Credit unions should be given the legislative leeway to become stronger financial competitors to banks by being able to create co-op banks, a federal task force on financial services recommended last week.
Credit union officials endorsed the idea proposed by the task force, headed by Saskatchewan lawyer Harold MacKay.
“The MacKay recommendations encourage the credit union system to build on our strong community ties, sustain our co-operative values and move forward,” Credit Union Central of Canada chair Bobby McVeigh said in a statement issued in Toronto.
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The report of the task force, appointed by finance minister Paul Martin, was eagerly awaited because of its recommendations on whether big banks should be allowed to merge.
It said they should, as long as the merger passes a strict public interest test.
“We have not put up a red stoplight nor have we issued a green light,” MacKay told a news conference Sept. 15. “What we have done is put up a flashing yellow light.”
The key will be fostering more competition, including allowing foreign banks to operate in Canada.
But credit union officials found the reading got better as they delved deeper into the report.
The task force said co-operative ownership is a good alternative that should be strengthened by allowing credit unions to offer more services.
“The credit unions and caisses populaires are effective competitors in some provinces but not all,” said the report. “We believe it is vitally important to encourage strong second-tier institutions.”
To “ensure that the co-operative sector has every opportunity to grow,” the task force offered recommendations:
- Federal legislation should be changed to allow national co-operative banks and other financial institutions to be chartered.
- Federal and provincial governments should “subject only to prudential constraints … remove legislative and other regulatory barriers to the success and growth of the co-operative financial services sector.”
- The Co-operative Credit Associations Act should be amended to remove existing restrictions on the business possibilities for credit union centrals.
- Credit union centrals should be able to provide wholesale financial services to other financial institutions without requiring that the customer first invest in a CUC-owned service corporation.
- Credit union centrals should be able to provide retail financial services directly to local credit union members.
The task force said these changes would allow the credit union system to create new financial companies or allow existing credit unions or centrals to evolve into banks or trust companies.
This autumn, credit union officials will make their case in support of the proposed changes when both Senate and House of Commons finance committees hold public hearings on the MacKay recommendations.
These recommendations and the parliamentary reactions are expected to form the basis for an overhaul during the next several years of Canada’s financial sector rules.
And this autumn or winter, Martin is expected to use the recommendations to form a conclusion on whether to allow proposed big bank mergers.
