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



## Grimey (Apr 28, 2017)

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?


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## james4beach (Nov 15, 2012)

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).


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## lonewolf :) (Sep 13, 2016)

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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## Beaver101 (Nov 14, 2011)

lonewolf :) said:


> 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?


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## gaspr (Mar 24, 2014)

Beaver101 said:


> ... 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.


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## NorthernRaven (Aug 4, 2010)

Beaver101 said:


> ... 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.


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## AltaRed (Jun 8, 2009)

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.


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## TomB16 (Jun 8, 2014)

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.


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## birdman (Feb 12, 2013)

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.


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## gaspr (Mar 24, 2014)

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.


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## Oldroe (Sep 18, 2009)

Guaranteed Investment Certificates!


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## james4beach (Nov 15, 2012)

Can someone familiar with credit unions tell me... does Credit Union Central (either the Canada wide one or Credit Union Central of Manitoba) provide additional back-stop facilities? For example, can credit unions in need of liquidity borrow from Central?


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## NorthernRaven (Aug 4, 2010)

james4beach said:


> Can someone familiar with credit unions tell me... does Credit Union Central (either the Canada wide one or Credit Union Central of Manitoba) provide additional back-stop facilities? For example, can credit unions in need of liquidity borrow from Central?


Yes, that's one of their purposes. I think you could consider them to carry out some of the non-sovereign Bank of Canada functions for CUs.

For Manitoba's CUCM:


> CUCM manages liquidity reserves, monitors credit granting procedures and provides trade services in areas such as corporate governance, government relations, representation and advocacy.


Obviously they have limited resources compared to the BoC printing presses, but they'd be involved.


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## james4beach (Nov 15, 2012)

That's interesting then, because Credit Union Central (according to their financial statements) also has some positions with chartered banks, by which I presume they mean Big Five.

I wouldn't rule out the possibility that Credit Union Central can get loans from Big Five banks. They already have some interest rate swap guarantees from chartered banks.


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## Grimey (Apr 28, 2017)

Thanks everybody! Very informative. I feel a bit better educated. Just out of curiosity....does anyone have an opinion on Canadian Tire Bank or Peoples Trust? I have GICs there too. ( I bank with so many companies to spread the risk, I hope anyway, and to keep under 100K in any one account).


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## james4beach (Nov 15, 2012)

I'm not a fan of Peoples Trust, they're also a mortgage-specialized lender.


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## TomB16 (Jun 8, 2014)

james4beach said:


> Can someone familiar with credit unions tell me... does Credit Union Central (either the Canada wide one or Credit Union Central of Manitoba) provide additional back-stop facilities? For example, can credit unions in need of liquidity borrow from Central?


Not that I'm aware of. That's the domain of the deposit guarantee organizations which have supreme authority over CUs in crisis.


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## NorthernRaven (Aug 4, 2010)

TomB16 said:


> Not that I'm aware of. That's the domain of the deposit guarantee organizations which have supreme authority over CUs in crisis.


The central would provide day-to-day liquidity smoothness (and backroom services, etc), and I suspect would be the conduit for exceptional but non-crisis liquidity help from wherever. Individual Manitoba CUs keep reserves at CUCM and have that ongoing relationship with them. Actual money flowing from the guarantee corp (either directly or indirectly) is probably a bad sign... :


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## james4beach (Nov 15, 2012)

Right, central provides liquidity, which really is most of story. Think of the 2008 banking crisis. All of the big five banks (and especially Scotia, CIBC, BMO) made very heavy use of liquidity facilities from central banks -- short term loans. This liquidity is probably what kept the banks alive.

Access to liquidity is very important during market distress and it's good to know that the credit unions have access to that, just like the big banks do.

By the way, from what I know, the credit unions did not have trouble through the 2007-2008 storm. Unlike big banks, the credit unions don't have enormous derivative positions. They don't have huge capital market exposure, exposure to distressed debt, exotic credit instruments, etc. Credit unions also are better capitalized and operate with less leverage than the big banks. They are fundamentally safer operations.


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## birdman (Feb 12, 2013)

In regards to liquidity, in BC and presumably other jurisdictions, individual credit unions are required to maintain 10% liquidity by way of deposits in the Central cr union. However, most have even higher liquidity targets (ours was 12-15%) and if it got close to the 12% we were more aggressive in our deposit rates. We also had access to credit facilities through the central credit union. Other sources of liquidity could come from individual credit lines with banks or bundling up and selling mortgages to other credit unions who had surplus liquidity. If I recall correctly, the central cu also had access to credit lines. Never was an issue but again, it was managed closely. Mind you, I retired 15+ years ago but I doubt if there has been any material change.
In regards to derivative exposure the only ones we had was interest rate swaps but these were only to manage interest rate risk. I believe other CU's mainly used these as well.


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## TomB16 (Jun 8, 2014)

The CU system also sort-of includes an organization called Concentra Financial that provides quite a few financial services which I think includes mortgage swaps. I'm not that familiar with this component of Concentra but they are a large organization.

I say "sort of" because Concentra recently converted to a bank. Apparently, they felt they were being held back by the CU system. I have no idea how this will affect their long term relationships with CUs.

CUs used to use MBNA for credit card services but they are unhappy with TD's purchase of MBNA so I expect the system will come up with a new provider, at some point. Some have already left.

The CU system is frequently mentioned as an entity by people like me who work(ed) in the system but it's a pretty lose system. They don't all get along, either. lol!


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## james4beach (Nov 15, 2012)

Interesting that Concentra GICs have CDIC insurance. I wonder what Concentra's role in the whole credit union system is.


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## TomB16 (Jun 8, 2014)

Concentra is now a bank. Not long ago, they weren't. ... and not that long before that, they were Coop Trust.


