Credit unions slow to embrace federal charter
N.B. co-op to vote this month
The Fédération des caisses populaires acadiennes has become the first credit union to accept Ottawa’s invitation to move toward national expansion, a strategy that will bring the collection of 15 New Brunswick co-operatives under federal regulation.
A membership vote on the move to a federal charter, and a merger of co-operatives into a single entity, is to be held over three days from April 13 to April 15.
Ottawa established a new legal framework for co-operatives to expand their branches and services across the country in 2012, a move spearheaded by then-finance minister Jim Flaherty as part of long-held desire to stimulate competition with the country’s tight group of banks.
But credit unions have so far been reluctant to embrace a federal charter.
There are no current plans to expand outside the province, according to Mario Griffin, a spokesperson for the New Brunswick credit union based in Caraquet, N.B., who said the plan to shift from the provincial to the federal regime is being driven mostly by cost savings and business efficiency.
The federal charter application is being made at the same time members are being asked to approve a merger of 15 separate caisses within the collective co-operative financial services organization with a total of $3.35 billion in assets.
Ian Lee, an assistant professor at Carleton University’s Sprott School of Business, said he’s not surprised that the first credit union to take the leap into federal territory and oversight comes from a smaller province where membership growth and expansion are limited.
“It’s possible they realized they can’t continue to be the caisse populaire of little Podunk town of 2,000 if they want to continue to be the un-bank alternative,” he said. “To do that, they’ve got to scale up” as the banks have.
A feasibility analysis conducted by the credit union, and validated by an outside firm, suggested the proposed changes would help the co-operative bring down transaction and service fees, and help secure more favourable interest-rate pricing, said Mr. Griffin.
The benefit to members and the community from the merger and the federal regime is estimated to be about $23 million by 2017.
Other credit unions have been reluctant to embrace such benefits. Among the deterrents for some is understood to be a key difference in insurance coverage provided on deposits at provincially regulated credit unions and the country’s federally regulated banks. Federal deposit insurance is capped at $100,000, while in the provinces, which regulate credit unions, it is much higher — even unlimited in some cases.
Last year, some credit unions raised the concern that a change in insurance coverage upon the adoption of a federal charter could prompt their customers to withdraw deposits.
As a result, Ottawa agreed to a sixmonth transition period maintaining the provincial coverage.
If members of the co-operatives within the Fédération des caisses populaires acadiennes approve the federal charter application, deposit insurance coverage would switch to the federal deposit insurer and ultimately drop to the $100,000 cap guaranteed by Ottawa following the transition period, Mr. Griffin said.
Mr. Lee said it is clear from the New Brunswick credit union’s application that it has been determined “the benefits outweigh any costs.” For other financial service co-operatives, particularly those in larger, more populous provinces, that may never be the case, he said.