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Should banks care? If you put up $300k on a $1m property (meaning a $700k loan), and it gets foreclosed, then the bank will recover all of their money. They sho

Should banks care? If you put up $300k on a $1m property (meaning a $700k loan), and it gets foreclosed, then the bank will recover all of their money. They shouldn't care, as they're in the clear risk wise.

selectodude 8y ago
Most of these loans are one step further, where the collateral on the loan isn't the house, it's enough cash in the bank to pay off the loan in its entirety. You can get a loan with no credit score if you have the assets.
- charlesdm 8y ago
  Well, no problem there? However -- I do fail to see the point on why you would put up cash as collateral for a loan. Just to retain liquidity? I get why you would want to put up securities to get a loan, that is a no brainer.
seanmcdirmid 8y ago
I wrote that the opposite way I intended it to be. I agree with what you said.
icelancer 8y ago
> Should banks care? If you put up $300k on a $1m property (meaning a $700k loan), and it gets foreclosed, then the bank will recover all of their money. They shouldn't care, as they're in the clear risk wise. From a micro perspective, yes. But a giant book of business relying on this model can easily expose unintended overleveraging in a sector that can hurt valuations regionally, such as China-US relations, more attractive offers elsewhere, etc. It isn't that simple.
tareqak 8y ago
Banks are usually subject to anti-money-laundering regulations. If they aren't doing due diligence knowing who their customers are, then they open themselves up to risk from the government.
- eigenvector 8y ago
  The problem is Canada has very weak AML rules to begin with, and even weaker capacity to investigate and prosecute violations of those rules successfully. Canada doesn't really have a specialized national police force - the RCMP's primary function is to be beat cops in rural areas of the country - and it has no equivalent of the SEC (the Supreme Court ruled the federal government doesn't have the authority to set one up). So the highly specialized capabilities needed to investigate trans-national white-collar crime just isn't there. It's hard to take an agency that primarily writes traffic tickets in Yellowknife and task it with tracing sophisticated international money laundering.
  - propter_hoc 8y ago
    This is not correct. AML/KYC regulations are just as strict in Canada as in the USA - they have to be, because our financial systems are so intertwined. Furthermore, it is not the job of the RCMP (or of any of the provincial securities regulators) to oversee these issues; there is a special entity called FINTRAC (http://www.fintrac-canafe.gc.ca/intro-eng.asp http://www.fintrac-canafe.gc.ca/intro-eng.asp) that does this, and believe me they are a deadly serious organization. (I used to be chief compliance officer and "ultimate designated person" of a registered dealer.)

selectodude 8y ago

Most of these loans are one step further, where the collateral on the loan isn't the house, it's enough cash in the bank to pay off the loan in its entirety. You can get a loan with no credit score if you have the assets.

charlesdm 8y ago
Well, no problem there? However -- I do fail to see the point on why you would put up cash as collateral for a loan. Just to retain liquidity? I get why you would want to put up securities to get a loan, that is a no brainer.

seanmcdirmid 8y ago

I wrote that the opposite way I intended it to be. I agree with what you said.

icelancer 8y ago

> Should banks care? If you put up $300k on a $1m property (meaning a $700k loan), and it gets foreclosed, then the bank will recover all of their money. They shouldn't care, as they're in the clear risk wise. From a micro perspective, yes. But a giant book of business relying on this model can easily expose unintended overleveraging in a sector that can hurt valuations regionally, such as China-US relations, more attractive offers elsewhere, etc. It isn't that simple.

tareqak 8y ago

Banks are usually subject to anti-money-laundering regulations. If they aren't doing due diligence knowing who their customers are, then they open themselves up to risk from the government.

eigenvector 8y ago
The problem is Canada has very weak AML rules to begin with, and even weaker capacity to investigate and prosecute violations of those rules successfully. Canada doesn't really have a specialized national police force - the RCMP's primary function is to be beat cops in rural areas of the country - and it has no equivalent of the SEC (the Supreme Court ruled the federal government doesn't have the authority to set one up). So the highly specialized capabilities needed to investigate trans-national white-collar crime just isn't there. It's hard to take an agency that primarily writes traffic tickets in Yellowknife and task it with tracing sophisticated international money laundering.
- propter_hoc 8y ago
  This is not correct. AML/KYC regulations are just as strict in Canada as in the USA - they have to be, because our financial systems are so intertwined. Furthermore, it is not the job of the RCMP (or of any of the provincial securities regulators) to oversee these issues; there is a special entity called FINTRAC (http://www.fintrac-canafe.gc.ca/intro-eng.asp http://www.fintrac-canafe.gc.ca/intro-eng.asp) that does this, and believe me they are a deadly serious organization. (I used to be chief compliance officer and "ultimate designated person" of a registered dealer.)