Local government deposits represent a potentially significant funding opportunity for BC credit unions. Winning more of these deposits will require a focused strategy that engages municipal finance departments and a better understanding of how local government cash flows throughout the year.

The first step is understanding the customer.

Local governments can hold significant cash balances from property tax collections, reserves, and other revenues. At the same time, capital projects and operating expenditures create different liquidity requirements throughout the year. Provincial government guidance itself recognizes that local governments must manage reserves, surplus, and current funds while balancing investment risk and return with daily cash flow needs.

This creates an opportunity for credit unions to move beyond simply offering a competitive term deposit rate.

Engagement with CFOs, directors of finance, and treasury staff should focus on understanding when cash comes in, when it is required, and how investment policies influence where it can be placed. Publicly available financial statements, five-year financial plans, and investment policies can provide much of the initial information needed to understand a local government's funding cycle.

The question should not be whether a municipality wants a one-year term deposit. The better question is: when will the funds be needed?

That information can help credit unions develop laddered deposits and other treasury solutions aligned with tax collection cycles and planned capital expenditures.

Understanding the MFA Competition

Any strategy to grow local government deposits must also recognize the role of the Municipal Finance Authority of British Columbia. MFA was created in 1970 to pool the borrowing requirements of BC local governments. It is a corporation without share capital established under provincial legislation. Its members are appointed by regional district boards, and its executive and administrative powers are exercised by a Board of Trustees drawn from MFA's local government membership. MFA is closely embedded in the local government system it serves.

While MFA's original purpose was collective borrowing, its legislative mandate also includes providing short-term investment opportunities through pooled investment funds.

That investment business has expanded considerably since 2020 and looks like it is gaining momentum since 2023. MFA now offers a range of pooled products across different investment horizons and asset classes, including money market, ultrashort, and short-term bond funds, mortgage and diversified funds, and pooled high-interest savings accounts.

The strategy is to aggregate local government funds, provide professional investment management, and offer products designed around municipal liquidity and investment requirements.

MFA has also negotiated pooled high-interest savings arrangements that provide participating local governments with access to institutional deposit rates. MFA describes the PHISA program (Pooled High Interest Savings Account) as an additional investment option and notes that it negotiates rates for MFA-sponsored high-interest savings accounts.

For credit unions, the important point is not that MFA is doing anything wrong. MFA has built investment products specifically tailored to the needs of local government finance departments and their liquidity cycles.

Credit unions need to compete with that value proposition.

A Credit Union Strategy

The opportunity starts with engagement.

Credit unions should identify the municipalities and regional districts in their markets, review their investment policies and financial plans, and build relationships with finance staff responsible for cash management.

Those conversations should focus on cash inflows, capital plans, and liquidity requirements, rather than starting with higher rates.

The second opportunity is product design. If local governments value the liquidity, reporting, and the administrative simplicity of MFA pooled products, credit unions need to consider how their treasury offerings compare.

There may also be an opportunity for credit unions to work together.

A large municipality may have tens or even hundreds of millions of dollars available for investment at different points in the year. A single credit union may not want the entire deposit due to concentration or balance-sheet considerations. A collaborative model could potentially allow several credit unions to participate in a local government deposit relationship. This could involve deposit syndication, shared treasury solutions, or another structure that allocates deposits among participating institutions.

The concept would require legal, regulatory, and operational analysis. The MFA model itself demonstrates the value of aggregation. MFA pools the borrowing and investment needs of local governments to create scale. Credit unions should examine whether some of the same principles could be applied on the deposit side.

Local government deposits should be treated as a specialized segment of the treasury market. Winning more of this business will require credit unions to understand municipal cash cycles, engage directly with finance departments, and build products that compete with the liquidity and administrative advantages offered by pooled investment products.

The deposits are already in BC communities. The challenge is building a coordinated strategy to win more of them.