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
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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
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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%
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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
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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
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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
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