Self-RegulationDesjardins perspective

Supervision: a responsibility to share

Self-RegulationDesjardins perspective

Supervision: a responsibility to share

May 2014

Previously presented: June 2012

May 2014

Previously presented: June 2012

2

Presentation Agenda

Financial Cooperatives Surveillance

(components)Prevention

Supervision

Protection

History ( Supervision and ‘Security fund’

interlinked)

Supervision models (Costs consideration)

Question Period

3

Prevention

Legal Framework (adequate)

Supervision

Internal control system

Inspection (mostly on-site control)

External audit

Protection

Security/Stabilization Fund vs Deposit Insurance

Surveillance components (3)

4

1932-1949

1932 - Inspection department and creation of the Federation; 1948 – 1949 Coops (2) liquidation and bankruptcies

1949- 1979

Establishment of the first Stabilization fund

1980-1985

Independent corporation start-up

1985-1996

Development of the corporation

1996 to present (Fund strengthening and Consolidation)

Supervision highlights at Desjardins

5

1949-1979 Appearance of the first Security Funds

Year Number of

Caisses

Caisse Assets

($million)

Caisse Assessments

Subsidies paid

Net Value

Net value / Caisses assets

(bp)

Net value Objective

(bp) 1949

1 068 208 $16 000 -- $16 000 0.8 --

1979

1 258 10 016 $2.1million $1.9 million $4.2 million 4 --

6

1982• 496 out of 1 465 (1/3) caisses running deficits• Special, exceptional fees = 1/10 of 1% of caisse assets

1980-1985 Founding and start-up of an independent corporation

Year Number of

Caisses

Caisse Assets

($million)

Caisse Assessments

($million)

Subsidies paid

($million)

Number of Caisses

Subsidized

Net value

($million)

Net value / Caisse assets

(bp)

Net value Objective

(bp)

1980

1 372 11 655 1.3 4.2 90 1.2 0 50

1982

1 465 15 466 32.5 32.2 187 (7.4) (5) 50

1985

1 381 21 426 35.2 4.8 38 65.0 30 50

7

1986-1995 Development of the corporation

Year Number of

Caisses

Caisse Assets

($million)

Caisse Assessments

($million)

Subsidies paid

($million)

Number of Caisses

Subsidized

Net value ($million)

Net value / Caisse assets

(bp)

Net value Objective

(bp)

1986

1 371 23 891 34.1 2.7 16 92.4 38 50

1995

1 318 51 962 28.5 30.2 30 316.3 61 50

8

1996 to present

Fund Strengthening and Consolidation

YearNumber

of caisses

Caisse Assets

($million)

Caisse Assessment

($million)

Subsidies paid

($million)

Number of caisses

subsidized

Net Value ($mil-lion)

Net Value / caisses assets (p.b.)

Net Value Objective

(p.b.)

1996 1 307 53 585 29,5 23,6 50 332,8 62 100

2011 402 127 025 40,3 0 0 757,1 60between 55 and

65

9

Net worth ratio (2000-2011)in % of caisses assets

0,50%

0,52%

0,54%

0,56%

0,58%

0,60%

0,62%

0,64%

0,66%

0,68%

0,70%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Années

% d

e l

'ac

tif

de

s c

ais

se

s

10

1949-1979 Appearance of the first security funds

1980-1985 Founding and start-up of an independent corporation : Corporation de fonds de sécurité de la Confédération Desjardins

1986-1995 Fund Growth

1996 - … Fund Strengthening and Consolidation

History (Recap)

11

Internal supervision (or self supervision)

By the apex organization in a federated/integrated network

External (or direct) supervision

By the regulatory authorities in charge of the financial cooperatives sector

Parallel supervision

Integrated supervision (2 types)

Auxiliary

Delegated

Supervision models (supervision used with the meaning of ‘inspection’)

12

Prevention

Legal Framework (adequate)

Supervision

Internal control system

Inspection (mostly on-site control)

External audit

Protection

Security/Stabilization Fund vs Deposit Insurance

It’s about…..Risks assessment and risks management

13

Primary Coops member’s savings protection

Trust and credibility

Various stakeholders

Government authorities

Federations and Networks

Financial sustainability

It’s about…..

