Somewhat serendipitously, forty-four years ago I attended the Annual General Meeting of a small credit union and left that meeting as a director. I had asked questions and I was pressed into service. Ever since I have been a believer in these co-op projects. It was two years later that I learned that my dad had been one of the incorporators of a credit union in his workplace in 1941. These smaller credit unions are a combination of the ideas of co-op pioneers, of Shumacher’s ‘Small is Beautiful‘, and of Nassim Taleb’s ‘Skin in the Game‘ – they are rooted in real world wisdom.
October 21st was International Credit Union Day, a day to celebrate these special ‘people-based banks’ around the world; there are over 86,000 credit unions in 118 countries serving more than 375 million people. Many of these credit unions are like those created by BC’s credit union movement of the 40’s, 50’s and 60’s. Those credit unions proved to be a powerful contributor to the economic success and the welfare of ordinary people in that period. Today, one third of British Columbians are credit union members. But the values of ‘mutual aid’ have faded in our age of consumerism. With consolidation in the sector, the future of these ‘classic credit unions’ is looking bleak in BC.
MEMBERSHIP BEYOND SHAREHOLDINGS
Classic credit unions have their membership defined by a non-financial affiliation; ethnicity, a common employer or industry, a well defined geographic community, or a religious faith. Examples in BC are Revelstoke Credit Union, Khalsa Credit Union, and Compensation Employees Credit Union. These organizations have a defined ‘bond of association’ that drew them to pool resources and provide themselves with services. They are typical co-operative projects.
In 1970 BC had over 200 such community-based operations, now there are 30, give or take, the smaller ones. As of this writing there are 38 credit unions in BC and with the smallest 30 comprising only @16% of the system wide assets (@$10B of $75B). The very large credit unions have another ‘bank-like’ business model built around growth; through mergers and savvy marketing.
Thus, there are two very different kinds of credit unions, but it is the classic credit unions, the community-based credit unions, that are dropping in numbers. This year, two credit unions have been absorbed by larger credit unions (Aldergrove and Union Bay), and four others have announced merger plans (CCEC, Mt Lehman, Spruce and VP).
Competitive, regulatory, and cultural factors are driving consolidation in the sector. The financial services landscape has been changed with online & mobile services, the rise of mortgage brokers and non-traditional lenders, and the exceptionally low-rate environment that squeezes financial margins. As well, regulatory obligations are growing; the BC Financial Service Authority will be issuing an additional 7 new ‘Guidelines’, and 3 new ‘Rules’, in the coming two years – adding compliance costs. And the associational life that once provided the ‘bonds’ for the creation of these financial cooperatives are no longer as vital as they once were; people move jobs and re-locate more frequently, immigrant communities disperse, and church attendance is in decline. For many, personal finance has become more ‘transactional’ and is less a matter of relationships within a community.
In BC, most classic credit unions are up-country, with only one, two or three branches. The credit unions in Creston, Ladysmith, and Bulkley Valley are good examples. True to the ideas that led to their creation, they continue to provide banking services and credit to many locals who, for one reason or another, may not meet the criteria used by large banks; these include both personal and business accounts. These local ‘bankers’ can be responsive and are also on top of the local information flows. They fill a niche that larger operators are not well designed to fill.
Yet, the trend in clear. As I see it, over the long-term, there are ebbs and flows between centralized and decentralized models for business. We are in a centralizing phase; it is not clear how many of these classic credit unions will still be here in 5 years. Another round of grass-roots organizing will arise sometime in the future to redistribute control, but it is not clear when that might be. The post-war period was distinct with its egalitarian ethic.
For now there is a need for strategies to secure a future for our existing community-based credit unions. I offer some thoughts.
Cost-competitiveness: There must be more cooperation among classic credit unions to trim operating costs. Initiatives along these lines have started, but must be taken further. Once, Central1 provided leadership on this front but that is no more. Creation of a new credit union service organization is likely needed, one that is focussed on the needs of classic credit unions. As well, Stabilization Central should be expected to provide advice and model policies.
Regulatory Burden: This burden has been identified as a major concern for most of the last decade. The growing demands of the regulator must be made more reasonable and proportional to the risks. Clear and understandable distinctions need to be made between the requirements of $20B credit unions and those of $200M credit unions, so the small can be viable. This likely means that directors will have to start talking to MLAs, and that classic credit unions will have to jointly develop legislative proposals that serve to ensure their survival. Proposals may well include a reduction of the deposit insurance coverage.
Member-Ownership: The pride and vitality of community ownership is what drove the provincial government to create enabling legislation decades ago and that may be what is needed now. Credit union directors need to go out to see if ‘banking local’ is valued and how it can be valued even more. The real power that community-based credit unions have lies in their members – particularly as voters. Credit unions are, fundamentally, political projects; they bring control of the business to the local level. Members who see they have something special can be both more loyal and be vocal with their MLAs.
Classic or community-based credit unions are stressed and GM’s are expressing serious concern about the future. In my view, there needs to be a will to take on the challenges. Directors, in particular, need to step up and champion these projects, because a locally controlled co-operative has intrinsic values – that ensure greater access to credit, that allow for exceptions to suit local needs, and that ensure that the big banks, and the less honourable, do not take advantage of co-workers and neighbours.