Bank-credit union rivalry to go national  

Richard Blackwell, Globe and Mail
Published: March 6, 2010

Canada's banks face vigorous new competition when credit unions are allowed to operate on a national basis for the first time.

The federal budget revealed Thursday that Ottawa plans to introduce legislation to let credit unions, which now function only as provincial entities, incorporate and operate nationwide. This will prompt some credit unions that have become important players in their home regions to break out and claim market share across the country.

Being confined to individual provinces limits expansion possibilities for many credit unions. It also means they tend to lose members who move from one province to another, and they can't serve businesses that operate across provincial borders. They also can't reduce risks by operating in regions with different economic cycles.

Allowing credit unions to expand beyond provincial borders could make them a more powerful force in Canada's financial services sector, said Tracy Redies, chief executive officer of Surrey, B.C.-based Coast Capital Savings Credit Union, one of the credit unions that lobbied for the changes for several years. "This is history in the making," she said. The new legislation - which will come in the form of an amendment to the federal Bank Act - "is good for Canadian consumers because we will be able to offer a national alternative to the typical national bank institution," Ms. Redies said

Unlike banks, credit unions are co-operatives owned by their members. They have developed a reputation for innovation and for supporting individuals and communities that banks have neglected.

Coast is the second-largest credit union in Canada, with 50 branches, $13-billion in assets, and 425,000 members in southern B.C. If Coast were to launch an expansion beyond B.C.'s borders, its members would have to be consulted first, Ms. Redies said.

B.C. is home to the most powerful credit unions in English Canada, including the biggest, the 59-branch Vancouver City Savings Credit Union.

But it is not just the large credit unions that want to consider interprovincial expansion, Ms. Redies said. Some smaller ones in Ontario that serve specific ethnic groups are keen to set up shop outside their home province, and some credit unions in Atlantic Canada want to join regional networks. Others may consider interprovincial mergers.

In some cases, being provincially bound has hindered credit unions from getting at natural markets. Ottawa-based Alterna Savings, for example, serves many federal civil servants, and to reach clients on both sides of the Ontario-Quebec border it had to create a federally regulated bank subsidiary. Alterna CEO John Lahey said this was an unwieldy move.

Canadian Bankers Association president Nancy Hughes Anthony said CBA members welcome new competition, but don't want credit unions to end up with advantages the banks don't have.

Regulatory standards, capital requirements and tax policy should be the same for both, she said, and credit unions should not be able to carry into a national marketplace some advantages they have under provincial rules - such as the right to sell insurance in their branches. "It's all about operating on a level playing field," Ms. Hughes Anthony said.

Article source:  http://www.theglobeandmail.com/report-on-business/bank-credit-union-rivalry-to-go-national/article1492214/