[HN Gopher] Credit Unions
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Credit Unions
Author : delf
Score : 84 points
Date : 2023-03-12 19:03 UTC (3 hours ago)
(HTM) web link (en.wikipedia.org)
(TXT) w3m dump (en.wikipedia.org)
| causality0 wrote:
| I exclusively use a credit union, but frankly I could not tell
| you whether it's more or less vulnerable to market instability or
| bank runs than a larger bank. It might be more stable for the
| sheer fact of being very local and nobody around here really
| cares what's going on in big cities or in silicon valley.
| hummus_bae wrote:
| [dead]
| andrepd wrote:
| I remember reading credit unions were significantly less likely
| to go bankrupt than banks during the 2008 meltdown. In fact:
|
| > From 2008 through 2012, 481 FDIC insured banks were either
| liquidated or merged with healthier institutions. Credit
| unions, on the other hand, saw 136 involuntary liquidations or
| assisted mergers at the hands of the National Credit Union
| Share Insurance Fund (their version of the FDIC), among 6,940
| FDIC institutions compared to 6,815 U.S. credit unions.
| UncleOxidant wrote:
| > It might be more stable for the sheer fact of being very
| local
|
| Being very local (and concentrated on one sector) didn't help
| SVB. Most credit unions require (or used to) you to be in some
| industry or union, etc to join. Like teacher's credit unions,
| etc. So potentially there would be sector exposure. But I think
| in recent years most CUs have relaxed those requirements (I
| know the one I'm in did) and allow pretty much anyone to join.
| Scoundreller wrote:
| Usually the key words you're looking for here are "open-bond"
| (open to all, but sometimes still geographical restrictions)
| vs. "closed-bond" (ethnicity, occupation, religion)
| AH4oFVbPT4f8 wrote:
| I would think if a bank if FDIC and you have less than 250k
| there, you would be fine.
| latchkey wrote:
| Not FDIC insured is a big one.
| binarymax wrote:
| This is not necessarily true, there are over 7000 federally
| insured credit unions in the USA.
|
| Credit unions are required to maintain coverage for all
| deposit liabilities.
|
| So it can't be undone by a bank run, but potentially could be
| undone by theft if uninsured.
| readthenotes1 wrote:
| "Credit unions are required to maintain coverage for all
| deposit liabilities."
|
| So are banks.
|
| What fraction of total deposits must be held in cash?
| jcrawfordor wrote:
| Credit unions are subject to essentially the same
| capitalization requirements as banks---they're regulated
| by NCUA, but NCUA's capitalization requirements are
| largely harmonized with those of other bank regulators.
| It's important to understand that banks themselves are
| not all regulated by the same agency, with bank
| regulation split between FDIC, OCC, and the FRS depending
| on the bank (this is mostly unrelated to FDIC insurance
| which applies to depository financial institutions
| regulated by OCC and the FRS as well). These different
| regulators all apply somewhat different supervision
| methodologies, with the result that banks do indeed "shop
| around" for a regulator that they feel will work the best
| as a long-term relationship. But the overall
| capitalization ratio requirements are mostly the same at
| 7-10% being well-capitalized depending on calculation
| method.
|
| But this discussion is more about insurance, not capital
| reserves. Credit unions are required to hold insurance
| (coverage) on their deposits just like banks, with the
| same cap of $250,000 per account. Most, but not all,
| credit unions are insured by NCUA, backed by the US
| government. All federally chartered credit unions are
| insured by NCUA, but state-chartered credit unions are
| not necessarily required to be. The majority of state-
| chartered credit unions are also insured by NCUA, but
| they have the option of obtaining their insurance by
| other means, and some choose to use private insurers like
| American Share Insurance. These private insurers are
| usually backed by a huge reinsurer and so the risk of
| them not meeting their obligations is low, but arguably
| higher than NCUA. On the flipside, private share insurers
| sometimes offer higher coverage limits than NCUA. It's
| mostly a minor issue though as credit unions covered by
| other than NCUA are uncommon, and NCUA-insured credit
| unions prominently post the NCUA logo. Similarly, non-
| NCUA credit unions are required to disclose their
| insurer.
|
| Federally-chartered credit unions usually use "Federal"
| in their name although some don't use it in their general
| advertising and logotype any more. State-chartered credit
| unions only exist in some states, but California charters
| credit unions and as you'd imagine there are quite a few
| examples in that state. There are even "dual-chartered"
| credit unions in some states that hold charters from both
| state and federal governments. This is the norm in e.g.
