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Give credit its due

The March VanCity Credit Union board elections could mark an historical watershed in the evolution of local banking

by Donna Clark
The Republic

I have always banked at credit unions because of that vague sense that they somehow give back to the community, and also because they are small (read: warmer and fuzzier) than the big banks. But until now I have taken little interest in the election of directors.

This year's VanCity board elections, however, bring to the fore big issues that go to the heart of what credit unions are all about.

The Action Slate contesting this election was organized in 1985 in response to a perception that the management suite at VanCity had gained control of the board at the expense of the credit union's membership. The Action Slate was concerned that the initial mission of VanCity was being taken over by directors whose mission was more aligned with those of traditional big banks.

The Action Slate established a set of directions that were not simply profit-driven but also were crafted to serve the community's interests. Now, for the first time since 1985, the Action Slate's majority on the board is threatened.

Between 1940 and 1980, Western Canadian communities made a concerted effort to provide consumers and small businesses basic financial services that were not being provided by banks and trust companies with head offices in central Canada. In 1966, then-BC Premier WAC Bennett created the Bank of BC to address this geographic economic disparity. After growing to employ 1,410 workers and accumulating assets worth $2.7 billion, in 1993, the bank was dissolved into the Hong Kong and Shanghai Bank, one of the 10 largest banks in the world. As a result, credit unions have become the only BC-based financial institutions, and BC credit unions have grown to control 20% of the market.

BC credit unions gave workers personal credit, while traditional banks were mostly interested in business loans that served the commercial and mercantile class. Inside credit unions, workers pooled their resources and lent each other money. Hence, we have (or have had) the Fisherman's Credit Union, the Police Credit Union, Teachers' Credit Union, Street Railway Workers Credit Union, and Safeway Worker's Credit Union, for example. An old joke was that if a fire-fighter did not pay back his loan, his fellow workers would hose him down.

Credit union members knew each other personally and were beholden to each other. In the 1940s, credit unions emerged which served cultural communities as well, including the German, French, South Asian and Korean communities.

Until the 1970s, mortgage loans were still largely central-Canadian based, and tightly controlled. During the housing boom that followed the post-war baby boom, credit unions grew fast because they began offering home mortgages. Specifically, VanCity Credit Union grew dramatically by offering mortgage loans to folks living east of Main Street.

But traditional banks have been on the move as well. Over the last 10 years, banks have taken over 85% of the securities market. Of the four traditional pillars of the financial services industries--banking, insurance, securities and trusts--banks now dominate three, and are moving in on the last one, insurance. We have, for example, The Scotia Bank, which is now Scotia Bank and Trust, and the Bank of Montreal, which has become the Bank of Montreal Nesbitt Burns.

The vast array of services offered by banks makes them a one-stop financial shop. Credit unions are struggling to keep up so they don't lose membership. Credit unions don't want to send their members to banks for services they can't provide.

Banks can economically provide all-in-one services because of their sheer size. Banks can be $240 billion corporations versus, for example, VanCity, which is an $8 billion credit union. Banks are also able to put in place very costly internet services and related information technology because costs can be deferred throughout the corporation.

VanCity, as a community credit union, must try to stay competitive with the banks, while at the same time trying to stay true to their social responsibility mandate. One recent problem VanCity has had to grapple with was how to provide VISA services. Should VanCity contract VISA services through one of the big banks? Or should VanCity develop a joint venture with La Caisse Populaire (Quebec Credit Unions)? They eventually chose the latter. The Quebec Credit Union system is the largest in Canada, followed by BC.

With VanCity's present size--it's the largest credit union in the country--it struggles to maintain its direct connection to the community. VanCity has 40 branches between Vancouver and Chilliwack, with more in Victoria and Squamish. VanCity and credit unions in general have historically managed to stay competitive by taking advantage of the strength they derive from their direct connection to their local communities.

The March board election is all about whether VanCity will continue this tradition, or seek instead the strength derived from becoming a big bank. Voter turnout by the membership is crucial.

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