Canada's Centrals Could Offer Up A Blueprint For U.S. Corporates
LAS VEGAS-U.S. credit unions wrestling with the future structure of their corporate CUs might want to look north of the border for some examples to consider.
Roughly one-in-three Canadians belong to one of Canada's 945 credit unions (or caisses populaires in Quebec). Those credit unions, in turn, are served by provincially incorporated and regulated corporates (and are voluntarily regulated by the federal government), along with the federally chartered Credit Union Central of Canada.
Richard Thomas, SVP of Central 1 Credit Union, Vancouver, B.C., told the 1 Credit Union Conference here that his (C) $10.9-billion corporate serves 177 CUs in British Columbia and Ontario, along with another 52 cooperatives and 72 corporations. The latter have no role in governance.
"Credit unions in British Columbia must maintain liquidity with a central, while credit unions in Ontario must maintain liquidity with Central 1," he explained. "Credit unions must be a member of Central subscribing for share capital, 24 basis points of assets."
The advantages of this structure, Thomas asserted, include the fact rates paid by Central 1 on liquidity deposits are not subject to competition, and liquidity deposit rates are determined by rates received by Central 1 on its liquid investments, not rates on other investment opportunities in the market.
From the credit union perspective, he said portfolio mix determines return, not what the highest bidder offers. Return is a product of rates on government and short-term securities.
"Liquidity deposits are not a high-yielding asset for credit unions in Canada," he said.
Central 1's investment policy starts with a low-risk appetite, said Thomas, as personified by the motto: liquidity first, return second. A federal regulatory "Large Exposure" rule prohibits Canadian centrals from having more than 25% of their capital invested with any one issuer.
"Because of our avoidance of risk, Centrals must go beyond the ratings of issuers and understand the market through independent analysis," he said. "We look to the assets behind the securitization. And, we have been a little lucky."
Thomas was joined in remarks to the meeting by Robert Fouch, president and CEO of Corporate Central CU, Muskego, Wis., who noted his corporate is carrying no Other Than Temporary Impairments (OTTI) on its books. Fouch, who expects the new corporate business model to look a lot like the old, said the 155 CUs that belong to Corporate Central have voluntarily reconstituted capital by contributing more than $47 million in initial Paid in Capital, with the amount continuing to build.