| Washington due to some banking regulation history. Older
| credit unions are more likely to be state-chartered as
| the federal system is newer than most state systems, but
| credit unions didn't really take off until the Federal
| Credit Union Act so there's still not that many of them.
| pdonis wrote:
| FDIC insurance just means that, if a bank fails, the
| government will make depositors whole up to a certain amount
| --printing the money to do so if necessary. NCUA provides
| exactly the same guarantee to credit union depositors. I see
| no reason to be any less confident in the NCUA guarantee than
| the FDIC guarantee; ultimately both are subject to the same
| risk, that the government will not be politically capable of
| either raising or printing enough money to make depositors
| whole in the event of a major financial crash.
| UncleOxidant wrote:
| _The National Credit Union Administration is a US government
| agency that regulates and supervises credit unions. They also
| operate and manage the National Credit Union Share Insurance
| Fund (NCUSIF), which provides share insurance coverage for
| credit union members against losses should the credit union
| fail. The NCUSIF provides all members of federally insured
| credit unions with $250,000 in coverage for their single
| ownership accounts._
|
| So pretty much the same coverage, just a different agency.
| TulliusCicero wrote:
| How is this functionally different?
|
| > What Is the NCUA?
|
| > The NCUA is an independent agency that oversees the
| National Credit Union Share Insurance Fund (NCUSIF). This
| federal insurance fund, backed by the U.S. government,
| insures member savings in federally insured credit unions.
| Deposits at federally chartered credit unions are
| automatically insured by the NCUA, but state-chartered credit
| unions can opt for NCUA insurance too. Some 98% of U.S.
| credit unions are federally insured. To find out if your
| credit union is one of them, ask a representative or look for
| the official NCUA insurance logo in its offices or on its
| website.
| latchkey wrote:
| It is a different organization entirely. Functionally it is
| declared the same in all the googling that I've done, but
| in practice, are they? I don't know, and personally, I
| don't really want to find out.
| kerkeslager wrote:
| This post made me chuckle. It's basically: I don't know
| about it, therefore it's scary!
|
| But like, what do you know about the FDIC that you don't
| know about the NCUA? I suspect to most people they're
| both just opaque blobs of the US Federal government that
| insure deposits up to $250,000, and that's the limit of
| most people's understanding of either organization. If
| you're not confident in the NCUA, I'm not sure what extra
| information you could possibly have that would make you
| suddenly confident in the FDIC.
| latchkey wrote:
| > I don't know about it, therefore it's scary!
|
| What's wrong with that? Seriously, belittling someone
| because they don't know about something, so therefore
| they'd rather avoid it, doesn't seem right either.
|
| I know about FDIC. I understand the rules. My bank has a
| great explainer on their website about the coverage. I
| don't know anything about NCUA and I don't care to learn,
| because I'm already protected at the bank that I'm at.
| 1123581321 wrote:
| It's wrong because you weren't just trying to avoid it
| personally; you were trying to scare others away by
| confidently declaring a problem ("a big one") while
| knowing you were ignorant about it.
| delfinom wrote:
| Yes, the NCUA enforces regulatory standards including
| auditing for credit unions to remain insured.
|
| Actually in many ways the NCUA is a bit more open about
| their work.
|
| Here's the NCUA informing all credit unions back in 2022
| that risk assessments are changing to factor in the sharp
| rising interest rates affecting asset values.
|
| https://ncua.gov/regulation-supervision/letters-credit-
| union...
|
| Want to know their enforcement history? Bam
| https://ncua.gov/news/enforcement-actions/administrative-
| ord...
| IncRnd wrote:
| The NCUA is the US Federal Government Agency that
| oversees Credit Unions.
|
| A Credit Union is not the same as a bank, since a CU is
| member-owned and member-controlled.
| toast0 wrote:
| Many of the credit unions I've looked at don't allow commercial
| accounts. There's not a whole lot of need for people to hold
| more than the deposit insurance amount in one institution,
| whereas it does make sense for many companies. If more of the
| deposits are covered by deposit insurance, I think there's less
| of a risk of a bank run --- I wouldn't try to get a significant
| amount out of my accounts even if I knew the credit union was
| going to fail, because I know I can get it all on the Monday
| after it fails; guaranteed by NCUA, backed by the US
| Government. Still, I think a significant run would likely cause
| the credit union to fail, it's not easy to provide 20% of
| deposits on one day.
|
| Some credit unions do provide service to businesses though. So
| they might have similar concentration of account issues.
