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HomeMy WebLinkAboutTR-3-93 THE CORPORATION OF THE TOWN OF NEWCASTLE REPORT Meeting: GENERAL PURPOSE & ADMINISTRATION COMMITTEE F i I e# Date: January 18, 1993 Pe s. # Report TR-3-93 File #: By-Law# Subject: CREDIT UNION SERVICES Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1 . THAT report TR-3-93 be received; 2 . THAT the Town's current practice with respect to the use of services provided by Credit Unions remain unchanged with respect to the following; Present Practice: a) Banking Services are only accepted from banks listed in Schedule I or II (formerly called Schedule A & B Banks) of the Bank Act (Canada) . b) Letters of Credit continue to be accepted only from banks listed in Schedule I or II of the Bank Act (Canada) or in the form of cash. c) The Town's Investment Policy continue to restrict Town investments to banks listed on Schedule I or II of the Bank Act (Canada) , and 3 . THAT the Auto Workers (Oshawa) Credit Union - Mr. Don Nicholls, Assistant General Manager, and Mr. J.E. Sarnecki, General Manager, be notified of Council 's decision. BACKGROUND: 1. 0 In June 1992, there was a request received through the Mayor's Office for the Town to consider utilizing the services of the Auto Worker's Credit Union for financial services and to accept letters of credit issued by the Credit Union. Currently Town policy restricts investments to Schedule I or II Banks and only letters of credit issued by banks are accepted by the Town (see letter - attachment #1) . Credit Unions are not listed on Schedule I or II of the Bank Act. TR-3-93 Page 2 2 .0 Mr. Hefferon, the Town's solicitor has researched the legalities with respect to the Credit Union's legal ability to provide banking services, issued letters of credit, and receive a municipality's money in the form of an investment. These issues are covered through a series of legislation including the Municipal Act, Credit Union and Caisses Populaires Act and the Federal Bank Act, as well as the Ontario Deposit Insurance Corporation Act. I 2 . 1 The results of Mr. Hefferon's analysis are provided in the letter attached (Confidential attachment # 2) , and are in essence the following: a) Credit Unions cannot legally provide all of the financial services normally required by the Town because of the restrictive provisions of the Municipal Act. One of the financial services required by the Town, Term Deposits, are permitted to be placed with Credit Unions by the Municipal Act. Apart from the legal restrictions which affect the Town in making investments, there is some concern that Credit Unions may not be able to provide the same degree of security as the Banks currently used by the Municipality, given that there is not the same requirement with respect to the level of reserves which must be kept on deposit with the Bank of Canada by banks under the Bank Act. I b) Credit Unions probably have legal authority to issue letters of credit. Letters of credit are not j specifically referred to but could be interpreted to be included in the language of the Credit Union and Caisses Populaires Act. However, the concern raised here is whether upon presentation, the letter of credit would be honoured without question. The Town has not experienced any difficulty with Schedule I or II of the Bank Act banks who have issued Letters of Credit's when they have been presented with the Letters of Credit for payment by the Town. The decision to amend the present practice therefore, is a question of policy. At the present time it is not recommended that the Town's policy be changed. c) Municipal surplus funds can legally be invested with Credit Unions in the form of term deposits; The Municipality currently invests in accordance with the Town's investment policy, only with Schedule I or II Banks ( formerly called Schedule A & B Banks . The question whether the Town's policy should be broadened to include Credit Unions and other financial institutions such as Trust Companies, is again, one of policy relating to the security of the Municipality's investment rather than legality. TR-3-93 Page 3 3. 0 Although suggesting that changes to the Municipal Act to permit Municipalities to obtain full financial services from Credit Union's might be desirable, the letter from the Auto Worker's Credit Union referred to a number of municipalities as references for which it provides various types of Banking services . Each of these municipalities were contacted to determine the relevance of the services provided to the issues presented above. The results of this survey of twenty-two municipalities are attached (Attachment #3) , and are summarized as follows: Full Banking Services 4 of 22 Letters of Credit Accepted 16 of 22 Investments placed 3 of 22 The survey did not determine from those municipalities who do accept letters of credit from Credit Unions, if there was a restriction in terms of the limit of the total that could be maintained. The survey would seem to indicate overall, less than complete confidence in Credit Unions provision of full banking services as required by Municipalities. 