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Bank of Nova Scotia owns Tangerine, an online bank formerly known as ING Direct, while PC Financial is a joint venture between Loblaw Cos. Ltd. and Canadian Imperial Bank of Commerce.

The Meridian plan is noteworthy because it appears to sidestep the federal government’s preferred method to get credit unions to move outside their provincial boundaries to provide national alternatives to the big banks.

For the past couple of years, Ottawa has been pressing credit unions to adopt federal mandates under the Bank Act, but there has been little uptake since they would also become subject to all federal rules and regulations including caps on the amount of deposit insurance they can offer.

So far, only one small credit union has agreed to convert to a federal mandate.

Industry observers say the higher deposit insurance coverage at credit unions in several provinces draws some customers who might otherwise keep their money at a bank. In Ontario, for example, the province is in the midst of raising the deposit insurance coverage limit to $250,000 from $100,000, which is the federal cap for banks.

Credit unions in some provinces such as British Columbia offer unlimited deposit insurance coverage, something Meridian also does with deposits in registered accounts such as RRSPs and tax-free savings accounts.

Maurin said officials from the federal Office of the Superintendent of Financial Institutions questioned Meridian executives about whether they considered bringing the Ontario credit union operations into the federal fold, rather than applying for a separate national banking license that would leave the credit union operations under provincial jurisdiction.

“They did ask us about that,” he said, adding that he was somewhat surprised there was no pressure to change course.

Maurin says he told regulators that applying for a separate federal bank licence would allow the credit union “to preserve a lot of the benefits we have,” including higher deposit insurance.

In addition, he said, the road to creating a new federal bank as a subsidiary is “a more clearly defined process” because “a lot of ambiguity” remains in the new and little-used path of converting to a federal credit union.

Financial Post

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