Consolidation threatens B.C.’s credit unions

Bigger isn’t always better, Ross Gentleman writes.

On International Credit Union Day — observed today — it’s worth remembering a few things about the proud history of B.C.’s credit union movement and giving some thought to current challenges posed by merger pressures. For generations, these community enterprises have given us a real alternative to the big banks, but they are under threat.

Simply put, credit unions are the pooled savings of a group of average people. These pooled assets are used to provide loans to other credit union member-owners in the form of personal and business loans, and mortgages. In some places, insurance and investment services have been added. Historically, credit union members had often been excluded from commercial banks, particularly during periods of economic downturn and in areas under-served by the big banks.

Today in B.C., credit unions serve more than 1.9 million members (about 42 per cent of the provincial population), hold over $72 billion in assets and employ more than 9,000 British Columbians. This is the second-largest provincial credit union system in Canada, after Quebec’s Desjardins system.

While this sounds like a good news story, there is a quiet crisis brewing as the number of small credit unions declines. In 1991, there were 101 independent credit unions in B.C. Today, there are 42. Consolidation has resulted in 10 large credit unions with 86 per cent of the assets, and these are largely in urban centres. Thirty-two small credit unions, the more traditional ones, are being squeezed. No new credit union has received a charter since 1988.

While modern credit union branches can easily be mistaken for the banks they were intended to supplant, credit unions are more than the sum of their financial services.

Credit unions represent a distinct business model. As consumer co-operatives, depositor-owners can ensure their interests are well served through democratic controls. But this control mechanism breaks down as the number of members grows larger.

As of this writing, seven credit unions in the Kootenays and Columbia River Valley have announced discussions on a potential merger. If this occurs, it will not only be the largest merger of individual credit unions in B.C., it will also represent a significant step away from locally controlled financial services.

The loss of locally controlled credit unions may have special meaning in upcountry communities where credit unions have been responsive to local needs through good times and bad. Local credit unions do not turn off the tap during a recession the way national banks do. Grand Forks Credit Union stepped up in the 1970s to help turn a local mill into a co-op, for example. And many credit unions are the only bank in several B.C. communities, where national players have withdrawn.

The leadership of many larger credit unions have adopted strategies of growth, scale and efficiencies. Their market-driven outlook is different from that of traditional operations, which are more member-driven, or community-driven. The latter include operations serving geographic areas like Summerland, affinity groups like the Korean-Canadian community, or employee groups, as in the case of WorkSafeBC.

But consolidation pressures have now been ramped up. In the last few years, large credit unions have succeeded in having Canada’s Bank Act amended to allow big credit unions to move from provincial regulation and become federal credit unions. Coast Capital Savings has plans to do just that. Such hybrid credit unions will no longer have local ownership, or the same commitment to one community. They will no longer be part of the B.C. co-management system and deposit insurance scheme. And they will likely merge with credit unions outside B.C., or add branches there.

So the modern challenge of locally controlled credit unions has three faces: The historically successful B.C. system is not nurturing new entrants, is fostering consolidation and is losing large credit unions that opt out to become co-operatively owned banks. The declining number of local credit unions shrinks their collective asset base and makes the system more vulnerable to various risks, resulting in yet more pressure to merge.

This is the challenge to credit union members, credit union leaders and to the B.C. government as we pause for International Credit Union Day. How can we secure the future for true locally owned credit unions to ensure British Columbians are well served?