System or movement?

Is the credit union industry a system or a movement? I think it depends on what side of the US-Canadian border you are on. I often contemplate this question, since I split my time between what I would call the Canadian credit union system and the U.S. credit union movement.

Here's a definition of "credit union" from Wikipedia.

A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at reasonable rates and providing other financial services to its members. Many credit unions exist to further community development or sustainable international development on a local level.
Worldwide, credit union systems vary significantly in terms of total system assets and average institution asset size, ranging from volunteer operations with a handful of members to institutions with several billion dollars in assets and hundreds of thousands of members. Credit unions are typically smaller than banks; for example, the average U.S. credit union has $93 million in assets, while the average U.S. bank has $1.53 billion, as of 2007.
The World Council of Credit Unions (WOCCU) defines credit unions as "not-for-profit cooperative institutions." In practice however, legal arrangements vary by jurisdiction. For example in Canada credit unions are regulated as for-profit institutions, and view their mandate as earning a reasonable profit to enhance services to members and ensure stable growth.
This difference in viewpoints reflects credit unions' unusual organizational structure, which attempts to solve the principal-agent problem by ensuring that the owners and the users of the institution are the same people. In any case, credit unions generally cannot accept donations and must be able to prosper in a competitive market economy.

It's hinted at in the article, but I can assure you from first-hand experience, that the vibe on either side of the border could not be more different.

The Canadian credit union system

I would argue that in Canada, the leaders of the credit union system view the industry as a utility. Much like plumbing or roads, the pipes are there to move money and to share resources and technology for the purposes of competing against the large national banks. There doesn't seen to be much politics or lobbying involved. Credit unions pay taxes and are not subject to the intense regulatory oversight that credit unions in the US face. For the most part, there are no fields of membership in Canada. Anybody can join any credit union in their province. Canadian credit unions cooperate on a business level, not an emotional level. It's very systematic.

The US credit union movement

In contrast, the credit unions in the U.S. are far more warm, fuzzy and political. For instance, there is simply nothing in Canada on the provincial or national level like the CUNA Government Affairs Conference—an annual gathering of the U.S. credit union movement where thousands of credit union leaders gather to visit Capitol Hill in a cooperative effort to propel the U.S. credit union movement forward.

Of course, U.S. credit unions are linked together for payments and technology, but the relationship between U.S. credit unions seems to be more linked by a common fight against banks, laws, regulations and political forces. There are so many banks in the U.S., whereas in Canada, there are less than a dozen. Because of this adversity and diversity within the marketplace, the credit union industry in the U.S. feels more like a movement—constantly fighting the good fight.

Another major difference that further emphasizes the system-movement difference is the size of credit unions. In Canada, there are only a handful of credit unions with less than $25 million in assets, whereas in the US, more than 50% of credit unions have less than $25 million in assets. In Canada, credit unions have more than 20% of the mortgage business, while in the U.S., credit unions have less than 2% of the mortgage business.

Does it matter?

As a generalization, I think that U.S. credit unions and credit union people are more in touch with the core cooperative principles and that Canadian credit unions and credit union people are perhaps a little more like bankers. And by that, I mean that, in most cases, decisions are made more by the book and less by the individual case.

I'd hazard a guess that the credit union members on either side of the border are interchangeable. Although, a Canadian is likely more able to tell you the difference between a bank and a credit union simply due to the fact that there are no community banks in Canada. This makes the difference more obvious when comparing trillion-dollar national banks to local credit unions.

Is one side of the credit union border better than the other? There are so many factors—from differences in the size of the two nations and the two economies and the very different competition that credit unions face in Canada and the U.S.—that the answer isn't black and white.

From a pure business standpoint, Canadian credit unions perform better. From the members' standpoint, I'd say that the answer is unclear.

What do you think? I'd love to hear from credit union people on both sides of the border. Is it just semantics—this system versus movement argument—or is it deeper than that?


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