Question PeriodQuestion Period

Fonds de sécurité DesjardinsDesjardins Security Fund

Fonds de sécurité DesjardinsDesjardins Security Fund

May 2014

First presented: June 2012

May 2014

First presented: June 2012

16

Presentation Agenda

What is the ‘‘Fonds de sécurité Desjardins’’?

History

Capitalization

Structure Regulatory Framework Administrative Structure

A Few Financial Statistics

Question Period

17

A Unique Organization within the Financial System

Exclusive to Desjardins Caisses in Québec ‘‘Caisse Life Insurance’’

A Collective Reserve for Caisses

Ex Ante / Ex Post Approaches

An Inalienable Asset Base

Security Fund vs Deposit Insurance

What Is the Desjardins Security Fund?

18

A Few Financial Statistics as at December 31, 2011

Net Value $757 million

Ratio of net fund value to caisses assets 0.60 %

Investments portofolio $774,5 million

19

Established by government

Protects depositors by reimbursing deposits ($100,000 max.) in case of bankruptcy of their financial institution

Seeks to limit losses by liquidating financial institutions

Maintains public confidence in the financial system

Established by FCDQ

Protects caisses against insolvency by subsidizing the deficit

Maintains financial institutions in operation whenever possible

Maintains public confidence in the Desjardins network of caisses

Deposit Insurance

Security Fund

Deposit Insurance vs Security Fund in Quebec

20

Involves direct governmental intervention either in the form of endorsement of or financial support

Protection limited to the government’s financial capacity

Net value of the deposit insurance fund managed by the Autorité des marchés financiers (AMF) : $478 million as at March 31, 2011

Avoids governmental intervention, allows more freedom of action by managers of the financial institution

Protection limited to the financial capacity of the security fund

Net value of the Desjardins Security Fund : $ 787 million as at June 30, 2012

Deposit Insurance

Security Fund

Deposit Insurance vs Security Fund in Quebec

21

Unity and dependability of the institution

Public confidence in the caisses

Network autonomy and management flexibility for Desjardins

Enhances financial and other problems solving capacity

Credibility of the caisses

Capital recognition of the Fund into overall network capitalization

Group credit rating

Tax issues

Lower premium paid to the Regulator (AMF) – premium paid in 2010: en 2010: $14,4 million en 2011: $15,1 million en 2012: $15,8 million

Benefits of a Security Fund

22

Mission

The mission of the Desjardins Security Fund is to create and administer a security, liquidity and mutual assistance fund for the benefit of member caisses, to be used for :

subsidizing the deficit of a member caisse whose reserves have been exhausted contributing to members’ compensation for their losses in the event of a caisse liquidation participating in the overall caisse network capitalization

23

Powers

Act respecting financial services cooperatives

set and require assessments or special fees from member caisses

make loans and grants to a caisse make a management agreement with a caisse acquire some or all of the assets of a caisse act as a provisional administrator, liquidator or

sequestrator of a caisse

24

Inspection visits

oversight fees paid to the Bureau de la Surveillance du Mouvement Desjardins

access to inspection report

Monitoring of caisses under greater financial stress

Participation in caisse network capitalization

Organization of last recourse

exhausted Fédération support

exhausted caisse reserves

payment of subsidies

management agreement recovery plan the caisse’s financial

progress follow-up

Preventive

Role

Curative

25

1949-1979 Appearance of the first security funds

1980-1985 Founding and start-up of an independent corporation : Corporation de fonds de sécurité de la Confédération Desjardins

1986-1995 Fund Growth

1996-… Fund Strengthening and Consolidation

History

26

1949-1979 Appearance of the first Security Funds

Year Number of

Caisses

Caisse Assets

($million)

Caisse Assessments

Subsidies paid

Net Value

Net value / Caisses assets

(bp)

Net value Objective

(bp) 1949

1 068 208 $16 000 -- $16 000 0.8 --

1979

1 258 10 016 $2.1million $1.9 million $4.2 million 4 --

27

1982• 496 out of 1 465 (1/3) caisses running deficits• Special, exceptional fees = 1/10 of 1% of caisse assets

1980-1985 Founding and start-up of an independent corporation

Year Number of

Caisses

Caisse Assets

($million)

