Backgrounder: Temporary Transitional Support Under the Federal Credit Union Framework
Credit unions represent an important tier of the financial sector in Canada, with almost one third of Canadians belonging to either a credit union or caisse populaire. Significant consolidation has recently occurred in the credit union sector, with the 10 largest credit unions now representing 45 per cent of credit union system assets.1
Currently, credit unions are regulated exclusively by the provinces. Nonetheless, some credit unions have expressed an interest in growing beyond their provincial borders. Expansion as a federally regulated financial institution would allow consumers to benefit from greater choice and more innovative products.
To enable credit unions to incorporate and continue federally, on December 19, 2012, the Government of Canada implemented a legislative framework. The legislative model is based on the framework applicable to banks, weaving in unique cooperative elements for federal credit unions. Legislative amendments reflect internationally recognized cooperative principles for credit unions, including: each member has one vote; services are primarily for members; and membership is open while bonds of association2 are permitted.
A number of credit unions have expressed interest in the federal framework. However, they also identified challenges in moving from provincial regulation to federal standards, stemming from differences in federal and provincial deposit insurance coverage, as well as insurance networking rules.
Deposit insurance coverage varies across Canada. While Canada Deposit Insurance Corporation limits insurance coverage to $100,000 per eligible account and/or product held at member institutions, many provinces offer greater or in some cases unlimited guarantees on deposits. Additionally, while federally regulated deposit taking institutions are prohibited from selling insurance in their branches, credit unions in some provinces can share premises with insurance affiliates.
To help address these challenges, the Government of Canada will provide temporary transitional support to eligible provincial credit unions that have provincial acceptance to move to federal regulation by offering extended deposit insurance and a short-term funding facility, as well as an extended transition period to comply with federal insurance networking rules. The support would enable credit unions that choose federal regulation to continue to operate seamlessly and to benefit from oversight by the Office of the Superintendent of Financial Institutions.
Over time, this flexibility will help eligible credit unions adjust to the same framework as other federally regulated deposit taking financial institutions.
Canadians benefit from one of the best regulated financial sectors in the world. A framework that enables banks and federal credit unions to compete effectively and be resilient in a rapidly evolving marketplace, taking into account the rights and interests of depositors, members and other consumers of banking services, contributes to stability and public confidence in the Canadian financial system.
1 Credit union system assets do not include the Quebec cooperative system.
2 E.g. based on a common workplace.