«Executive summary Introduction On September 13, 2011, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the ...»
On September 13, 2011, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and
the Federal Deposit Insurance Corporation (the “FDIC”) jointly adopted a final rule (Federal Reserve
Regulation QQ, Part 381 of the FDIC regulations, the “Title I Rule”) to implement resolution plan requirements
for certain non-bank financial companies and bank holding companies pursuant to Section 165(d) of Title I of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
Desjardins Group is an institutional network of financial services cooperative and is the Covered Company as a Foreign Banking Organization (“FBO”) with assets over $100 Billion USD. As of December 31, 2012, Desjardins Group has less than $100 billion in total non-bank assets in the U.S. and is eligible to file a Tailored Resolution Plan per 12 CFR 381.4(a)(3)(1).
In the unlikely event of material financial distress or failure, this Tailored Resolution Plan (the “Plan”) provides for the resolution of the material entities, core business lines and critical operations of Desjardins Group that are domiciled or conducted in whole or material part in the United States under applicable insolvency regimes.
These include receivership under the Federal Deposit Insurance Act, as amended (the “FDIA”), reorganization or liquidation.
This Plan outlines remedies and resolution procedures that can be executed in a reasonable period of time, without any extraordinary support from the U.S. or any other government, and in an organized manner in the event of material financial distress or failure in a way that substantially minimizes the risk that the failure of these entities, businesses or operations would have a serious adverse effect on financial stability in the U.S.
Material Entities Desjardins Group (the “Covered Company”) is the Covered Company as an FBO with assets over $100 Billion USD. Desjardins Group is the largest integrated cooperative financial group in Canada. It comprises a network of caisses, credit unions and business centers in Québec and Ontario, and some 20+ subsidiary companies in life and general insurance, securities brokerage, venture capital and asset management, many of which are active across Canada.
Caisse centrale Desjardins du Québec (“CCD Canada”) is a financial services cooperative within the Covered Company. CCD Canada has 4 Material Entities in the U.S.
Caisse centrale Desjardins U.S. Branch (“CCD US BR”) is a limited federal branch of a foreign bank, namely CCD Canada. It is owned 100% by CCD Canada and is used for its U.S. transactions. CCD US BR does not accept any deposits.
Desjardins FSB Holdings, Inc. (“FSB”) is a Small Bank Holding Company and wholly-owned subsidiary of CCD Canada. Its only assets are Desjardins Bank, National Association, and Desjardins Florida Loan Center Inc. In this Plan, FSB is the U.S. Covered Company as the U.S. banking entity and subsidiary of the FBO Covered Company Desjardins Group.
Desjardins Bank, National Association, (“DB N.A.”) is a National Association. It is a wholly-owned subsidiary of FSB. DB N.A. is an FDIC insured deposit taking institution engaged in the traditional banking practices of taking deposits, making loans, and processing foreign exchange transactions.
Desjardins Florida Loan Center, Inc. (“DFLC”) is a Non-Banking Entity as it does not hold a banking license. Its function is to purchase impaired loans and Other Real Estate Owned (“OREO”) from DB N.A.
Strategic Analysis The Covered Company is committed to supporting FSB as the U.S. Covered Company and DB N.A. as the only FDIC Insured entity of its U.S. entities.
Of all of the Covered Company’s U.S. operations, DB N.A. is the only deposit taking institution with approximately $184 million in deposits as of December 31, 2012 and its resolution would not pose a threat to the U.S. financial stability. DB N.A. will concentrate its efforts on acting as a direct extension of CCD Canada by capitalizing on their franchise value and leveraging their loyal customer base.
As of December 31, 2012, DB N.A. was at 29.4% of Total Capital Ratio vs. the 8% minimum requirement for capital adequacy purposes. The Tier 1 Capital Ratio was at 28.1% vs. the 4% minimum requirement for capital adequacy purposes. In addition, DB N.A.’s capital augmentation plan (“Capital Augmentation Plan”) stipulates that if the Tier 1 capital ratio shall become less than 8% at any time, DB N.A will request a capital augmentation from CCD Canada.
