Chapter 2: Deposit Taking Institutions Flashcards
What are the differences between Schedule I, Schedule II, and Schedule III banks?
Schedule I banks are domestic Canadian banks who are widely-held and chartered in Canada under the Bank Act. They are able to offer the full range of services permitted under the Bank Act.
Schedule II banks are subsidiaries of a foreign bank who are authorized to conduct business under the Bank Act in Canada.
Schedule III bank is a foreign bank branch that is authorized to accept deposits in excess of $150,000 under the Bank Act.
All banks in Canada are regulated by the Office of the Superintendent of Financial Services (OSFI).
What are the major uses of funds for banks in Canada? What are the primary risks to the bank caused by each use of funds? Which of the risks is most critical to the continuing operation of a bank?
Loans and investment securities are the primary assets of the banking industry. Non-mortgage loans are relatively more important. Mortgage loans are also a large part of the banks’ assets. Each of these types of loans creates credit, and to varying extents, liquidity risks for the banks. The security portfolio normally is a source of liquidity and interest rate risk, especially with the increased use of various types of mortgage backed securities and structured notes. In certain environments, each of these risks can create operational and performance problems for a bank
What are the major sources of funds for banks in Canada? How is the landscape for these funds changing and why?
The primary sources of funds are deposits. The amount of retail (consumer) demand deposits declines when small investors look for higher returns and move their funds into fixed term deposits and other higher yielding investments such as mutual funds. In general, a significant portion of consumer demand deposits are core funding for Canadian banks. The banks also purchase wholesale funds such as corporate deposits and interbank deposits. Short-term liabilities other than deposits may decline as banks institute the liquidity requirements of Basel III.
How does the asset structure of CUs compare with the asset structure of banks?
The relative proportions of credit union assets are similar to banks with loans and mortgages representing the major portion of assets. However, nonmortgage loans of credit unions are predominantly consumer loans. On the liability side of the balance sheet, credit unions differ from banks in that they have less reliance on large term deposits, and have only a small amount of debt from any source. The primary sources of funds for credit unions are small term deposits and chequing and savings accounts
Who are the major regulators of banks in Canada?
The major regulator of Canadian DTIs is OSFI, who supervises, inspects and disciplines Canadian banks. CDIC provides deposit insurance and also rates the banks for the level of premiums they pay for deposit insurance.
What is a prudential regulator?
A prudential regulator is a government agency charged with setting regulations and ensuring an FIs’ compliance with the rules. Prudential regulators can be federal (e.g. OSFI) or provincial. Their focus is the safety and soundness of the financial system.
What is a market conduct regulator?
A market conduct regulator is a government agency responsible for overseeing an FI’s behavior towards consumers of financial services.
What is a self-regulating organization (SRO)?
An SRO is an industry group which sets and enforces regulations for its members.
