Good afternoon. My name is Rob Martin, and I'm a senior policy adviser at the Canadian Credit Union Association. Looking around the table, I think that some of you know who we are.
The Canadian Credit Union Association is the national trade association for credit unions outside of Quebec. Desjardins is our co-operative partner, but it's mostly within Quebec. CCUA represents 293 credit unions including the first federal credit union, which is called the UNI Financial Cooperation, which came out of New Brunswick.
Credit unions are banking institutions owned by their members and their customers. This means we're 100% Canadian-owned competitors to the big banks. Currently 5.6 million Canadians trust the local credit union for their day-to-day banking needs. Collectively we employ more than 27,000 people and manage over $196 billion in assets. This makes us bigger collectively than National Bank.
In terms of market share, credit unions have about 6.3% of the assets held by deposit-taking institutions in Canada, but we have large market shares in two key segments, small business and agriculture, with 11.5% of the market and 10.4% of the market respectively. As co-operatives, credit unions are different. We are not motivated by profit maximization but rather focus on the benefit of our members and our community. This translates into our having preferential rates, providing patronage dividends for credit union members, and keeping branches and service outlets in underserved areas.
In fact, credit unions are the only banking service provider in 380 communities across Canada. In other instances we see credit unions like Vancity providing alternatives to payday loans, such as Vancity's fair and fast loan or First Calgary Financial's cash crunch loan, to help individuals get out of a payday loan debt. Servus Credit Union in northern Alberta is working on a similar offering as is the Ontario system.
While credit unions are users of the mail and parcel services offered by Canada Post, the reason we are presenting today is to address the debate concerning Canada Post's potential entry into the financial services industry. We know that CUPW is promoting the entry of Canada Post into banking as a means of increasing revenues, offsetting losses, and maintaining jobs. Other advocates emphasize delivering financial services to under-banked rural remote regions and indigenous communities. Of course, given our history and our orientation, concerns about the financially excluded have considerable resonance with credit unions, and we are always open to dialogue with the government on these issues. That being said, CCUA is not supportive of establishing a stand-alone postal bank in Canada. Our reasoning behind this position aligns well with the report of the task force for the Canada Post review.
Specifically we believe that the business case for such an enterprise is weak, and the entry of Canada Post into the banking field could result in negative unintended consequences in the market. Regarding our first point, given the rapidly evolving financial services sector, we are certain a postal bank would face a challenging time establishing itself in a crowded and well-served market. On the supply side, the market is served by nearly 80 chartered banks—ATB in Alberta, Desjardins, and 293 credit unions across Canada. These institutions offer remote cheque capture, eliminating the need to access an ATM or branch, and most allow customers or members to conduct all their transactions—everything from applying for a loan to transferring funds—from the convenience of their home. Not surprisingly then, credit unions are seeing a steady decline in traffic in their branches.
On top of this, Canadians also have offerings from the Business Development Bank of Canada, Farm Credit Canada, and Export Development Canada. On the demand side, as my colleague here mentioned, World Bank research suggests that unmet demand for financial services is limited. The World Bank research indicates that 99% of adult Canadians age 15 or over have some form of bank account. Other research from the Canadian Centre for Policy Alternatives indicates that only 3% of all Canadian adults have no bank account at all. Admittedly this number rises to 8% for low-income Canadians. This is a fact that merits attention from policy-makers. CCUA is open to a dialogue with government on how these issues might be addressed. We do not, however, believe that this situation justifies the establishment of a stand-alone postal bank in Canada.
Now to our second point. A concerted push to establish a postal bank in Canada could produce unintended consequences and crowding-out effects in the financial services market. Banks and credit unions could find themselves in competition with a postal bank that benefits from difficult-to-match state-granted privileges and advantages. One of these advantages would be a lower cost of funds. C.D. Howe Institute research has noted that crown financial institutions enjoy a comparatively low cost of capital because they can issue debt that is backed by the federal government and can borrow directly from the government itself at preferential rates.
The institute estimated that crown borrowing costs are 30 to 50 basis points lower than those available to private sector competitors like credit unions. This can rise to 300 basis points in times of stress. This funding advantage can tilt the playing field in favour of the crown by granting it pricing advantages. If a postal bank were to lean on these advantages, it might produce perverse outcomes with banks and credit unions possibly pulling back from markets where margins are thin.
Also, a postal bank would enjoy a pre-established outlet network. A postal bank could also enjoy an advantage over competitors as a result of its outlet network, which I think is approximately 6,400 locations across Canada. This outlet network was developed with Government of Canada investment over many decades in the service of its mail mandate. From the get-go, a postal bank would face fewer costs associated with establishing and administering a financial network as do other financial institutions.
The scope of that network will be difficult to match and could undermine the economic rationale for some bank and credit union branches in regions with a limited economic base or thin operating margins. I can elaborate on that further in questions.
My final point is there would be a lighter regulatory touch. If history is any guide, it's possible that a postal bank would face fewer regulatory pressures in comparison to those faced by banks and credit unions. For example, Farm Credit Canada, the BDC, and EDC are not answerable to a prudential regulator. Furthermore, they often face fewer statutory restrictions on their business powers and activities than crowns do. This is in contrast to credit unions and banks that face significant restrictions on their business practices and are therefore subject to ongoing prudential onsite guidance.
Before I conclude, I would like to flag the fact that at the moment, there are two concurrent federal ongoing efforts to research competition and financial inclusion in the Canadian banking sector. The first announced in the 2016 budget consists of the decision to push off the five-year 2017 financial services review by two years to 2019 and to provide $4.2 million in funding for that effort. It's to look at competition and service in the market. The second, as recently announced by the Competition Bureau, is looking at how technology-led innovation in the Canadian financial services sector is affecting the way consumers use financial services and products.
From a policy perspective, it would be ill advised for the Government of Canada to move toward establishing a postal bank in advance of these studies being completed and their recommendations known by the Canadian public.
To conclude, the Canadian Credit Union Association thanks the committee for this opportunity to contribute. While the CCUA is not supportive of the establishment of a postal bank in Canada, we appreciate the need to expand the availability of banking services in some targeted areas. CCUA is open to engaging with the government on how that might best be achieved through collaborative approaches involving both public and private sectors.
We'd be happy to respond to any questions you have.
Thank you.