| dhosek wrote:
| You're assuming rationality on the part of depositors. I
| remember there being a run on a local savings and loan in the
| town where I grew up when I was in my 20s. I knew a few
| people who had money in CDs, well below the insurance amount,
| who took the early withdrawal penalties to take their money
| out of the S&L even though they were insured and their was no
| chance of any loss if they just held tight. Sort of like all
| the people who panic sell at a loss when the stock market
| dips.
| toast0 wrote:
| I mean, if people run, the bank or credit union will fail.
| But people are fundamentally lazy and there's not much of a
| difference between getting your money on thursday and the
| next monday, so there's less urgency. People are also
| fundamentally panicy too, so I agree there's still a risk.
|
| Stock market 'circuit breakers' that halt trading when the
| stock moves too fast seem to be pretty helpful. Maybe banks
| need something that halts withdrawals when they reach 10%
| of last reported deposits. (Spit ball: each depositor may
| withdrawal at least 10% of their current balance or last
| two statement balances, whichever is more, any excess is
| allocated on a dollar basis across the day's withdrawal
| requests. Some mechanism to pre-request funds so you can be
| sure you can wire large payments for houses, etc)
| SkyMarshal wrote:
| It seems possible any deposit-taking financial institution
| could have made the same mistake as SVB, be they a bank or
| credit union or anything else. I don't think merely being a
| credit union will shield them from this. They may have some by-
| laws though that do protect them, but that's on a case-by-case
| basis.
| crabmusket wrote:
| *by-laws
| SkyMarshal wrote:
| Thx, fixed :)
| FormerBandmate wrote:
| You can look up call reports to see how much exposure they
| have to long-dated treasuries. Most major credit unions have
| almost nothing, and they also don't have nearly the amount of
| depositors above $250k so they're not really vulnerable to
| bank runs
| SkyMarshal wrote:
| Thanks. Looks like you can find call report data for all
| credit unions here:
|
| https://ncua.gov/analysis/credit-union-corporate-call-
| report...
| triyambakam wrote:
| Can anyone clarify how to look at this data? There are a
| few different reports. What would I look for to see how
| healthy my credit union is?
| justin66 wrote:
| > frankly I could not tell you whether it's more or less
| vulnerable to market instability or bank runs than a larger
| bank
|
| For starters, there is not a conceivable credit union
| equivalent to VCs telling all their companies to withdraw all
| they can from their bank on a single day. Credit unions can
| offer business accounts as well as individual accounts... but
| still.
| eBombzor wrote:
| Cheeky
| Der_Einzige wrote:
| It appears to me that for the general person, credit unions are
| strictly superior to regular banks. My credit union has
| consistently offered me better rates, less BS, and less fees that
| any other banks.
|
| The fact that they are non-profit cooperative institutions also
| makes them significantly more desirable from a political
| standpoint. Seems to be the "progressive" alternative to regular
| banking.
| joecool1029 wrote:
| Since I was wondering about NCUA and credit union failures (as no
| doubt many others coming to this thread are), looks like GAO
| published on the topic: https://www.gao.gov/products/gao-21-434
| 145 failures from 2010-2020.
| caboteria wrote:
| As anyone who was living in Rhode Island around 1990 can tell
| you, credit unions are no more or less safe than banks. It's more
| about ensuring proper oversight in either case.
|
| https://en.wikipedia.org/wiki/Rhode_Island_banking_crisis
| Waterluvian wrote:
| I'm actually curious about your claim that they're just as
| risky as banks. Is this true? Or are you just indicating that
| it's at least _possible_ for a credit union to go bad?
| downrightmike wrote:
| Of course they can go bad, they have insurance similar to
| FDIC. And just like small banks right now, they also have the
| problem on getting loans to make interest on. Mortgages have
| dried up. Refinancing is there too. Bigger banks have larger
| opportunities, so they may be safer with loans being down.
| Waterluvian wrote:
| That they _can_ go bad is not in doubt. The comment
| provided an example of this.
| blep_ wrote:
| I'd point the burden of proof the other way, tbh. I don't see
| any reason one would be riskier than the other.
| antisthenes wrote:
| Only 300,000 depositors lost access. Considering the population
| of the United States as a whole, this seems like a pretty
| isolated and small incident, when you compare it something like
| the 2008 failure.
|
| What makes you think this is sufficient evidence to claim that
| they are no more safe than banks?
|
| Have there been other CU failures of note since 1990? (33 years
| ago)
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