Columns

Reluctant competitors

Credit union managers are wary of any move that would compromise their autonomy

Deirdre McMurdy November 2 1998
Columns

Reluctant competitors

Credit union managers are wary of any move that would compromise their autonomy

Deirdre McMurdy November 2 1998

Reluctant competitors

Columns

Deirdre McMurdy

Credit union managers are wary of any move that would compromise their autonomy

Harold MacKay has put Bill Knight in a tough spot. Knight is the head of the Credit Union Central of Canada, the umbrella organization for the country’s 835 credit unions. MacKay, as chairman of the federal task force on the future of Canada’s financial services sector, has flagged the credit union movement as the likeliest source of homegrown competition for the chartered banks. The MacKay Report recommends that credit unions be given greater powers, including the right to form a national, federally chartered bank.

But while most financial organizations might jump at the opportunity to join those lucrative ranks, the credit unions are deeply divided about how to respond to the changes proposed for them. On one hand, credit unions are acutely aware that pending bank mergers and other market shifts require them to restructure in order to survive. But most credit union managers are wary of any move that would compromise their autonomy, along with their traditional emphasis on community and ethnic niche markets.

As the annual meeting of the association of credit union managers made clear last week in Toronto, Knight’s challenge is twofold: he must develop and win support for a strategy that will allow credit unions to better compete in evolving financial markets. And he must do it quickly.

Both tasks are complicated by the movement’s unwieldy structure and local focus. In fact, credit unions in Quebec, the province where the movement is largest and most influential, function separately and are not involved in the national organization. The organization is also fraught with internal rivalries and cumbersome decision-making. There is extensive and costly duplication of back office administration, with more than 20 different computer systems in use by different credit unions. The movement offers no branded products to consumers. And credit unions are regulated provincially, which means that accounts cannot be transferred from one province to another.

To address at least some of these problems, Knight is proposing a National Service

Entity that would consolidate the nine provincial credit union bodies outside Quebec. The NSE would combine back office functions, saving about $15 million annually. It would reduce the cost of raising capital and, with a combined capital base, improve credit ratings. A more cohesive structure would also allow development of new and branded products with greater consumer appeal and recognition.

Knight’s model takes the fiercely guarded independence of individual credit unions into account: they would remain governed by their existing boards of governors. But at the same time, there is heated internal debate over a rival plan. A 12-member group, headed by Bob Quart, CEO of Vancouver City Savings Credit, advocates transforming the credit union structure into a national, memberowned bank.

This proposal is controversial for several reasons. One is the symbolism involved: banks have been the common enemy of credit unions since their inception. The movement was started early in the century expressly to offer an alternative to workers who were ignored or rejected by established banks. And not everyone likes the notion of individual credit unions becoming directly managed “co-operative divisions” of the bank.

A further source of tension is the fact that the proposal is spearheaded by a Vancouver credit union. Because British Columbia has always had a disproportionately strong and wealthy membership base, it is watched carefully by others for signs of excessive ambition. At last week’s annual meeting of credit union managers, several shots were taken at the Vancouver group for presuming to take the lead on the bank proposal.

Those divisions must be smoothed over before further integration is possible. There is an obvious irony to the situation. While the banks want desperately to merge and await only government approval to do so, the credit unions appear to have the blessing of government but cannot decide what to do about it. With the ground about to shift beneath them, it is not clear if the prized independence of the credit union movement’s members is a help—or a hindrance.