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“Improving the Odds”. Deposit Insurance Corporation of Ontario. Credit Union Managers’ Association October 9, 2002. Overview. Where are we? Where are we going?. Where Are We?. Overall system condition is good Risk of failures has been declining - PowerPoint PPT Presentation
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Deposit Insurance Corporation of OntarioDeposit Insurance Corporation of Ontario
Credit Union Managers’ Association
October 9, 2002
“Improving the Odds”
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Overview
Where are we?Where are we?
Where are we going?Where are we going?
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Where Are We?
Overall system condition is goodOverall system condition is good Risk of failures has been decliningRisk of failures has been declining Overall system performance slipping Overall system performance slipping
slightlyslightly Some credit unions/caisses populaires Some credit unions/caisses populaires
performing better than othersperforming better than others
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Quick - System Condition at 2Q02 ( from 2Q01) 285285 institutions institutions 25 25 AllAll met minimum capital requirements met minimum capital requirements Average size Average size $61 M$61 M from $52 M from $52 M System Assets System Assets $17.4$17.4 Billion Billion by 8.1% by 8.1% System Capital System Capital 6.7%6.7% from 6.6% from 6.6% Liquidity Liquidity 17.7%17.7% from 17.5% from 17.5% Commercial loans Commercial loans by by 17%17%
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Quick System Performance at 2Q02 ( from 2Q01)
Margins Margins from 3.25% to from 3.25% to 3.00%3.00% Non-interest expenses Non-interest expenses from 3.49% to from 3.49% to 3.34% 3.34% Non-interest income Non-interest income by by .02%.02% Loan Costs slight Loan Costs slight from .17% to from .17% to .16%.16% Gross Delinquency Gross Delinquency 1.40% to 1.40% to 1.30%1.30% ROA 2ROA 29 bp9 bp from 39 bp from 39 bp
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Quick - DICO Financial
DICO 2002 estimated financial resultsDICO 2002 estimated financial results No major failures during 2002No major failures during 2002 No new insurance losses to dateNo new insurance losses to date Recoveries of $3.9 million on past lossesRecoveries of $3.9 million on past losses Gross operating expenses 4.5% below budgetGross operating expenses 4.5% below budget Estimated fund of $41 million by year endEstimated fund of $41 million by year end
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Quick - DICO Operational
On-Site Verifications (OSVs)On-Site Verifications (OSVs) 155 completed/in progress as of July 31, 2002155 completed/in progress as of July 31, 2002 68% of members failed credit management standard 68% of members failed credit management standard
on first OSVon first OSV Intervention ProgramsIntervention Programs
28 on Watchlist - mostly resulting from OSVs – 28 on Watchlist - mostly resulting from OSVs – sustained non-compliance with Bylaw #5sustained non-compliance with Bylaw #5
13 under Supervision13 under Supervision 6 pending Supervision6 pending Supervision 1 under Administration1 under Administration
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Distribution of Assets By Premium Category 2Q02
8.9
27.4
52.6
10.4
0.80
10
20
30
40
50
60
Per
cen
t
1 2 3 4 5
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Distribution of Assets By Premium Category 4Q92
18.8
11.6
21.6 21.926.2
0
10
20
30
40
50
60
Per
cen
t
1 2 3 4 5
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Where Are We Going? Reserve Fund StrategyReserve Fund Strategy Interest Rate Risk Interest Rate Risk
RegulationRegulation Bylaw # 5 ReviewBylaw # 5 Review OSV Process ReviewOSV Process Review Capital RulesCapital Rules
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Deposit Insurance Reserve Fund (DIRF)
Process to date:Process to date: Extensive researchExtensive research Actuarial model developed and thoroughly Actuarial model developed and thoroughly
testedtested Intensive DICO Board reviewIntensive DICO Board review Consultation with Ministry of FinanceConsultation with Ministry of Finance Discussion PaperDiscussion Paper
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Deposit Insurance Reserve Fund
Discussion Paper addresses two basic Discussion Paper addresses two basic
questions:questions:
How large should the DIRF be?How large should the DIRF be?
How and how fast should we get there?How and how fast should we get there?
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Deposit Insurance Reserve Fund
Design Principles:Design Principles: Lower risk = lower reserve fundLower risk = lower reserve fund Model responsive to changes in riskModel responsive to changes in risk Premiums stability for three to five year Premiums stability for three to five year
periodsperiods
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Deposit Insurance Reserve Fund
Variables:Variables: Premium levelsPremium levels Economic scenariosEconomic scenarios Risk migrationRisk migration Probability of failureProbability of failure Loss ratiosLoss ratios Deposit growthDeposit growth Investment yields & DICO expensesInvestment yields & DICO expenses
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Deposit Insurance Reserve Fund
Probability of Failure:Probability of Failure:Tier 1 – 1 in 2,000Tier 1 – 1 in 2,000Tier 2 – 1 in 1,000Tier 2 – 1 in 1,000Tier 3 – 1 in 500Tier 3 – 1 in 500Tier 4 – 1 in 250Tier 4 – 1 in 250Tier 5 – 1 in 28Tier 5 – 1 in 28
Loss Ratios:Loss Ratios:MI > $100 M – 8%MI > $100 M – 8%MI > $10 M – 15%MI > $10 M – 15%MI < $10 M – 33%MI < $10 M – 33%
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Deposit Insurance Reserve Fund
DIRF Proposal:DIRF Proposal:• Ultimate fund target of 69 basis points – to Ultimate fund target of 69 basis points – to
be adjusted periodically based on risk levelbe adjusted periodically based on risk level• Interim target of 47 basis points by 2008 Interim target of 47 basis points by 2008
(versus current level of 22 basis points)(versus current level of 22 basis points)• Premiums adjusted down or up based on Premiums adjusted down or up based on
progressprogress
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Deposit Insurance Reserve Fund
Looking Forward:Looking Forward: Premiums will fall over time if the Premiums will fall over time if the
aggregate risk is loweraggregate risk is lower Individual credit unions will continue to Individual credit unions will continue to
manage their premiums within the DPSmanage their premiums within the DPS
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Deposit Insurance Reserve Fund (DIRF)
Next Steps:Next Steps: Discussion paper released Discussion paper released After comments received, finalize DIRF After comments received, finalize DIRF
strategystrategy Report to the Minister of Finance by spring Report to the Minister of Finance by spring
20032003
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Where Are We Going?
Interest Rate Risk RegulationInterest Rate Risk Regulation Under review – completion in 2003Under review – completion in 2003
Bylaw # 5 ReviewBylaw # 5 Review Under review 2003 – completion by 2004Under review 2003 – completion by 2004
OSV Process ReviewOSV Process Review 2002 changes implemented2002 changes implemented Further changes after Bylaw # 5 amendedFurther changes after Bylaw # 5 amended
Capital RulesCapital Rules Under discussion with FSCO & MinistryUnder discussion with FSCO & Ministry
