In terms of funding, the deposit insurance system can be set up to deal with the failure, but can't buy itself deals with financial crises. Otherwise, its funding will have to be huge. That's the role of the government, which will step in when the deposit insurer doesn't have the [financial] capability. In Canada, we can charge higher premiums, borrow from the private sector or the government, or provide guarantees. So we have a slew of funding mechanisms. But the final analysis for us is that we are part of the government and the CDIC's obligation is the government's obligation.
TT: How do you optimize the recovery of non-performing loans either in failed banks or in healthy banks?
Sabourin: The first thing is to take provisions against non-performing loans. The next question is when to sell them. If you're selling in a down market, you'll obviously lose a lot. If you wait until there's an up market, the question is what the cost will be of carrying them. So in Canada we used commercial criteria such as discount rates, future cash flows and net present values. Another thing we did was we managed the [resolution] system so that we won't flood the market to sell all the assets and depress the prices, which reduce our returns on assets. But in a commercial sense, you have to assess the cost of carrying them. Timing and position strategies are very important.
RSS