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Canada's Credit Unions and Caisses Populaires
The Canadian Financial System February 2000

Table of Contents

Overview.

Introduction.

Organizational structure.

A brief history.

Present status.

Financial services innovation.

Regulation.

Assets and investments.

Recent developments.

Annex.

Overview

• Canada has a strong credit union movement, which consists of both credit unions and caisses populaires, a form of credit union located predominantly in Quebec.

• Canada has the world's highest per capita membership in the credit union movement, currently with some 10 million members or about 33 per cent of the population. In 1997, 26 per cent of Canadians used a credit union or caisse populaire as their primary financial institution.

• The credit union movement has traditionally focused on consumer financial services, and is an important source of innovation and product development.

• In 1998, the movement accounted for about 12 per cent of the domestic assets of Canada's deposit-taking financial institutions.

• Although it plays a role in most areas of Canada, the movement is primarily active in Quebec, Saskatchewan and British Columbia. In Quebec and Saskatchewan, it accounts for about 40 per cent of market share. In British Columbia, it accounts for about 20 per cent.

• Credit unions and caisses populaires are an important source of financing for small and medium-sized enterprises. The vast majority of credit unions' loans are under $1 million.

• This industry is almost exclusively regulated at the provincial level in Canada. However, six provincial credit union centrals have chosen to register under federal legislation, in addition to being regulated provincially.

• Although most credit unions and caisses populaires rely on retained earnings for capital, legislation in some provinces allows them to issue preferred shares and non-voting shares.

• Canada's credit unions and caisses populaires play an important international role by providing technical expertise to developing credit union movements around the world.

• This information sheet describes the regulatory environment that is currently applicable to Canada's credit unions and caisses populaires. On June 25, 1999, the federal government announced a major reform of the financial services sector, including proposed changes to the regulatory framework of credit unions and credit union centrals. The Government will be introducing legislation to implement this policy framework as soon as feasible. The Finance Minister's statement and the policy paper are available on the Department of Finance Web site.

Introduction

Canada's credit union movement occupies a unique economic and social niche in the country's financial services sector. Beginning with the creation of a single caisse populaire¹ in Quebec at the turn of the century, caisses populaires and credit unions have grown into a national co-operative movement that today is one of the most active in the world.

Canada's credit union movement currently consists of almost 2,200 individual credit unions and caisses populaires, all of which are co-operatives. In fact, the Canadian movement has the world's highest per capita membership.

Canada's credit unions and caisses populaires have traditionally focused on supplying financial services to their members where commercial lenders did not provide these services. The movement is most active in Quebec and western Canada, particularly Saskatchewan and British Columbia. Primarily because of their autonomous local roots, Canada's credit unions and caisses populaires do not generally have subsidiaries or branches in foreign countries.²

Although they comprise only a small part of Canada's financial services sector, credit unions and caisses populaires have maintained a steady market share in such key service areas as residential mortgage financing, consumer credit and deposit services (see Chart 1).

Organizational structure

Credit unions and caisses populaires are co-operative financial institutions owned and controlled by their members. Their ownership and corporate governance are based on co-operative principles, and their main purpose is to provide deposit and loan services to members. In most provinces, each customer is required to become a member of the credit union or caisse populaire. Each member has one vote, regardless of the size of deposit or share capital held.

A credit union or caisse populaire can be established by as few as 10 members, and the required minimum share capital contribution from each member may be as low as $5. Eligibility for membership may include being part of a "common bond of association," such as an industry, trade union, club or community, or being a resident of a defined geographic area. One of the most important aspects of the co-operative structure of credit unions and caisses populaires is the general requirement to concentrate on the provision of services to members, which results in the "recycling" of membership funds. In this way, credit unions and caisses populaires play an integral role in local development by reinvesting their deposits and profits in the community as personal and business loans, mortgages and dividends paid on members' shares.

A brief history

The first caisse populaire in North America was created in Lévis, Quebec, in December 1900 by Alphonse Desjardins. Its membership was organized along the boundaries of Roman Catholic parishes. Outside Quebec, the first financial co-operative was Ottawa's Civil Service Savings and Loan Society, established in 1908. Credit unions subsequently spread to the Prairie provinces, where they developed largely as a response to difficulties faced by farmers in obtaining financing during the Great Depression of the 1930s. Over the next three decades, credit unions, particularly in Ontario and British Columbia, enjoyed significant growth in response to strong demand for consumer financial services.

