Self-Regulation Desjardins perspective Supervision: a responsibility to share

1. Self-RegulationDesjardins perspectiveSupervision: a responsibility to share 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. Surveillance components (3) • Prevention • Legal Framework (adequate) • Supervision • Internal control system • Inspection (mostly on-site control) • External audit • Protection • Security/Stabilization Fund vs Deposit Insurance

4. Supervision highlights at Desjardins • 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)

5. 1949-1979 Appearance of the first Security Funds

6. 1980-1985 Founding and start-up of an independent corporation 1982 • 496 out of 1 465 (1/3) caisses running deficits • Special, exceptional fees = 1/10 of 1% of caisse assets

7. 1986-1995Development of the corporation

8. 1996 to presentFund Strengthening and Consolidation

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

10. History (Recap) 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

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

12. It’s about…..Risks assessment and risks management • Prevention • Legal Framework (adequate) • Supervision • Internal control system • Inspection (mostly on-site control) • External audit • Protection • Security/Stabilization Fund vs Deposit Insurance

13. It’s about….. • Primary Coops member’s savings protection • Trust and credibility • Various stakeholders • Government authorities • Federations and Networks • Financial sustainability

14. Question Period

15. Fonds de sécurité DesjardinsDesjardins Security Fund 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. What Is the Desjardins Security Fund? • 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

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 vs Security Fund in Quebec Deposit Insurance Security Fund

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 vs Security Fund in Quebec Deposit Insurance Security Fund

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 Role Preventive Curative

25. History 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

26. 1949-1979 Appearance of the first Security Funds

27. 1980-1985 Founding and start-up of an independent corporation 1982 • 496 out of 1 465 (1/3) caisses running deficits • Special, exceptional fees = 1/10 of 1% of caisse assets

28. Grants paid to caisses

29. 1986-1995Development of the corporation

30. 1996-... Fund Strengthening and Consolidation

31. Capitalization • 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)

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

33. 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 Regulatory Framework

34. Guiding principles Mission of the Desjardins Security Fund Network Solidarity Equity Caisses capitalization Prevention Three-fold consideration for annual assessments Once 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 2010Assessment $38.8 million - $7.7 million = $31.1 million 2011 Assessment$50.2 million - $9.9 million = $40.3 million Assessment Policy

35. Investment Policy Guiding principles • Security • Liquidity • Yield Fund managers • Caisse centrale Desjardins Portfolio management structure • 100% in bonds, mainly in federal and provincial governments and financial institutions securities

36. Investment portfolio management structure

37. Intervention Policy Guiding principles • Mission of Desjardins Security Fund • Guarantee of member deposits • Caisse solvency • Network Solidarity • Prevention • Fund adequacy (assessment and investment policies) Role and responsibility of intervening parties • Caisse subsidized and/or not having adequate inexpensive capital • Fédération • Bureau de la Surveillance du Mouvement Desjardins

38. Administrative Structure Board of Directors General Manager Support Officer Outsourcing Fédération des caisses Desjardins du Québec Caisse centrale Desjardins • cash, accounting, legal and tax • human ressources, economic and financial • caisse monitoring, support and advice • fund management • advisory services • safekeeping • reports • financial statements

39. Question Period