The federal government is not prepared to offer legislative help to credit union leaders advocating creation of a national co-operative bank, since credit unions themselves don’t know exactly how it would work or if it would be a good idea.
After almost two years of consultation, the finance department announced April 10 it is putting the idea of co-op bank legislation on ice, at least for now.
“Based on the submissions received, the government is of the view that there is not only a lack of broad consensus on which co-operative bank model would be preferable, but there is also a lack of agreement on whether a co-operative bank option is even desirable,” the department said.
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However, it left the door open.
“Notwithstanding this lack of consensus, the government remains committed to fostering the growth and competitiveness of the sector,” said the departmental announcement. “It will continue to work with the credit union movement to find alternative ways of meeting credit unions’ objectives and to respond to the changing needs of the industry on a timely basis.”
The idea has been that credit unions could form a federally regulated bank that would compete with chartered banks for business, giving it access to provision of other financial services as well.
Recently, the House of Commons finance committee urged the government to do what it could to remove impediments to the expansion of the credit union system as a viable competitor.
However, when the finance department asked for comments on how to do it, there was little industry common ground.
There were disagreements over whether a co-op bank could be subject to income taxes lower than chartered banks, whether traditional member equity rules should be changed to reflect shareholders’ investment, whether federal legislation was appropriate and whether a bank structure would really create a more service-friendly or cost-efficient financial institution.
“One of the main drivers behind the co-operative bank initiative is a desire to improve the cost structure of the credit union movement,” said the finance department. “Most submissions agree that the establishment of co-operative banks could potentially allow the institutions to expand their business by offering products and services across provincial boundaries.”
However, the sector has not figured out how best to do it.
“Issues such as fragmentation, duplication of resources, product and services development and expansion still appear relevant to credit unions’ current strategic assessment,” said the departmental response. “The submissions demonstrate a lack of consensus around the matter at the heart of this initiative, that is finding a way to translate the co-operative nature of credit unions into a banking context to address those longstanding issues.”
Some in the sector even suggested that rather than give up provincial legislative control of credit unions for federal rules, provinces could co-ordinate their rules to allow a cross-border lender and deposit-taker through interprovincial consensus.
