DBRS Morningstar Comments on Central 1 Credit Union’s Intention to Legally Segregate Credit Union Mandatory Liquidity Pools

DBRS Limited (DBRS Morningstar) notes that Central 1 Credit Union (Central 1; rated A (high)/R-1 (middle) with Stable trends by DBRS Morningstar) announced that it is in discussions with the Financial Institutions Commission (FICOM) in British Columbia (B.C.) and the Financial Services Regulatory Authority of Ontario (FSRA) to legally segregate the mandatory liquidity pools (MLPs) that are managed by Central 1 on behalf of all B.C. and Ontario credit unions. Under the proposed plan, the segregation of the MLPs would occur no later than December 31, 2020. DBRS Morningstar notes that, as at Q2 2019, the combined MLPs of B.C. and Ontario totalled $8.0 billion and accounted for 45% of Central 1’s total assets.

At this time, DBRS Morningstar does not anticipate any rating impact for Central 1 resulting from this announcement. Central 1’s rating reflects the strength of the B.C. and Ontario credit union systems and their ownership of Central 1. The strength of these systems is driven by solid franchises across their individual geographical footprints and healthy financial performance, which remains unaffected by this proposed segregation. While Central 1 already manages the MLPs on a segregated basis from its Wholesale Financial Services (WFS) pool, the legal segregation of the MLPs and WFS pool would substantially reduce the potential for contagion across the pools.

DBRS Morningstar will continue to monitor the proposed plan and will provide an update once Central 1, FICOM and FSRA have agreed upon the final structure of the legal segregation of the MLPs.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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