Should I pull my money out of these Credit Unions?
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Thread: Should I pull my money out of these Credit Unions?

  1. #1
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    Should I pull my money out of these Credit Unions?

    This situation with Home Capital Group has me on edge. I have some GICs with them, which I can't do anything about, but I also have GICs with Hubert Financial and Outlook Financial aka Sunova Credit union and Assiniboine Credit Union respectively. The good news is that these are cashable GICS, but I don't want to pull them out unless it is necessary, because there is a clawback of funds to make the interest I've earned on them reduced to 1% per year. Also, I don't think I can replace the income they generate with any comparable investment. They are "Guaranteed" not by CDIC, but The Deposit Guarantee Corporation of Manitoba. This corporation has NO ties with the government of Manitoba. Should I play it safe and pull the money out, or trust that I will have enough warning of any risk to these companies, to still get the money out if need be?


  2. #2
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    I don't think there's any reason to pull money out of credit unions. I have deposits with Assiniboine Credit Union including many GICs, and no plan to withdraw. There haven't been any signs of trouble at the credit union.

    Overall, I think your deposits are safe at all these institutions (Home Capital, Hubert, Outlook). CDIC covers the HCG deposits, and credit unions are less risky businesses overall. Their deposit insurance is also reasonably good.

    Home Capital Group is a bank with an extremely narrow, undiversified portfolio, heavily concentrated in low grade mortgages. They encountered these issues because of possible loan origination fraud in their sole business line. They are also an aggressive corporation that aimed for high income and high loan growth during their boom years, earlier. There are striking similarities to companies like Countrywide Financial, which was one of the American disasters: subprime lending, aggressive loan origination and growth, and questionable practices/fraud.

    Regarding Home Capital Group vs Assiniboine...

    From what I understand of the two businesses, Assiniboine is a much more diverse business than Home Capital Group. Their lending is more conventional and they are not in the aggressive low-grade loan business. Additionally, Manitoba home prices have grown at a slower pace than other parts of Canada. This isn't a crazy (or exciting) loan origination market, unlike say Ontario.

    The deposit insurance is quite reasonable. As of their 2015 financial statements, The Deposit Guarantee Corporation of Manitoba has an insurance fund worth 1.0% of deposits. In comparison CDIC has only half as much funding, 0.5% of deposits. (There are differences obviously, as CDIC can readily get more federal money, but the point is that MB provincial deposit insurance is good, with 2x available funds as CDIC).
    Last edited by james4beach; 2017-05-02 at 05:40 AM. Reason: let's call it "possible" loan origination fraud

  3. #3
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    If it wasn't for CDIC insurance who would lend money to banks with their conflict of interest? Credit union is membered own there is an interested the game is played fair. Manitoba housing less bubbled up then a lot of other areas in Canada plus agriculture help makes economy stable. Credit union has assets safer then government bonds which government has no intention of ever paying off debt. Look @ history government of countries always default on their Debt Canada & U.S have not been around long enough but they are following same path. Stay away from CDIC insured banks CDIC makes them weak. Do the opposite of what the majority are doing when investing including trusting in government

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  5. #4
    Senior Member Beaver101's Avatar
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    Quote Originally Posted by lonewolf :) View Post
    If it wasn't for CDIC insurance who would lend money to banks with their conflict of interest? Credit union is membered own there is an interested the game is played fair.
    ... I wouldn't disagree here but how is that member-owned credit unions being a fair game played? And

    Manitoba housing less bubbled up then a lot of other areas in Canada plus agriculture help makes economy stable
    ... what agriculture exists in Manitoba? Other than fishing in lakes?
    Everyone should be respected as an individual, but no one idolized.-A. Einstein

  6. #5
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    Quote Originally Posted by Beaver101 View Post
    ... I wouldn't disagree here but how is that member-owned credit unions being a fair game played? And

    ... what agriculture exists in Manitoba? Other than fishing in lakes?
    South and southwestern Manitoba has some of the very best soils in Canada. The area is relatively small but highly productive. Ag is big business and is rapidly growing in recent years.

