Where is the Smart Money Going?
SME business owners are turning increasingly to credit unions for their banking needs.
An interesting trend or a canary in the coal mine?
Throughout my lifetime, a decreasing number of my banking decisions have relied on dealing with a major Canadian bank.
When I opened my first bank account in the late 1960s, the “wise” choices were limited to the 5 banks. Investigation a credit union was not even a consideration.
A lot has happened since those simpler times. My parents didn’t even own a credit card in those days but that changed within a few years after the POTUS, Richard Nixon, took the final step in 1971 to take the US monetary system completely off the Gold Standard.
What changed and why was it important?
Prior to 1971, gold was still the “hard asset” which served as redeemable collateral to back the US Dollar and all other national currencies linked to it. After 1971, the “collateral” went “soft”. Nixon announced a seismic change in monetary policy: the USD would thenceforth be backed the American worker and the ability of the US Government to tax the productive, wealth-creating output of its collective workforce.
An excellent book on the evolution of the American Banking System is The Fiat Standard by Economist Dr. Saifedean Ammous. The study of money is much more fascinating than most people might expect. It tells a riveting story of the people, events and circumstances that inspired the evolution of money as a store of wealth and the medium for exchanges that takes place between people, businesses and institutions worldwide.
Today, credit is money
That ‘credit is money’ would sound crazy to anyone like my parents (both deceased long ago) who grew up in an economy based on the Gold Standard.
This transition to ‘credit as money’ has enabled central banks to buy government debt (Treasurer bills, bonds, and other types) and retail banks to issue ‘debt as money’ under what is known as the Fractional Reserve Banking System.
It also enabled the creation and “management” of inflation which is blamed on “greedy businessmen”. The truth is, however, that it is an elaborate scheme to enable central bankers and government officials to finance their institutional operations and make politically popular “investments” without having to resort to higher taxes.
The current federal debt is about $1.2 trillion and rising. The provinces are in a similar situation. The Canadian debt clock shows what everyone owes on a per capital level, including you! What the debt clock does not reveal is the steady decline in the purchasing power of your earnings/savings as inflation silently robs you.
So why are SME business owners shifting to credit unions?
This linked report shows the trend away from the major banks. We can speculate on why this may be occurring.
Can it be one or more of the following reasons?
The big banks have become excessively bureaucratic, expensive and inflexible. Credit unions are smaller, more nimble in responding to customer needs and, consequently, can offer better terms.
Credit unions customers profit from the business relationship. I receive a profit-sharing payment annually based on the amount of business I have conducted with my Credit Union. Banks are massive corporations that pay dividends to shareholders, not customers.
When Justin Trudeau used the Emergencies Act in early 2022, it enabled the Deputy Prime Minister, Chrystia Freeland (she is also Minister of Finance) to issue an edict to the banks to prevent account access to any Canadian who had made a donation to the Truckers For Freedom nation-wide protest. Only the major banks complied; none of the Credit unions. (Note: At the time, I wrote a letter to the Board of Directors of the major bank to which I had remained loyal since 1970. I informed the Board that I will no longer bank with any institution that takes punitive action against customers which are in direct violation of the rights and freedoms of all citizens as defined in the Canadian constitution. I received no reply. “Easy come, easy go?”)
Did “the penny drop” for SME owners that Trudeau’s plans to “build back better” did not include them? Were they seething with rage as they watched the Big Box stores thrive during pandemic lockdown measures while they sat helplessly on the sidelines with their businesses in regulatory handcuffs? Have some of them decided, as I did, to boycott the Big Banks and become patrons of the SME financial services sector - the credit unions?
There was a time when …
The major banks used to offer superior conveniences and financial safety to all Canadians. Technology has levelled the playing field where conveniences are concerned.
However, financial safety is another matter. When a Deputy Prime Minister can order a bank to prevent customers from accessing their own money, the question of financial safety appears to have shifted in favour of dealing with Credit Unions.