In recent years, there have been many amalgamations of credit unions (see Chart 2). This has led to an increase in the average size of credit unions, particularly in Ontario, British Columbia and the Prairies.

For example, in Ontario the number of credit unions has declined by almost 50 per cent in the last eight years, while the average assets held by a credit union have more than doubled.

Despite the decline in the number of credit unions and caisses populaires, employment in the movement continues to increase. In 1991, there were almost 46,000 employees. By 1998, that figure had grown to about 53,000.

Present status

Canada's credit union movement consists of 820 credit unions and 1,351 caisses populaires, with more than 3,700 locations and almost 3,200 automated banking machines (ABMs).³ In 1998, the movement had about $110 billion in assets, or about 12 per cent of the domestic assets of Canada's deposit-taking financial institutions.

However, the market share of the credit union movement varies considerably by region. It is highest in Quebec and Saskatchewan, at roughly 40 per cent of the assets of deposit-taking institutions. Credit unions are also strong in British Columbia, where market share is about 20 per cent.

Outside Quebec, a large proportion of credit unions are members of one of the nine provincial central credit unions. In turn, all nine provincial centrals belong to the Credit Union Central of Canada (CUCC), which is the national central.⁴ The provincial centrals contribute to the financial strength and competitiveness of Canada's credit unions by providing capital for loans and investment, providing management services and co-ordinating access to Canada's payment system. However, each individual credit union maintains a separate identity and may compete for eligible members with other credit unions.

In Quebec, each caisse is presently required to belong to one of eleven federations, which in turn belong to the province-wide confederation, the Confédération des caisses populaires et d'économie Desjardins du Québec (Desjardins). On December 4, 1999, the member caisses of ten federations approved a plan to amalgamate their federations and the confederation into a single new federation, to which each individual caisse would belong.⁵ This plan will take effect on July 1, 2001. Caisse populaire federations in Manitoba, New Brunswick and Ontario are also affiliated with Desjardins. Overall, the caisses populaires are somewhat more centralized than credit unions and operate under a single name. Because of this, Desjardins and its members are often regarded as a single financial institution.

Credit union and caisse populaire membership across Canada totals about 10 million or about 33 per cent of Canada's population (see Chart 3). Membership is highest in Quebec, where 65 per cent of the population belong to caisses populaires.

Another way to measure the strength of the movement is by the number of people who use a credit union or caisse populaire as their primary financial institution. In 1997, 26 per cent of Canadians used a credit union or caisse populaire as their primary financial institution. This figure, however, varies greatly by region (see Chart 4).

One advantage that credit unions and caisses populaires have over shareholder-owned institutions is the strength of attachment flowing from membership in an entity that has a common bond of association. Of those who conduct basic banking operations with a credit union or caisse populaire, 85 per cent also obtain personal loans from them. In comparison, only 60 per cent of those who conduct their basic banking with a bank use their branch for personal loans. Credit unions and caisses populaires also rank highly in surveys on consumer satisfaction.

Financial services innovation

Historically, Canada's credit unions and caisses populaires have been an important source of innovation and product development. They were among the first to install ABMs, and have been leaders in the provision of direct payroll deposit services in Ontario, debit cards in Saskatchewan, telephone banking in British Columbia and on-line banking in Quebec.

The Canadian industry has traditionally made important contributions to the international credit union movement. For example, it has provided technical expertise to developing credit union movements in Asia, Eastern Europe and republics of the former USSR. Desjardins has been particularly active: since 1970 it has had an organization dedicated exclusively to aiding nascent credit union movements. It currently conducts these activities through Développement international Desjardins.

Regulation

All credit unions and caisses populaires are provincially incorporated. Consequently, the industry is almost exclusively regulated at the provincial level. The federal government does, however, play a regulatory role in the credit union movement through some of the centrals. The national central, the CUCC, is chartered and regulated by the federal government, which can provide the CUCC with liquidity support through the Bank of Canada or the Canada Deposit Insurance Corporation (CDIC). In addition, the provincial centrals in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Nova Scotia have chosen to register under both federal and provincial legislation.