DB N.A had $35.8 million in cash and interest bearing deposits and $43.2 million in readily marketable securities at December 31, 2012.
FSB FSB is a bank holding company with its only assets being its investments in DB N.A. and DFLC. FSB conditions for resolution would be contingent on the resolution of both DB N.A. and DFLC.
DFLC DFLC is a purchaser of loans with no deposits. Its resolution would not pose a threat to the U.S. financial stability. Its assets consist of impaired loans and OREO A disruption or dissolution of DFLC would not impact DB N.A., other than removing the ability of disposing impaired assets in an expedient manner for DB N.A.
CCD US BR CCD US BR is a Limited Federal Branch with no deposits. A disruption or dissolution of CCD US BR would not impact DB N.A.
Key assumptions of the plan The key assumptions are based on the supervisory baseline scenario as specified in The Federal Reserve Board's rules implementing the stress testing requirements of the Dodd-Frank Wall Street Reform and
Consumer Protection Act:
The baseline scenario includes Real GDP increases of 2 3/4 percent per year, unemployment rates decreasing to 6 3/4 percent by the end of 2015. The CPI increases of 2 1/4 percent per year over the scenario horizon.
Equity prices increase about 5 1/2 percent per year with low volatility. Nominal house prices increase at 3 percent per year. Commercial real estate prices increase 5 percent in 2013 and then 3 percent per year in the remainder of the scenario.
Short-term Treasury rates remain near zero through 2013 before increasing about 20 basis points per quarter and reaching nearly 2 percent by year-end 2015. Long-term Treasury yields move up steadily over the scenario horizon to 4 percent by the end of 2015. Mortgage rates increase evenly at less than Treasury yields.
Economic activity increases slowly in the euro area in 2014 and 2015, advancing about 1 percent each year.
FSB FSB would only be liquidated if DB N.A. and DFLC were resolved and sold or liquidated. If both of these subsidiaries were to be liquidated.
The following table provides examples of situations that can trigger the need for resolution. Each of the following actions has a specific action assigned to remediate the situation and avoid the need for resolution.
Assessment of Capital
For a Capital Shortfall, DB N.A. would perform an Assessment of Capital. This would:
1. Determine DB N.A.’s current Capital ratios as compared to minimum regulatory requirements
2. Determine the amount of any Capital Shortfall DB N.A. has a Capital Augmentation Plan that stipulates that if its Tier 1 Capital Ratio becomes less than 8% at any time DB N.A will request a capital augmentation from CCD Canada.
Assessment of Liquidity
For a Liquidity Shortfall, DB N.A. would perform an Assessment of Liquidity. This would:
1. Determine Liquidity Shortfall
2. Determine the Liquidity sources that are available Assessment of Violation In the event of a Violation of Law noted in an audit report resulting from a regulatory change not addressed on a timely manner, or new or modified products and services, DB N.A. will follow its Regulatory Review Issue Remediation written procedure to ensure that exceptions noted are corrected and responded by the appropriate personnel.
Such procedure provides for the area managers to perform corrective actions to cure violation and/or process the improvement noted and documented on the audit report. The auditing firm will conduct a follow-up on the exceptions pending of correction or improvement during the next audit performed in the pertinent area. The outcome will be reported to the Compliance Committee and the Audit Committee and the status of pending items will be presented to the Board of Directors until corrective measures taken suffice to clear the exceptions.
In order to ensure adherence to written procedure related to violation of law, rule or regulation are being are being validated during an annual internal audit.
In the event of a Regulator-initiated Violation of Law inquiry, DB N.A. will follow its Regulatory Review Exceptions Remediation written procedure for correcting and curing exceptions cited by a Regulator. In addition, DB N.A. has a Regulatory Communication Procedure that specifies investigation procedures and
requires the Chief Compliance officer to manage the:
• Nature of the request • Event or condition leading to the request • Ability to satisfy the request or regulation in question • Responsible Party • Need for Counsel or third party support • Documentation • Communication Method 4 Assessment of BSA/AML In the event of a Money Laundering incident, the BSA/AML officer will execute procedures for identifying the incident, the amount, related parties, security issues, control issues, and reporting requirements. The BSA AML officer will report to Management, the Board, and file a Suspicious Activity Report with FINCEN.
