Charting a future for credit unions

Dierker, in his 53-year career advising and working on CU-related legislation, has watched the CU sector in Canada evolve from a network of mostly small, community-bound organizations into a sector increasingly dominated by a number of large, fully-integrated financial services entities. Total assets among all entities in the Central Credit Union of Canada system continues to increase, reaching $156.4 billion at the end of June 2013 – a 7.3% increase from the corresponding date in the previous year.

For Dierker’s contributions to the development of legislation that enabled that growth, he was the recipient of the Credit Union Central of Canada’s Hall of Fame Award, given to him in July at the 2013 World Credit Union Conference in Ottawa.

The Credit Union Central of Canada also lauded Dierker’s work on behalf of CUs internationally, including contributing to model CU legislation for Africa.

Although Dierker is semi-retired and no longer arrives at his McDougall Gauley office at 6 a.m., as he might have done in the past, he continues to work daily on CU-related issues – but with later starts to his day and half-day schedules.

Dierker’s current work involves helping to create technical models that would make it easier for CUs to make the leap from being provincially regulated financial services institutions to falling under federal jurisdiction. Recent changes to the Bank Act now make it possible for CUs to operate as federal organizations. (Although, so far, none have made the move to the national stage.) There are myriad operational issues that have to be addressed before such a step could be made.

“The [CU] system is looking at how it can move forward,” says Dierker, regarding why Canada has yet to see its first federal CU or co-operative bank. “[CUs] have to bring their members along a significant way, to move their credit union along from provincial legislative jurisdiction to federal. So, that is a big move, and it requires a buy-in by the members.”

The CU sector has been advocating for years for legislation that would give its members the option of operating across provincial boundaries. The sector finally got its wish in the 2010 federal budget. A legal framework to allow for the incorporation of CUs at the federal level was finalized in 2012. Under the new regime, such entities would be overseen by the Office of the Superintendent of Financial Institutions.

Most provincial CU systems now have two or three members that dominate their respective home provinces, the result of many years of mergers and consolidations across the Canadian CU sector outside Quebec.

In Alberta, for example, the two largest CUs, Edmonton-based Servus Credit Union Ltd. ($12.3 billion in assets) and First Calgary Financial Credit Union Ltd. ($2.6 billion in assets), together hold about 72% of the $20.6 billion of total assets held at all the CUs in the province. The next largest CU in Alberta, Brooks-based Chinook Credit Union Ltd., holds $827 million in assets, or roughly 4% of total CU assets in the province.

The same reasons that have spurred the consolidation trend – the need for both efficiencies of scale and to invest in new technology and talent to provide services to members – are driving the move for some CUs to consider the transformation into federal entities.

“Credit unions,” says Dierker, “provide funding to a variety of credit users – manufacturers, farmers, a plethora of people. [CUs] have members who like to travel to warmer climates in the winter. So, it becomes particularly important to look at where credit unions are, and what they can do.”

Although some CUs have found different solutions in order to work together across provincial boundaries, no CU has taken the step of going the federal route yet. Vancouver-based Coast Capital Savings Credit Union, the second-largest credit union in Canada outside Quebec, often is cited by CU sector observers as one of the more likely candidates to be the first to go federal.

Dierker strongly believes that it’s a step the sector must make: “I think that if the credit unions don’t use the federal model, or find another way to provide services to their members on a national and an international basis, they will be restricted in their development.”

Dierker joined his firm, the only one for which he has ever worked, in 1960 – the same year in which he graduated with a law degree from the University of Saskatchewan. Dierker fell into his life’s work while helping a senior partner who had worked on the incorporation of CUs.

“I had the privilege of working with the credit union system shortly after I graduated in a minor way,” Dierker says, “and progressively in a very significant, leading way on legal policies.”

CUs, which are owned by their members, appeal to Canadians who are looking to bank with institutions that are community-focused, have a strong commitment to social-development issues or provide an alternative to the ubiquitous big Canadian banks.

When Dierker began working with CUs, most were still small, micro-lending institutions that essentially were bound by a community, industry or cultural affiliation.

It wasn’t until the late 1960s and early 1970s that CUs were permitted to join the Canadian Payment Association and could provide chequing services to their members, who now could draw on their accounts in the same manner as bank customers do.

Over the years, Dierker contributed to the development of legislation that provided CUs with expanded powers while giving provincial and federal governments more oversight and regulatory control over the CU sector.

Dierker has worked on the Credit Union Act, the Cooperative Learning Association Act and the Commercial Cooperatives Act, among other legislation.

In the early 2000s, Dierker worked on amendments to the Bank Act that allowed CUs to own banking subsidiaries. This allows CUs to gather deposits more broadly and engage in certain businesses that previously only chartered banks were allowed to conduct.

While some CUs did indeed launch banking platforms, those operations never became the alternative banking channel that some in the CU sector had hoped.

“It’s not very efficient, from a capital or liquidity perspective,” Dierker says, “to run two large financial institutions within the same house.”

Dierker’s work for CUs, including his international efforts, has allowed him to travel and see how financial services co-operatives operate in other parts of the world, especially in developing nations. CUs in developing countries are instrumental in providing micro-credit, which boosts economic activity.

“Nothing was as meaningful to me as actually spending time in a credit union in Ghana with the manager,” says Dierker of a trip he made to Africa four years ago. “[That manager] had been brought to Canada for training, and now was back and able to discuss how services can be provided at that level.”

In fact, Dierker and his companion, Louise, remain enthusiastic and adventurous travellers, having visited Croatia earlier this year, Vietnam last year and locales such as Russia, Egypt and Madagascar in previous years.

Dierker has also travelled extensively in Central America, including a visit to a school-rebuilding project for which he and fellow members of his local chapter of Rotary Club International have been fundraising.

Dierker says that he has no intention of stepping aside from work and retiring for good.

“My health is excellent,” he says, “God has been very kind to me and, to the extent that the partners in the office feel that I contribute, I will continue to come in.”

© 2013 Investment Executive. All rights reserved.