Small is Beautiful?

The e-Newsletter from the CCUA came out this week with an unusual entry at the top.  This was the text:

100 Largest Credit Unions and Caisses Populaires
The latest listing of the largest 100 Canadian credit unions and caisses populaires is out. Some of the highlights

• As of Q2 2018, the largest 100 credit unions and caisses populaires, reached $216 billion in consolidated assets, accounting for 92.4 per cent of the total sector assets. 
• The largest ten credit unions have combined assets of $111.1 billion, maintaining their share of the sector’s assets at 47 per cent.
• Five largest credit unions have collective assets of $84.3 billion, accounting for about 36 per cent of all sector assets in the country (excluding Quebec). Learn more.

The reader is left to interpret these ‘facts’.  One thing is clear; there is a high  concentration of assets in a small number of credit unions.  It is important because the profile succinctly tells us that there are two different kinds of credit unions; (a) traditional ‘common bond’ credit unions and (b) monster-sized, geographically defined credit unions.  These numbers say it. But the reverse is this;  70% of credit unions by number account for only 7.6% of the financial assets (average @$80M per credit union). 

Supplementary to this snap shot, we should all know that the number of Canadian credit unions (excluding Quebec) has dropped by @100 in the last decade.  Mergers proceed and no new credit unions are formed.

However, the trends do not mean these monster entities are ‘successful’.  Success of a democratic institution is not measured by size alone.  It is measured but by how well the credit union serves its constituency and how robust the credit union’s member-owner control systems are.  This may be the key difference between the two types of credit unions.

In large credit unions , unfortunately, the growth imperative has overtaken other considerations.  Most large credit unions see themselves as independent enterprises – pursuing their ‘business’ interests – and they are only modestly a part of a larger movement – to build an alternative ‘co-operative commonwealth’.   Large credit unions have substantially adopted ‘market driven’ philosophies, and then use associated investor oriented metrics of share of wallet, ROE and operational efficiency.  

Traditional credit unions need to reconsider the case for their future, as locally based financial intermediaries that are cooperatively owned. 

Over the last few decades traditional credit unions have acquiesced to the the large, growth oriented operators.  It may no longer be possible to ‘tag along’ and defer to the large entities.  The second tier co-operatives, that were intended to support the traditional local institutions, are being ‘re-engineered’.  When you look at the numbers you can see how Central 1 and CCUA now see their respective futures as being tied to their biggest ‘customers’.  Volume pricing discounts will be pushed, or expensive per credit union charges, which disadvantage the traditional credit union. 

It has also been established that regulatory costs (/burden) are much higher for small credit unions. 

But costs is just one strategic issue.  The second concern is direct competition.  Small credit unions need to differentiate themselves from monster credit unions.  Small credit unions represent the basic ‘we’ll do it ourselves’ – local & co-operative vision.  It may be time to more loudly proclaim those differences.

And, lastly, there is the consequence of doing nothing.  The trend line is already clear – the current path leads to a small number of really big credit unions gobbling up the independent local operations.  A consolidation race.

It is time for traditional credit unions to re-develop their vision of the future and join together to pursue their collective interests.   At the same time, they have to re-invigorate the co-operative ownership model, to pursue the best interests of member-owners in British Columbia.