Are Real Credit Unions FCU*d?

Real credit unions may have to reconsider their strategic options.

History was made with the FICOM approval of the Coast Capital Saving application to be ‘continued’ as a Federal Credit Union (FCU). This action has the potential to totally restructure the BC credit union system.  While the commission did say that would consider the impact of a Coast exit on other BC credit unions, the FICOM public statement did not speak to this issue.  I think the impact will be large.

There are two direct threats to the long-term viability of the majority of BC’s 42 independent credit unions, and several indirect threats arising from the decades of consolidation that has now breached provincial boundaries.  I will speculate.

Coast Capital Savings will pursue, or is likely to pursue, a mergers and acquisitions growth strategy that will come back to target BC.  Once the transfer to federal status is complete, and after making some adjustments to conform with the new regulatory regime, they will want to grow.  The exceptional effort expended on this project can only be founded upon substantial growth.  The new FCU regime, and recent changes to the Coast rules, will allow Coast to substantially enhance its capital base.  With both regulatory and capital limitations covered, mergers and acquisitions will give Coast a national presence and branch network.  This is the proven strategy that led Surrey, Richmond and Victoria credit unions to form Coast in the past.

While the initial round of merger targets will probably be in other provinces, Coast will, in due course, return to prospect in BC.  Much will depend on how strong the network of BC credit unions is at that time.  The commitments to  local ownership and democratic control have to be resolute.  Undoubtedly, as in all such courtships, managers will be offered good retirement packages, new career opportunities, and/or the prospect of good career progression.  As well, much will be made of several conveniences for members, enhanced product offerings, etc.  The erosion of local control will be glossed over.

Other large credit unions may now take this same FCU path and the BC system may be a lot smaller in a few years.  While Vancity has said that it is committed to remain in BC, others have said that they are weighing the FCU option. Coast is @20% of BC credit union assets.  It is conceivable that another @20% could take the plunge.  This leaves the remaining credit unions with declining business to ‘pool’ together, a smaller team of skilled managers to call upon, and a prospective set of ‘new’ competitors (as FCU’s chase business online and in non-traditional territory).

The pending BC government legislative review provides an opportunity to ensure BC based credit unions are not disadvantaged, so that the FCU option does not have too many advantages to those considering it.

At the same time, BC credit unions have to start thinking about how they define ‘success’.  For too long size has dominated as the key measure.  Large credit unions have been deferred to and their representatives have been granted leadership roles.  Often, the classic idea of a network of independent consumer owned credit unions has been derided and institutional self interests have taken over.

Add to the above the progressive disassembly of Central 1 and smaller credit unions will also not have the second tier support they need.  FCU’s cannot be members of Central 1.  Parts of Central 1 are being parceled out to the CCUA (government relations, marketing).  Others are under review (e.g. Payco).  And related ‘streamlining’ is proposed.  Over many years large CUs have sought more efficiencies at Central 1, ironically perhaps, only to potentially leave the Central and see those remaining to be burdened with the results.

This may be the time for real credit unions, and many of those are up-country, to join together and build a new, viable strategy.  A joint credit union strategy that is committed to a different kind of success.

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