Canadian Mortgage Trends recently just reported on the fact that Equitable Trust, the second-largest alternative lender in Canada, is thinking about becoming a bank. While the company has stated that, should this be something that becomes reality, it will have “no impact on” its current business model, nor would it greatly affect their customers. It does lead to a question though that many don’t know the answer to: what’s the difference between banks and trusts?
A lot of the differences have to do with how the banks are regulated, or how they’re managed by those higher up than them. Banks are regulated by the federal government, largely through a document known as the Bank Act. Within this act are three different schedules or, as they’re more commonly known, three different tiers. Most people think that those tiers represent how big the bank is, but they actually represent who owns the bank.
Banks that are in Schedule or Tier 1 are banks that are domestically owned; while those that are in Schedule or Tier 2 are subsidiaries of foreign banks. Schedule or Tier 3 banks are banks that are foreign, but that have branches within Canada. Because they have stricter regulatory guidelines, banks cannot perform certain duties that trusts can, such as investing trust assets and defending the trust.
Trusts are still regulated by a governing body, but that body is the financial minister of the province that the trust is located. The Credit Union Central along with provincial deposit insurance corporations also help to regulate provincial trust companies. Credit unions, also unlike banks, are owned by their members or rather, anyone who holds an account with that credit union. These are structured this way because credit unions are usually established in order to serve people of a particular ethnicity, in a certain geographical region, or by their employer.
Unfortunately, there is no real way to tell whether you’re better off working with a bank, or with a credit union. When looking for someone to hold and manage your funds, as well as help you with your day to day transactions, it’s best to evaluate them all using the same basic criteria, and finding the one that can best suit your needs – regardless of whether they’re a bank or credit union.