4 .0 The references provided by the Auto Worker's Credit Union did not refer to any local area municipalities, and with the issue of banking services as it relates to investments and letters of credit being a policy decision for Council to consider, Staff conducted a local survey. The results are attached. (Attachment #4) . The results indicate that with one exception, none of the area municipalities in the Region of Durham accept letters of credit from Credit Unions, nor do they place investments with Credit Unions. 5.0 The current practice of not accepting letters of credit from Credit Unions, and not placing investments with Credit Unions, provides the Municipality with the least amount of financial risk. Given the current economic climate, and the practice of the area municipalities, it is recommended that the Town's current practice with respect to Credit Unions continue. Respectfully submitted, Recommended for presentation to the Committee,j Mare A. Marano, H.BSc . , A.M.C.T. Lawrence E. Ko s9ff, Treasurer Chief Adminis a ive Officer MAM/ges ` ATTACH: I � U3 ATTACHMENT #1 OVER OF June 10, 1992 JUN 12 1992 1OWN OF NEWCASTLE Hon. Diane Hamre, Mayor MAYOR'S OFFICE The Town of Newcastle 40 Temperance Street Bowmanville, Ontario L1C 3A6 Dear Mayor Hamre: It has come to our attention that it is a policy of the Town of Newcastle not to accept letters of credit from the Auto Workers Credit Union. This policy came to our attention when one of our long time members had our letter of credit refused by the Town's. Treasury Department. The Auto Workers Credit Union is the largest financial institution located solely within the boundaries of Durham Region. We have 26,000 members and $210 Million in assets. Although each credit union is a separate autonomous unit, we are governed by the Credit Unions and Caissez Populaires Act of Ontario. Our provincial trade association, the Credit Union Central of Ontario allows us to participate in a provincial liquidity pool of $349 million. The Ontario system surplus including net income and capital is $428 million. System assets in Ontario are $11.5 billion, growing 7.8% over the past year. Credit Union Central of Ontario manages the liquidity pool and other discretionary deposits of member credit unions in the province, and has total assets of over $1.2 billion. In response to the provincial Auditor's report, the Ministry of Financial Institutions said: "The (credit union) industry has gained tremendous strength over the last three to four years, and has become a major force in Ontario's financial services sector with very few deficits incurred during that period". Credit Union Central of Ontario participates in a national liquidity pool held by Credit Union Central of Canada. The CUCC is the national credit union organization made up of individual provincial centrals. Total assets of the entire credit union system in Canada is over $45 billion. ! The Auto Workers Credit Union participates equally with chartered banks in the Canadian Payments Association and as a result, have similar access to the funds. provided by the Bank of Canada. / U4 i AUTO WORKERS (OSHAWA) CREDIT UNION LTD. �.,,��:. r�. ...Lei. . :�n o,..,i�a n�►,�,�,� n.,tarc„i tl-1 71 1 TPIPnhnnP-l41R172R-51R7 r We have made presentations to the Minister of City Municipal Affairs to amend the wording of the Municipal Act to expressly identify credit unions, rather than including credit unions in flother. financial institutions" as is now the case. Precedents have already been established throughout the province of Ontario where various credit unions and Credit Union Central Letters of Credit have been accepted, and being used on an ongoing 1 basis. The following is a sample list of some of those users: City of: Barrie, Belleville, Guelph, London, St. Thomas, Sault Ste Marie, St. Catharines, Thorold, Welland, Windsor, Grimsby; Town of: Innisfil, Lincoln, Pellham, Westminster; Townships of: Basanquet, Lessland, East Williams, Floss, Niagara-On-The-Lake, Prince, . Uxbridge; Municipality of: Waterloo; Minister of: Agriculture,-, Revenue, Natural Resources, Consumer & Commercial Relations. I am sure you will remember, that in October of 1991, the Auto Workers Credit Union opened a branch in Bowmanville; and we are planning a June opening of a Branch in Orono. We have a great deal of commitment to the Town of Newcastle particularly and to the Region of Durham in general. Credit Unions have been known to be local financial co-operatives which create employment for local communities and have their surpluses returned to the members of the community as well as providing co-operative financial products and services to local residents who are members. Membership in the Town of Newcastle is open to anyone living or working within the Town's boundaries. We would sure like to clear this matter up, if possible before our Orono opening. In fact it would be a great announcement at that time. If I can be of any service to you, or should, you wish us to make a presentation to your Treasury Department, or a Committee of Council, please do not hesitate to call. Yours very truly, Don Nicholls, Assistant General Manager and Secretary to the Board of Directors I c.c. : J. E. Sarnecki, General Manager Steve Nimigon, President 7.101 5,