Assessment of Fraud In the event of an internal fraud, the Compliance officer will execute whistle blower procedures for identifying the incident, the amount, related parties, security issues, control issues, and reporting requirements. The Compliance officer will report to Management, Operations, the Board, the OCC, and local legal Authorities.
Operations will be responsible for securing of affected area / function. An Assessment of Capital may be required depending on the size of the incident.
Funding, liquidity and capital needs of material entities FSB Holdings FSB is a small bank holding company of DB N.A. and DFLC. It has capital requirements of a small bank holding company. FSB has been funded by loans and direct capital injection from CCD Canada.
DB N.A. maintains capital levels above “well-capitalized” standards. As of December 31, 2012, DB N.A. is at 29.4% of Total Capital Ratio vs. the 8% minimum requirement for capital adequacy purposes. The Tier 1 Capital Ratio was at 28.1% vs. the 4% minimum requirement for capital adequacy purposes.
In addition, DB N.A.’s capital augmentation plan stipulates that if the Tier 1 capital ratio shall become less than 8% at any time DB N.A will request a capital augmentation from CCD Canada.
As of December 31, 2012, the balance sheet assets of $212 million were funded mainly by $183.9 million of deposits and $25 million of shareholder equity. Outside of the DB N.A.’s core deposit base, DB N.A. has $8.5 million in brokered deposits. There are no other short or long term liabilities outside of general accruals and trade accounts payable.
As of December 31, 2012, DB N.A. has access to a non-revocable line of credit from CCD Canada. In addition, DB N.A. has access to a collateralized line of credit from the FHLB
DB N.A. has the following resources available to ensure liquidity:
Readily marketable securities Loans which could be sold The ability to draw upon the committed revolving line of credit from CCD Canada.
The ability to draw upon the line of credit from FHLB.
DFLC DFLC has been funded by loans and direct capital injections from FSB. There is no additional capital or liquidity needs as there are no foreseeable needs to purchase large numbers of impaired loans from DB N.A.
DFLC is in process of resolving its remaining loans and OREO properties and is currently generating positive cash flow from its operations.
CCD US BR CCD US BR has been funded by loans and direct capital injection from CCD Canada.
DB N.A. has an established governance framework in place where clear roles and responsibilities are defined to ensure effective working processes and compliance with decision-making authorities. These processes would be used to prepare, verify, and sign off on recovery and resolution plans. This assures that the Executive committee and the Board of Directors take responsibility for the content of the deliverables, are comfortable that provided information is appropriate, and implementation issues are adequately addressed at all levels.
The Board of Directors (“BOD”) of DB N.A. is actively involved in the capital and liquidity management of DB N.A. The BOD is provided with financial information on a monthly basis and call reports and corresponding capital ratios on a quarterly basis.
DB N.A. has independent Risk and Compliance functions who are responsible for maintaining the Tailored Resolution Plan and for reporting financial condition to the BOD. The Compliance Committee is responsible for ensuring the resolution of identified findings, violations or recommendations.
DB N.A. has an independent Audit committee responsible for ensuring accurate and independent internal and external auditing programs including remediation of identified issues.
Preparation and approval of the plan
A joint core project team was assigned to compose the Tailored Resolution Plan. The team consists of Risk Management and Finance functions at Desjardins Group and DB N.A.
The Tailored Resolution Plan is subject to approvals from:
Board of directors of Fédération des caisses Desjardins du Québec is responsible for the approval of the Plan Risk Management Commission of Fédération des caisses Desjardins du Québec is responsible for the recommendation of the Plan to the Board of directors of Fédération des caisses Desjardins du Québec FSB Board of Directors is responsible for the recommendation of DB N.A. and DFLC components of the Plan CCD Canada Executive Committee reviews the Plan DB N.A.