consolidation Year Number of caisses Caisse Assets ($million) Caisse Assessment ($million) Subsidies paid ($million) Number of caisses subsidized Net Value ($mil- lion) Net Value / caisses assets (p.b.) Nette Value Objective (p.b.) 19961 30753 58529,523,650332,862100 2011402127 02540,300757,160 between 55 and 65

31. 31 Capitalization has always been associated with the caisse network’s risks and has fluctuated over time. 2005 revision of Fund capitalization :  consulting with various national and international organizations  scientific study to determine adequate capitalization relative to risks  determination of optimal capital between 55 and 65 basis points in terms of caisses’ total assets Net value as at December 31, 2011 : 0.60% ($757 million / $127 billion) Capitalization

32. 32 Net worth ratio (2000-2011) in % of caisses assets

33. 33 Regulatory Framework Legal Act respecting financial services cooperatives  Regulation respecting investments of a security fund Act respecting the Autorité des marchés financiers Deposit Insurance Act Income Tax Acts (federal and provincial) Internal General By-laws Code of Ethics and Professional conduct Policies :  assessment  investment  intervention

34. 34 Assessment Policy Guiding principles Mission of the Desjardins Security Fund Network Solidarity Equity Caisses capitalization Prevention Three-fold consideration for annual assessments Once yearly, at the beginning of July (7th month following the caisses year-end (December 31)) 2008 Assessment $24.9 million - $5.0 million rebate = $19.9 million 2009 Assessment $26.8 million - $5.3 million = $21.5 million 2010 Assessment $38.8 million - $7.7 million = $31.1 million 2011 Assessment $50.2 million - $9.9 million = $40.3 million

35. 35 Guiding principles Security Liquidity Yield Fund managers Caisse centrale Desjardins Portfolio management structure 100% in bonds, mainly in federal and provincial governments and financial institutions securities Investment Policy

36. 36 Investment portfolio management structure 2009.122011.12 Federal29 %25,5 % Provincial 51 % 43,6 % Municipal 5 % 13,2 % Corporate AAA/AA 15 % 17,7 %

37. 37 Guiding principles Mission of Desjardins Security Fund Guarantee of member deposits Caisse solvency Network Solidarity Prevention Fund adequacy (assessment and investment policies) Role and responsibility of intervening parties Caisse subsidized and/or not having adequate inexpensive capital Fédération Bureau de la Surveillance du Mouvement Desjardins Intervention Policy

38. 38 Administrative Structure Board of Directors General ManagerSupport Officer Outsourcing Caisse centrale Desjardins Fédération des caisses Desjardins du Québec  cash, accounting, legal and tax  human ressources, economic and financial  caisse monitoring, support and advice  fund management  advisory services  safekeeping  reports  financial statements

39. Question Period