nonbank financial institutions
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Copyright 2011
Pearson Canada Inc.
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Chapter 12
Nonbank Financial Institutions
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Pearson Canada Inc.
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Life Insurance Companies
•
Regulated by the OSFI and Assuris (formerly
CompCorp)
•
Demutualization
•
Hold illiquid long-term assets
•
Individual life insurance
–
Permanent life (endowment insurance), temporary
life
•
Group life insurance
•
Annunities
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Pearson Canada Inc.
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Property and Casualty Insurance
•
Regulated by OSFI and PACICC
•
Property Insurance covers loss of real property
•
Casualty insurance protects against legal
liability exposure
•
Reinsurance
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Credit Insurance
•
Credit Default Swaps (CDS)
–
Seller is required to make a payment to the holder
of the CDS if there is a credit event (i.e.
bankruptcy) of the firm’s credit rating
•
Monoline Insurance
–
Supply credit insurance directly
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Pearson Canada Inc.
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Relative Shares of OFSI-Regulated Financial
Intermediary Assets
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Pearson Canada Inc.
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The New Legislative Framework
•
Government passed legislation reforming
regulatory framework.
•
Demutualized life and health insurance
companies
•
Allowed access to Canadian payments and
clearance systems
•
Does not allow mergers involving large banks
and large demutualized life and health
insurance companies.
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Pearson Canada Inc.
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Insurance Management
1. Screening
2. Risk-based premiums
3. Restrictive provisions
4. Prevention of fraud
5. Cancellation of insurance
6. Deductibles
7. Coinsurance
8. Limits on amounts of insurance
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Pension Funds
•
Rapid growth: encouraged by tax policy
•
Bigger role in stock market
•
Problem of underfunding
•
Private plans (RPPs)
•
Public plans
–
A. Social Security
–
B. CPP and QPP
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Finance Companies
•
Minimal regulation by provinces
•
Rapid growth
•
Three types:
–
A. Sales finance companies
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B. Consumer finance companies
–
C. Business finance companies
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Securities Market Operations
•
Investment Banking
–
Seasoned issues
–
Underwriters
•
Securities Brokers and Dealers
–
Brokerage firms
•
Organized Exchanges
–
specialist
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Mutual Funds
•
Sovereign wealth funds
•
Institutional Investors
•
Open-end vs. closed-end
•
Load vs no-load
•
Money Market Mutual Funds
•
Hedge Funds
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Private Equity and Venture Capital Funds
•
Private Equity Fund
•
Venture Capital Funds
–
Capital buyout funds
–
Leveraged buyout (LBO)
–
Carried interest
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Pearson Canada Inc.
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Government Financial Intermediation
•
Crown Finance Companies
–
CMHC provides funds to the mortgage market by
borrowing from the federal government and the
private sector
•
Government Sponsored Enterprises in the
United States (GSE)
–
GNMA (“Ginnie Mae”)
–
FNMA (“Fannie Mae”)
–
FHLMC (“Freddie Mac”)
