Report
394
Number
Apr 28 2016

Financial Soundness of Canadian Credit Unions

Looking into the future, if Canadian credit unions maintain the status quo, which is excellent performance relative to managing credit losses, they will pose the least amount of financial risk to the Canadian financial system.

Mike Higgins
Managing Partner
Mike Higgins & Associates
Report Number 394

Executive Summary

During and after the Great Recession, Canada’s banking sector earned a reputation for being among the most stable and conservatively run in the world, having managed through the financial crisis without any major disruptions. Federal politicians were careful to align the Canadian brand with a prudent, stable banking system, a rare commodity in the post-crisis world. In 2009, former prime minister Stephen Harper told the media at a G-20 event that “one could say we were over- regulated, but our solution is going to lead to us having the most free- enterprise financial sector in the world.” Former Bank of Canada governor Mark Carney (now governor of the Bank of England) put it more succinctly when he said, “Our system is better” (Tedesco and Turley-Ewart 2009).

Through it all, however, little attention was paid to an important part of the Canadian banking system, namely Canada’s credit unions, which serve more than five million Canadians, or slightly more than 19% of the population outside of the province of Québec. They, too, managed to skate through the crisis smartly while delivering industry- leading low-cost services to their members. Yet they received little or no recognition for this strong performance from policymakers.

If anything, credit union reticence about touting their strong record of prudent management and customer service, compounded by a relative dearth of publicly available data on the system, led to an information gap that aroused ill-founded suspicions about the stability of the system’s business model, especially in the context of deepening concerns about the potential for a serious housing market correction and a resulting made-in- Canada financial crisis.