  7. #6
    Senior Member NorthernRaven's Avatar
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    Quote Originally Posted by Beaver101 View Post
    ... I wouldn't disagree here but how is that member-owned credit unions being a fair game played? And

    ... what agriculture exists in Manitoba? Other than fishing in lakes?
    Agriculture is close to 5% of direct GDP for Manitoba. Adding in indirect multipliers takes that to something like 10% or more.

    Saying that the Deposit Guarantee Corp of Manitoba has no relationship to the government is quite misleading. It is established by legislation, and its directors appointed by the government (and a majority actually nominated by the government). It appears to undertake the primary monitoring and examination of credit unions, and obviously works closely with the government finance oversight agencies. It is probably better to think of it as a semi-privatized arm of government, not unlike CDIC.

    While it doesn't have an explicit financial backstop from the government, neither is the government prohibited for helping out. Given that credit union reach into Manitoba households is something like 40%+, I have no worries about Manitoba letting its financial system crumble! DGCM has close to $300 million to sprinkle around any equity holes short of the entire system going kaboom.

  8. #7
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    The downside is the MB government cannot print money in the event of a black swan event. At some level of failure, it is doubtful the MB government would burden its residents with an 9 digit bailout of a whole bunch of depositers from across Canada. That said, I suppose such an event would be really remote.

  9. #8
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    Deposit guarantees work a bit differently, in the CU system. The system has worked very well, to date.

    Originally consisting of a semi-infinite number of small CUs, the system has amalgamated into far fewer and much larger CUs. All small CUs will eventually be forced to merge with larger CUs by a deposit guarantee organization.

    Any time you have a small CU with 1 to 3 branches and little external oversight, something bad will happen eventually. Sooner or later, the president or a branch manager will yard out a sweetheart loan to his brother in law and invest the money at a sweetheart rate, siphoning money out of the system. Over-ride a few rate fields, click "approve", and let it rain. It happens more often than I would have thought. These days, it's far easier for auditors to spot leaks but people still try it, once in a while.

    When a guarantee organization finds these things, the bad guys are dealt with and the CU is forcibly merged with a larger CU under the guise of providing improved member services. It used to be that these arrangements would be discovered by forensic accounting when the CU becomes insolvent.

    Guarantee organizations have been good at this, over the years. They keep the system healthy by pulling these weeds because they have the authority to distribute the liability across all member CUs, and force the offending CU to merge.

    We don't know what it would look like if there was a run on CU money. We don't know if the guarantee organization would be able to deal with it. While they have the ability to borrow money from anywhere, including government, I'm not aware it has happened in DGCM's history. Also, I'm not aware of any government obligations to back-stop CUs, in the event of failure. I speculate deposit guarantee organizations across the country would ban together to save the system, if they could. Having CUs fail in any province would immediately put other CUs in jeopardy.

    We also haven't seen a run on the largest Canadian banks so we don't know if the federal government can or would really back stop it in a worst case scenario.

    I'm not sure the US government could have backed up their assurance of the US banks in 2008, if things had been worse.

    It appears there is no perfect system with zero chance of failure but the CU system is pretty good and I've slept well with my money at Credit Unions over the years.
    Last edited by TomB16; 2017-05-02 at 11:03 AM.

  10. #9
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    While I have an above 6 figure savings account with the Manitoba based Achieva affiliated credit union I am unfamiliar with the inner workings of the Manitoba SU's. However, having spent a large part of my working life working in a senior capacity for a BC credit union I am comfortable in suggesting that in my opinion they are well managed and are closely monitored by FICOM, the Financial Institutions Commission. When I was working the FICOM controls were stringent and included director education, FICOM audits, loan inspections, and approval of Investment and Lending policies. I have since been told that these FICOM controls are even stricter and more demanding. Nobody has ever lost money in a credit union and I suggest you not worry. As an aside I advise that as a matter of interest I review the published annual reports of both the individual and central CU's.

  11. #10
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    Instead of looking at possibilities, perhaps we should focus on probabilities. Manitoba Credit Unions with their diversified loan books, look just fine. The only reason that there is any focus on MB CU's is because of their innovative virtual banks, all of which seem to be quite successful. I would worry more about Vancity in BC...they have been very aggressive in the high ratio home mortgage business.

    Last edited by gaspr; 2017-05-02 at 11:54 AM.

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