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## TomB16 (Jun 8, 2014)

Concentra is an ambitious organization. I have little doubt that, at some point, they will go public.


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## NorthernRaven (Aug 4, 2010)

TomB16 said:


> The CU system also sort-of includes an organization called Concentra Financial that provides quite a few financial services which I think includes mortgage swaps. I'm not that familiar with this component of Concentra but they are a large organization.
> 
> I say "sort of" because Concentra recently converted to a bank. Apparently, they felt they were being held back by the CU system. I have no idea how this will affect their long term relationships with CUs.


I think Concentra was already federally regulated and CDIC-covered as Concentra Trust. What they seem to have done is created a separate Schedule 1 "Concentra Bank" (which I think now houses Concentra Trust as well). You'll notice that CDIC lists both "Bank" and "Trust" for Concentra as separate entities. I think the Trust is/was some sort of cooperative ownership, and the Bank entity will make for easier relationships or abilities or some good reason for doing it. I don't think anything much will change for their CU customers. Concentra seems to have started out as a primarily Sask CU play; I think there were intentions to bring in some of the other systems that didn't fully materialize?


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## TomB16 (Jun 8, 2014)

Remember when Sask Wheat Pool was a "Publicly traded cooperative"? lol!


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... By the way, from what I know, the credit unions did not have trouble through the 2007-2008 storm ...
> Credit unions also are better capitalized and operate with less leverage than the big banks. They are fundamentally safer operations.


Maybe ... though I would want to dig further as there are signs that it may not be that simple.

Ontario's deposit coverage agency lists 111 CU's from 2009 onwards that are closed. 
https://www.dico.com/design/1_3_Eng.html

Breaking down the list using Excel - 42 were amalgamated, 48 were purchased, * 19 were liquidated, 1 was dissolved and 1 was bankrupt*.


Cheers


*PS*

The "index linked" type products were advertised in the local CU years before I saw similar products being advertised at the banks. I can also recall the "use your smartphone's camera to deposit a cheque" from a CU first as well.


*PPS*
From 2009, there are several CU's that were liquidated.


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## TomB16 (Jun 8, 2014)

Before you jump to conclusions about the financial crisis, be aware that small CUs do get into trouble occasionally, even during good times.

I'm not familiar with Ontario CUs during that era so it could easily be related to the crisis. I just urge caution with regard to finding a failed CU and considering that conclusive.


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## Eclectic12 (Oct 20, 2010)

It seems in Ontario (I am not finding similar listing for other provinces), there were four CUs liquidated in 2009. 
There's another fifteen liquidated from 2010 onwards.

From 2008 back, one is directed to contact the DICO.


Cheers


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## NorthernRaven (Aug 4, 2010)

For liquidated, I think a number of those are things like "ACME Buggy-whip Factory Credit Union", where things were just too small to be a going concern, but for whatever reason were just liquidated out, not acquired. Ontario and Toronto seems to have had quite a range of little workplace and ethnic CUs that don't really make sense in the modern banking landscape. The bankrupt one is likely "Portuguese Canadian Credit Union", which I ran across when looking at DICO way back - it had some smelly things like insider purchases of wonky Niagara Falls real estate and some sort of big loss to fraud with an armoured car company or something.


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## james4beach (Nov 15, 2012)

I am not aware of any major Canadian credit union that had significant trouble during the 2007-2009 crisis, but someone correct me if I'm wrong.

In comparison, all the big banks had trouble and had to take (secret) emergency loans from the US Federal Reserve, Bank of Canada, and additional support from CMHC. Most of this was revealed by Bloomberg media after they sued the US Federal Reserve and the Supreme Court forced the Fed to reveal the secret loan data.


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## Eclectic12 (Oct 20, 2010)

Questions is ... how to find it?

Ontario is only listing 2009+. So far, there is not a lot for the other jurisdictions.

I did notice that:


> Mortgage lenders, however, have looked at the same property and, until recently, seen nothing but cash.
> 
> But after two decades of *continually borrowing up - plowing through mortgages from Royal Bank, private lenders and credit unions*, until settling on two subprime lenders - the 46-year-old fisherman has landed in a foreclosure proceeding.
> 
> Records show that at least nine different lenders have given mortgages to Mr. Goodyear ... "*I didn't really have to show anything to borrow,*" Mr. Goodyear


http://www.theglobeandmail.com/repo...irty-subprime-secret/article4357076/?page=all


Cheers


*PS*

What is your definition of "major Canadian credit union" and "significant trouble".


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## birdman (Feb 12, 2013)

Running a financial institution these days is not an easy task and the complexities are such that smaller credit unions often have a difficult time keeping up with such things as technology, investment area (advisors/advisers?), scales of economy, training, managing a surplus or shortfall in liquidity, and generally the scales of economy. If their performance starts to fall and growth or other issues arise they often just merge with another CU. In BC the number of CU's has dwindled over the years but their asset base has I believe increased significantly. Nobody has every lost money in a CU in Canada.


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## ian (Jun 18, 2016)

In the past there were a number of smaller credit unions in BC that experienced challenging times. They did not fail though a few may have been on the brink. Credit Union Central moved in, reviewed the financials, and overnight those organizations were taken over by larger,stronger credit unions. Members did not really see any interuption in service.


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## sags (May 15, 2010)

When there are too many subprime lenders competing for the same business, client approvals are bound to slide down the credit totem pole.

Mortgage brokers, people working in lender offices have a financial interest in approving mortgages. They don't earn anything by saying "no".


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## gaspr (Mar 24, 2014)

There is speculation that short sellers may have played a disturbing role in the ongoing saga at Home Capital. One point that should be made is that Credit Unions, by their very nature of being member owned, are immune to rogue attacks by short sellers.


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