Deposit Insurance Corporation of Ontario Leadership - Stepping Up To The Challenge September 19,...

Deposit Insurance Corporation of Ontario

Leadership - Stepping Up To The Challenge

September 19, 2001

Credit Union Managers’ AssociationCredit Union Managers’ Association

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Overview

Key Messages

Quick Updates

Future Challenges

Questions & Dialogue

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Key Messages

System is in relatively good shape

DICO ahead of plan

Can’t be complacent - challenges in

future

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Quick - System Condition at 2Q01 ( from 2Q00)Quick - System Condition at 2Q01 ( from 2Q00)

310 institutions 23 7 under capitalized ( 11) Average size $52 M from $45 M System Assets $16.1 Billion 7.9% System Capital 6.6% 6.7% Liquidity 17.5% from 17.8% Commercial loans 23% Overall Risk Level appears stable

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Quick System Performance at 2Q01 ( from 2Q00)Quick System Performance at 2Q01 ( from 2Q00)

Margins from 3.19% to 3. 25% Non-interest expenses stable at 3.49% Non-interest income by .02% Loan Costs from .14% to .17% Gross Delinquency 1.34% to 1.40% ROA 39 bp from 41bp Overall performance stable

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Quick - DICO PlanQuick - DICO Plan

DICO 2001 estimated financial results– new insurance losses to date, negligible– gross operating expenses 6.8% below budget– estimated fund of up to $25 million by

December 31 Plans for 2002

– average premium just over $1– actuarial review of target fund size

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Reserve Fund Projections 2001 - 2003Reserve Fund Projections 2001 - 2003

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0

10

20

30

40

50

$ M

illio

ns

1999 2000 2001 2002 2003

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Differential Premium SystemDifferential Premium System

How to Improve Risk Rating– Quantitative measures– OSVs - wait for next OSV or engage inspector

to review corporate governance score Review Procedures for DPS Rating:

– Level I - with staff– Level II - with Risk Management Committee of

the Board of DICO

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Distribution of Assets By Risk Category 2Q01Distribution of Assets By Risk Category 2Q01

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4138

12

105

1015

2025

3035

4045

50

Per

cen

t

1 2 3 4 5

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Differential Premium SystemDifferential Premium System

Some Issues: premium levels & fund size measuring earnings - after taxes &

distributions measuring corporate governance

(management) through OSVs measuring interest rate risk - shock test

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Quick - DICO OperationalQuick - DICO Operational

On-Site Verifications (OSVs)

125 completed/in progress as of August 31, 2001

68% still rate credit management as requiring improvement

Guide to DICO’s OSV Process & OSV Manual available on DICO’s Web site

Regional presentations

Summary of OSV FindingsSummary of OSV FindingsRisk Management Practices % Member Institutions

Rated Effective *2000 2001* Improvement

Corporate Governance 50% 64% 14%

Capital Management 67% 89% 22%

Credit Management 20% 32% 12%

Investment Management 60% 76% 16%

Asset/Liability Management 55% 76% 21%

Liquidity Management 74% 95% 21%

Internal Controls 66% 87% 21%

* to July 31, 2001

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Summary of Corporate Governance (Management) Scores as at 2Q01Summary of Corporate Governance (Management) Scores as at 2Q01

DPS Points # of MIs % ofAssets

20 40 28%

15 20 3%

10 96 34%

5 38 15%

0 116 20%

310 100%

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Quick - DICO OperationalQuick - DICO Operational

On-Site Verifications (OSVs)Some issues:

exit interviews are standards too tough? Suppliers - CUCO withdrawing

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Quick - DICO OperationalQuick - DICO Operational

Intervention Programs 28 on Watchlist - mostly resulting from

OSVs 13 under Supervision 6 pending Supervision Sustained non-compliance

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Future Challenges

DICO loan guarantee

FSCO/OSC merger

possible legislative review

Ontario/BC Central merger

Federal Act - new competition

uncertain economic environment - ie.

interest rate risk, credit risk

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Key Messages

System is in relatively good shape

DICO ahead of plan

Can’t be complacent - challenges in

future