Presentation to Andrea Strathdee
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Transcript Presentation to Andrea Strathdee
Deposit Insurance Corporation of Ontario
“Improving the Odds”
Credit Union Managers’ Association
October 9, 2002
Overview
Where are we?
Where are we going?
2
Where Are We?
Overall system condition is good
Risk of failures has been declining
Overall system performance slipping
slightly
Some credit unions/caisses populaires
performing better than others
3
Quick
- System Condition at
2Q02 ( from 2Q01)
285 institutions 25
All met minimum capital requirements
Average size $61 M from $52 M
System Assets $17.4 Billion by 8.1%
System Capital 6.7% from 6.6%
Liquidity 17.7% from 17.5%
Commercial loans by 17%
4
Quick
System Performance
at 2Q02 ( from 2Q01)
Margins from 3.25% to 3.00%
Non-interest expenses from 3.49% to 3.34%
Non-interest income by .02%
Loan Costs slight from .17% to .16%
Gross Delinquency 1.40% to 1.30%
ROA 29 bp from 39 bp
5
Quick
- DICO Financial
DICO 2002 estimated financial results
No
major failures during 2002
No new insurance losses to date
Recoveries of $3.9 million on past losses
Gross operating expenses 4.5% below budget
Estimated fund of $41 million by year end
6
Quick
- DICO Operational
On-Site Verifications (OSVs)
155 completed/in progress as of July 31, 2002
68% of members failed credit management standard
on first OSV
Intervention Programs
28 on Watchlist - mostly resulting from OSVs –
sustained non-compliance with Bylaw #5
13 under Supervision
6 pending Supervision
1 under Administration
7
Distribution of Assets By Premium
Category 2Q02
60
52.6
50
Percent
40
27.4
30
20
10
10.4
8.9
0.8
0
1
2
3
4
5
8
Distribution of Assets By Premium
Category 4Q92
60
50
Percent
40
30
20
18.8
21.6
21.9
3
4
26.2
11.6
10
0
1
2
5
9
Where Are We Going?
Reserve Fund Strategy
Interest Rate Risk
Regulation
Bylaw # 5 Review
OSV Process Review
Capital Rules
10
Deposit Insurance Reserve Fund
(DIRF)
Process to date:
Extensive
research
Actuarial model developed and thoroughly
tested
Intensive DICO Board review
Consultation with Ministry of Finance
Discussion Paper
11
Deposit Insurance Reserve Fund
Discussion Paper addresses two basic
questions:
How
large should the DIRF be?
How
and how fast should we get there?
12
Deposit Insurance Reserve Fund
Design Principles:
Lower risk = lower reserve fund
Model responsive to changes in risk
Premiums stability for three to five year
periods
13
Deposit Insurance Reserve Fund
Variables:
Premium levels
Economic scenarios
Risk migration
Probability of failure
Loss ratios
Deposit growth
Investment yields & DICO expenses
14
Deposit Insurance Reserve Fund
Probability of Failure:
Tier 1 – 1 in 2,000
Tier 2 – 1 in 1,000
Tier 3 – 1 in 500
Tier 4 – 1 in 250
Tier 5 – 1 in 28
Loss Ratios:
MI > $100 M – 8%
MI > $10 M – 15%
MI < $10 M – 33%
15
Deposit Insurance Reserve Fund
DIRF Proposal:
• Ultimate fund target of 69 basis points – to
be adjusted periodically based on risk level
• Interim target of 47 basis points by 2008
(versus current level of 22 basis points)
• Premiums adjusted down or up based on
progress
16
Deposit Insurance Reserve Fund
Looking Forward:
Premiums will fall over time if the
aggregate risk is lower
Individual credit unions will continue to
manage their premiums within the DPS
17
Deposit Insurance Reserve Fund
(DIRF)
Next Steps:
Discussion
paper released
After comments received, finalize DIRF
strategy
Report to the Minister of Finance by spring
2003
18
Where Are We Going?
Interest Rate Risk Regulation
Under
review – completion in 2003
Bylaw # 5 Review
Under
review 2003 – completion by 2004
OSV Process Review
2002
changes implemented
Further changes after Bylaw # 5 amended
Capital Rules
Under
discussion with FSCO & Ministry
19