Caisse Assessments

($million)

Subsidies paid

($million)

Number of Caisses

Subsidized

Net value

($million)

Net value / Caisse assets

(bp)

Net value Objective

(bp)

1980

1 372 11 655 1.3 4.2 90 1.2 0 50

1982

1 465 15 466 32.5 32.2 187 (7.4) (5) 50

1985

1 381 21 426 35.2 4.8 38 65.0 30 50

28

Grants paid to caisses

30,2 M$ - 30 caisses32,2 M$ - 187 caisses

0

5

10

15

20

25

30

35

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

millio

ns $

29

1986-1995 Development of the corporation

Year Number of

Caisses

Caisse Assets

($million)

Caisse Assessments

($million)

Subsidies paid

($million)

Number of Caisses

Subsidized

Net value ($million)

Net value / Caisse assets

(bp)

Net value Objective

(bp)

1986

1 371 23 891 34.1 2.7 16 92.4 38 50

1995

1 318 51 962 28.5 30.2 30 316.3 61 50

30

1996-... Fund Strengthening and Consolidation

YearNumber

of caisses

Caisse Assets

($million)

Caisse Assessment

($million)

Subsidies paid

($million)

Number of caisses

subsidized

Net Value ($mil-lion)

Net Value / caisses assets (p.b.)

Nette Value Objective

(p.b.)

1996 1 307 53 585 29,5 23,6 50 332,8 62 100

2011 402 127 025 40,3 0 0 757,1 60between 55 and

65

31

Capitalization has always been associated with the caisse network’s risks and has fluctuated over time.

2005 revision of Fund capitalization :

consulting with various national and international organizations

scientific study to determine adequate capitalization relative to risks

determination of optimal capital between 55 and 65 basis points in terms of caisses’ total assets

Net value as at December 31, 2011 : 0.60% ($757 million / $127 billion)

Capitalization

32

Net worth ratio (2000-2011)in % of caisses assets

0,50%

0,52%

0,54%

0,56%

0,58%

0,60%

0,62%

0,64%

0,66%

0,68%

0,70%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Années

% d

e l

'ac

tif

de

s c

ais

se

s

33

Regulatory Framework

Legal

Act respecting financial services cooperatives Regulation respecting

investments of a security fund

Act respecting the Autorité des marchés financiers

Deposit Insurance Act Income Tax Acts (federal

and provincial)

Internal

General By-laws

Code of Ethics and Professional conduct

Policies : assessment investment intervention

34

Assessment Policy

Guiding principles Mission of the Desjardins Security Fund Network Solidarity Equity Caisses capitalization Prevention

Three-fold consideration for annual assessmentsOnce yearly, at the beginning of July (7th month following

the caisses year-end (December 31))• 2008 Assessment

$24.9 million - $5.0 million rebate = $19.9 million• 2009 Assessment

$26.8 million - $5.3 million = $21.5 million• 2010 Assessment

$38.8 million - $7.7 million = $31.1 million• 2011 Assessment

$50.2 million - $9.9 million = $40.3 million

35

Guiding principlesSecurityLiquidityYield

Fund managersCaisse centrale Desjardins

Portfolio management structure 100% in bonds, mainly in federal and

provincial governments and financial institutions securities

Investment Policy

36

Investment portfolio management structure

2009.12 2011.12

Federal 29 % 25,5 %

Provincial 51 % 43,6 %

Municipal 5 % 13,2 %

Corporate AAA/AA 15 % 17,7 %

37

Guiding principlesMission of Desjardins Security FundGuarantee of member depositsCaisse solvencyNetwork SolidarityPreventionFund adequacy (assessment and investment policies)

Role and responsibility of intervening partiesCaisse subsidized and/or not having adequate

inexpensive capital FédérationBureau de la Surveillance du Mouvement Desjardins

Intervention Policy

38

Administrative Structure

Board of Directors

General Manager Support Officer

Outsourcing

Caisse centrale Desjardins

Fédération des caisses Desjardins du Québec

cash, accounting, legal and tax human ressources, economic and financial caisse monitoring, support and advice

fund management advisory services safekeeping reports financial statements

Question PeriodQuestion Period