Canada’s financial sector is more than six big banks

The past 32 months have seen innovative policymaking from all levels of government as we have confronted the challenge of the pandemic. Inevitably, some of these policies have worked better than others. Broadly speaking, however, most should agree that federal income support programs for individuals and firms prevented what would otherwise have been a catastrophic decline in economic activity in 2020 and 2021. Now the fallout of overheated inflation is our most significant economic policy challenge. But the counterfactual—what would have happened had the federal government not stepped up to the degree it did—would have us in worse shape than we are in today. The government needed private-sector partnerships to effectively deliver its signature income support programs in the spring of 2020. Crucially, the financial sector has a vital role to play in directing federal funds to where federal policy wishes to aim them. There is a tendency in Ottawa to see the “financial sector” as consisting of six institutions. This is not a surprise. The large, federally regulated banks occupy the lion’s share of retail banking services in Canada. Financial sector concentration is not uniquely Canadian, but it is more pronounced here than in many other countries. This model has delivered reliable and well-regulated banking services to Canadians, at the not-insignificant cost of hampered competition and higher prices, as in many other sectors of our economy. Anyone who has paid a cell phone bill or flown on a plane in Canada will be familiar with this phenomenon. However, smaller (and largely provincially regulated) credit unions occupy a key part of our financial sector. Nationally, we represent about 20 per cent market share. Depending on the province, that share can approach nearly 50 per cent. Credit unions and caisses populaires serve nearly ten million Canadians with a full suite of personal and business banking services. Michael Hatch, vice president of government relations for the Canadian Credit Union Association, writes that the government's approach to Canada's finance sector can detrimentally exclude credit unions. Photograph courtesy of Michael Hatch In the early days of the pandemic, the Canadian Emergency Business Account (CEBA) program for small businesses was one of the pillars of the federal response. This was effectively free money for all small firms under a certain revenue threshold. Firms would receive $60,000 in immediate financing, and only $40,000 was repayable. What was more, the repayable principle was interest-free for a period of several years. No one will be surprised CEBA did not suffer from a lack of market demand in those chaotic early-COVID days. Free money on top of free money tends to get people moving quickly. When initially announced by then-finance minister Bill Morneau, the program was only to be delivered through the large banks. Putting oneself in the government’s shoes at the time, it is easy to understand why, in the heat of the crisis, they preferred to deal with six institutions and not 200. But this myopia represented a near-existential threat to the credit union sector. Imagine a small business hearing of the news of a $20,000 gift from Ottawa, heading to the credit union of which they are a member, only to learn the cash was only available at the big bank across the street. In addition to the immense stress COVID was already putting on the sector in 2020, the federal government was stepping in to effectively lure a vast share of our membership into the open arms of the big banks. Such an approach from the federal government was not going to help diversify our already-concentrated financial sector. Ultimately, we successfully delivered CEBA to more than 200 credit unions whose members were lining up at branches to apply for it. But the very fact that we had to fight demonstrates the troubling perception that persists in Ottawa of the “financial sector” consisting of the Big Six and no one else. Credit unions from all over Canada will be on the Hill at the end of this month to help push back against this troubling reality that persists within the federal government, and the ongoing competitive pressure this applies to us. The Big Six are not going anywhere and represent an undeniable economic force in this country. But federal politicians and regulators—and the credit union sector—have more work to do to establish the reality that our financial sector consists of so much more than these behemoths. Any federal policy enacted through our financial sector must bring all players—big and small—to the table in equal measure. Michael Hatch is the vice president of government relations for the Canadian Credit Union Association. The Hill Times