Credit Unions' Financial Stability
How are Credit Unions Surviving the Current Economic Crisis?
Oct 12, 2008 Margaret M. Williams
Credit unions are member-owned, not-for-profit financial institutions. They operate by pooling the assets of their members in order to provide loans and other financial services to those members. While credit unions offer many of the same services as banks, the two kinds of financial institutions are fundamentally different. Credit unions serve a primarily non-profit purpose and are regulated by a unique set of laws and regulatory agencies. According the Credit Union National Association (CUNA) website, more than 90 million Americans belong to credit unions.
Is the Money Invested in Credit Unions Safe During These Unstable Economic Times?
With the recent collapse of major banks and financial institutions such as Washington Mutual, AIG, and Merrill Lynch, the fall 2008 stock market decline, and the growing mortgage and foreclosure crisis, credit union members and those looking for alternatives to traditional banking are asking about the solvency of America’s credit union movement.
In a press release issued by the Credit Union National Association on September 25, 2008 and reported on by CNBC, CUNA President and CEO Dan Mica stated that funds held in credit union accounts are as safe as deposits in FDIC insured banks. This is because credit unions have their own federal deposit insurance.
Are Credit Unions Affected by the Sub-Prime Mortgage Mess?
According to CUNA Senior Economist Mike Schenk (via email correspondence) credit unions have not been a part of the recent sub-prime meltdown. He credits this to their structure and ownership status, saying that as non-profits credit unions are less likely than for-profit financial institutions to make decisions that could hurt their members.
Schenk also says that the large volume of mortgages held in credit union portfolios--as much as 70%--is another factor in credit unions’ ability to stay above the sub-prime fray. The thinking is that a financial institution that retains its mortgages in portfolio will be more careful to lend to people who can repay the loans than one that sells its mortgages on the secondary market.
As a result, according to Schenk, U.S. credit unions are still lending while other lenders are pulling back. In fact, according information found on the CUNA website, the first quarter of 2008 saw mortgages at credit unions growing faster than all other loans; this at a time when mortgage losses forced other lenders to scale back or close their doors entirely.
Who Regulates Credit Unions?
Federally chartered credit unions are supervised by a federal agency called the National Credit Union Administration (NCUA). State chartered credit unions (about one third of the industry) are supervised by the applicable state regulatory agency.
The NCUA also administers the National Credit Union Share Insurance Fund (NCUSIF), which offers the same coverage levels and U.S. government guarantees as the FDIC does for banks. The NCUA insures deposits of all federal and most state chartered credit unions. A small percentage of credit unions--about 2%--are privately insured.
With the recent passage of the Emergency Economic Stabilization Act of 2008, the NCUSIF coverage for all federally chartered and most state chartered credit unions went up from $100,000 to $250,000 for individual member deposits .
Who Can Join a Credit Union?
A credit union’s field of membership is defined by the organization that sponsors the specific institution. Credit unions can be sponsored by employers, schools, churches, or geographical segments of a community. The Credit Union National Association’s website provides information for locating appropriate credit unions to join.
Credit unions are non-profit and member-owned financial institutions. They are regulated by the federal government, but separately from banks. To date they have not been a part of the 2008 sub-prime mortgage meltdown and their members' deposits are federally insured. Many people have turned to credit unions as an alternative to banks.
To learn more about how credit unions dealt with the sub-prime mortgage problems, read "Credit Unions and the Mortgage Mess."
Credit Union National Association
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