The legislative and regulatory framework for credit unions and caisses populaires generally parallels that of federal financial institutions, such as banks. In addition, the provinces provide deposit insurance for members of credit unions or caisses populaires. Alberta, Saskatchewan and Manitoba provide unlimited deposit insurance, while the other provinces provide coverage at least as generous as that provided by CDIC.⁶

Assets and investments

Based on assets, some of the participants in the Canadian credit union movement rank among the largest in the world. For example, Desjardins, on a consolidated basis, is the sixth largest Canadian financial institution, if all member caisses populaires and subsidiaries are included. Desjardins has more than $70 billion in assets and about $12 billion in assets under management. In British Columbia, 4 credit unions have assets of between $1 billion and about $5 billion: Vancouver City Savings Credit Union, Surrey Metro Savings Credit Union, Richmond Savings Credit Union and Pacific Coast Savings Credit Union (a list of the 10 largest credit unions in Canada appears in the annex).

Reflecting their mandate, Canadian credit unions and caisses populaires have traditionally concentrated on providing mortgage and consumer finance to their members (see Chart 5). They are also important in the financing of small and medium-sized enterprises. In fact, the vast majority of credit unions' loans are under $1 million.

The average return on equity for banks and trusts from 1991 to 1998 was 8.8 per cent, slightly higher than the 8.5 per cent for credit unions and caisses populaires. However, the performance of credit unions and caisses populaires has been much less volatile than that of banks and trusts (see Chart 6).

In general, the movement is well capitalized. However, because it is made up of so many institutions there are considerable differences in capitalization among these institutions. Over the past decade, credit unions and caisses populaires have increasingly financed their growth out of retained earnings rather than share capital (see Chart 7). In some cases, this has led to imbalances within the credit union movement. While some institutions find it difficult to finance their rapid growth out of retained earnings, others find themselves with a surplus of capital. In some provinces, credit unions and caisses populaires can issue preferred shares and non-voting shares.

Since credit unions and caisses populaires are member based, they tend to be more familiar with their clients than other financial institutions. Their assets are also more closely tied to the local economy than are those of other financial institutions. This, however, can make them more susceptible to regional or sectoral economic downturns. For example, the recession in the early 1980s adversely affected a large number of credit unions in western Canada, resulting in many amalgamations as part of government-led restructurings.

Recent developments

Today, the credit union movement is keeping pace with product and service developments in Canada's financial services sector. For example, the movement is becoming more active in the sale and distribution of mutual funds. In some provinces, such as British Columbia and Quebec, it is involved in the sale of insurance. In Quebec, where provincially chartered financial institutions are allowed to sell insurance within branches, Desjardins is especially active in the insurance market. In British Columbia, Vancouver City Savings Credit Union owns a bank. And credit unions generally have access to trust services through Co-operative Trust Company of Canada, an affiliated company.

Technological changes continue to push the credit union movement to re-evaluate the most appropriate method of delivering services to its members. Many credit unions and caisses populaires are now offering services over the Internet. Desjardins is presently in the midst of a major five-year restructuring plan that will significantly reduce the number of caisses populaires through mergers. Some British Columbia credit unions are loosening their "common bond of association" restrictions to allow them to provide services to a wider clientele.

On June 25, 1999, the federal government announced a major reform of the financial services sector. Among the initiatives affecting credit unions was a proposal to restructure the current three-tier system of local credit unions, provincial centrals and the national central into a two-tier system. Another proposal centred on the possible creation of a national co-operative bank. The Government will work closely with stakeholders on developing these initiatives, and will be introducing legislation as soon as feasible.

Annex

Ten largest credit unions in Canada by assets, 1998

¹ Credit unions with a significant French-speaking membership are frequently organized as caisses populaires. Canada's caisses populaires are located predominantly in Quebec, but they also play an important role in Ontario, Manitoba and New Brunswick.

² Except for Quebec's caisses populaires, which have an affiliation with a small savings bank in Florida, and St. Stanislaus-St. Casimir's Polish Parishes Credit Union Limited, which owns a bank in Poland.

³ In comparison, there are 53 chartered banks with 8,247 branches and 15,841 ABMs.

⁴ The CUCC's membership includes the nine provincial centrals and the Alliance des caisses populaires de l'Ontario limitée, a federation of some Ontario caisses populaires.

⁵ The member caisses of one federation, the Fédération des caisses d'économie Desjardins du Québec, did not approve the participation of their federation in the proposed amalgamation.

⁶ As a general rule, CDIC protects eligible deposits up to a maximum of $60,000 per person at each member institution.