On Tuesday I listened to the ‘The Great Canadian Credit Union Merger Debate‘, hosted online by the Canadian Centre for the Study of Co-operatives, University of Saskatchewan. The moderator, Dionne Pohler, said that they had over 300 registered online participants, which was great.
The event did not live up to the title. In my view, the discussion was relatively superficial and technocratic. Anyone curious will be able to access a recording of the one hour session online if they wish to.
First, the format was not that of a debate. All four panelists appeared to favour mergers with one offering a loosely defined ‘federation’ option. A ‘federation’ concept has been in the mix since the 1940’s. Traditionally, credit unions have been locally owned and federated. Early on, credit unions created ‘leagues’ and ‘centrals’ in each province. The dismantling of these federation structures is the darker side of the merger march.
Second, all four panelists were credit union senior managers; three from BC and one from Saskatchewan. I found it noteworthy that no credit union director was involved. This belies the deeper truth about who’s interests are defining the future. When I sat on the BC Central board in the 80’s the unwritten rule was that at least 50% of the seats were to be held by “volunteers” (i.e. credit union directors). Today, all 13 directors at the Canadian Credit Union Association are credit union managers.
The moderator observed that in 1966 there were @3200 credit unions in Canada, excluding Quebec. In 2025 there are less than 200.
The the focus of most of the discussion was the panelists’ experience with mergers and their explanations for ‘why’ credit unions have consolidated. In short, the reasons for mergers were (a) a credit union was in distress and was not viable as an independent operation, (b) the retirement of a general manager, (c) economies of scale with growing IT and other costs, and (d) ‘to better serve our members’. This last rationale is conveniently broad and includes being able to continue to serve a member who moves somewhere else in the province (/country).
The discussion frequently made mention of preserving the ‘connection to community’. But there was not any serious comment on the erosion of local co-operative ownership and governance.
Overall, most of the discussion could have been applicable to the acquisition of HSBC by the Royal Bank, the acquisition of the Canadian Western Bank by National Bank, or the many US credit union acquisitions of regional banks (see ‘Community First CU‘). None-the-less, there was a desire to present consolidation in the Canadian credit union system as different. It is not.
The discussion was largely about how to grow the ‘business’. Growing the ‘business’ includes the acquisition of weaker rivals.
But even within this narrow framing there was some irony. Celina Philpot of Conexus noted that her province’s credit union system market share had dropped to the ‘low thirties’ from once being over 40%. Some institutions may be ‘growing’, but the sector is not doing well. In BC the regulator has also made this observation. It would appear that as credit unions grow in size they do not have the appeal they once had.
No one on the panel wanted to pursue this issue any further.
FROM BONDS TO BRANDS
Mergers have created a different business model. Another issue that the panel chose to ignore.
In the past, credit unions were created by communities to serve those communities, often with a specific concern for subset within the community without access to credit or banking services. Thus we had Bella Coola Credit Union, Finning Employees’ Credit Union, and Edelweiss Credit Union (for German Canadians), for example. By law a credit union had to have a ‘bonds of association’. That existing community preceded the credit union, and the credit union was a ‘project’ of that community. The target ‘market’ was defined,.
In many ways the strength and resilience of these communities led to the credit union’s success. And on the flip side, the assimilation of immigrants over time, increased worker mobility, and the decline of organized religions undermined the related credit unions.
Small credit unions have struggled. Entrepreneurial managers re-engineered credit unions from being closed ‘bond’ based projects to open broad-based financial institutions. To be clear, this strategy offered managers more expansive growth opportunities.
This is where we find ourselves now, 40+ years in. Brands are competing for consumer preference, and each operator is most concerned with their ‘brand identity’. Old reasons for loyalty are jettisoned. Brand names rarely reference the real world (e.g. Conexus, Envision, Prospera, BEEM, Libro…).
The ads for Coast Capital are not unlike those for BMO, and Vancity’s are not unlike those for RBC. With the loss of local identities, ethnic affiliations, and work place solidarity, which were once fundamental, these new large credit unions have lost there ‘difference’. Members have become customers.
This re-engineering of the business has led to a serious erosion in member engagement and member participation as owners in these larger credit unions.
SHORT-TERM AND LONG-TERM
The panel discussion was distinctly short-term. Comments related to one or two merger projects and the challenges for the parties. Again, these are ‘managerial’ perspectives; how to manage resistance, staff integration, technology issues, related costs.
This panel had a ‘forest and trees’ problem. On an institutional level, mergers have to be under consideration. But no one asked where the trend line was leading – deforestation.
In 1985 the CEO of Vancity predicted that there would only be 6 credit unions in BC by the year 2000. He may have got the date wrong. He also did not foresee the federal government offering a new option to credit unions to be continued as ‘federal credit unions’ under the Bank Act.
This week the CEO of the Canadian Credit Union Association was seeking changes to Bank Act to make it easier for provincial credit unions to convert to ‘federal credit unions’. He attached his appeal to a budget statement calling for more competition in the financial services sector.
The CCUA agenda is driven by the very large credit unions. It can be foreseen that mergers do not only lead to a handful of provincial credit unions, it likely leads to a handful of federal credit unions. And, by extension, these federal credit unions will be acquired by large banks. Such is the logic of economies of scale and market share.
The counter arguments in favour of local control, independence, and democratic accountability were no where to be seen in this ‘debate’.
Your comments are spot on. Seems somewhat ludicrous that only management was part of the panel.
After being in the CU movement (now the appropriate term is ‘system’ isn’t it) in senior management and ancilliary organizations for decades and retiring 8 years ago, it seems there is a huge difference when on the other side of the counter, as a user of financial services. The products are plain vanilla. Nothing different. The phone numbers go to call centers far from the local branch you attend. The wait time to get an answer is incredible.
Recently a post dated cheque cleared my account well before the date it should have. I called the call center explaining their error. The individual had no understanding of the account agreement or even what a post dated cheque was. I politely gave him a simple lesson in Cheque Writing 101. How can a financial institution be ignorant of basic clearing rules?
Mergers have actually made the service worse hence what I believe is the decline in market position. Remember everyone is the managerial heiarchy enhances their salaries with increased direct reports. Seems merging becomes an incentive for this type of career strategy these days.
In the end if it walks like a bank, if it talks like a bank and it looks like a bank look closely – it could be a credit union.
Ross, wise words.
The theme that you identify is principal-agent theory. For credit unions this is member-executive. These parties have inherent conflict of interest. There have been many studies across geographies, industries and decades. History is littered with mergers & acquisitions that benefited the agent (executive) and not the principal (shareholder/member). Empire building; executive compensation; CEO redundancy instead of CEO retirement; probably all sorts of agent motivations.
If I recall, one historic challenge is that the principal-agent relationship may become impaired if boards become too close to CEO. Thinking pragmatically, there seem several tactics to enhance principal-agent independence.
– CU boards mandated to have a professional advisor that attends board sessions and reports to board (expert independent advice)
– Mandatory term limits for CU board members (forced reset of any relationships)
– Mandated Board Chair periods (as per external audit partners)
– Prohibition of CU Executive from engaging suppliers in which a decision maker is connected to a Board member (no perceived or actual conflicts of interest)
– Mandated board nomination process run by external party
While interested in the conversation then alas I determined no appetite to listen to one of the panelists. Sorry to hear that the conversation was one-sided. There are strong, perhaps compelling, reasons for credit union agents/executives to explore mergers. But the absence of a board member or a contrarian perspective seems unfortunate groupthink.