Apr 28 2016

Financial Soundness of Canadian Credit Unions

This study challenges an emerging narrative in Canada that credit unions might pose a risk to financial stability because they are not overseen by Canada’s federal regulator, which, rightly or wrongly, has been credited with helping keep large Canadian banks out of trouble.

The study does so by assembling simple, compelling data that get to the heart of any analysis of financial stability, namely exposure to credit risk. Using those data, the study looks at how credit risk has impacted four types of financial institutions: large Canadian banks, large Canadian credit unions (which are many times smaller than large Canadian banks), US banks, and US credit unions.

The study finds, among other things, that the 10 largest Canadian credit unions realized the lowest level of net loan charge-offs in each year for which data are available (back to 2005). Those same credit unions also had the largest amount of reserves as a multiple of actual losses as well as a strong track record of replenishing those reserves.

By presenting simple, compelling evidence that along one key metric, Canada’s credit unions have, in fact, been more prudent than their banking competitors, the research provides a powerful, easy-to-communicate counter to claims that credit unions are somehow risky.

Filene thanks its generous partners for making this important research possible

Report Number 394