 Ask
Dr. Econ
March 2005
Are credit unions regulated or supervised by the Federal Reserve System?
First, let’s start at the beginning:
What is a credit union?
According to the National
Credit Union Administration (NCUA), the federal
regulatory agency for the industry:
A
federal credit union is a nonprofit, cooperative financial institution
owned and run by its members. Organized to serve, democratically controlled
credit unions provide their members with a safe place to save and borrow
at reasonable rates. Members pool their funds to make loans to one
another. The volunteer board that runs each credit union is elected by
the members.
Not for profit, not for charity, but for service is a credit union
motto.
Who may join a credit union?
Credit unions are membership organizations, and in recent years, many
credit unions have broadened the scope of their membership. As
Wilcox (2005) notes:
For instance, many credit unions are switching from
narrow fields of membership, such as the employees in a single company,
to broader
geographically
based fields of membership, such as the people who live or work
in specified counties.
How important is the industry?
As of December 2004, the credit union industry held about $575 billion
in share deposits, mostly in small time and savings balances, and $655
billion in assets, mainly home mortgages, consumer credit, and agency-
and mortgage-backed securities according to Federal Reserves Flow
of Funds data.
According to the NCUA there were 9,014 federally-insured credit unions
as of December 31, 2004.
For comparison purposes, as of the same date, the Federal
Deposit Insurance Corporation (FDIC) reported the U.S. had 7,630 commercial banks, with
domestic assets of $7.5 trillion and domestic deposits of $4.7 trillion.
Supervision and regulation
The Federal Reserve does not supervise or regulate credit unions. Federally
chartered credit unions are regulated by the National
Credit Union Administration, while state-chartered credit
unions are regulated at the state level.
The Fed is one of several banking regulatory agencies at the federal
level. State-chartered banks are supervised and regulated at both the
state and federal levels. At the state level, state-chartered banks are
regulated by their state banking regulator. At the federal level, state-chartered
banks are regulated by either the FDIC or, if they choose to be members
of the Federal Reserve System, by the Federal Reserve. See also Dr.
Econ for May 2000.
Reserve requirements
Since the passage of the Depository
Institutions Deregulation and Monetary Control Act of
1980, depository institutions, including credit
unions have been subject to reserve
requirements against
certain
types of deposit and sources of funds.
These reserve requirements may be met by holding vault cash, balances
at the Fed, or balances at other institutions that may be passed along
to the Fed. See also, Dr.
Econ for November 2001.
Depository institutions that fulfill certain reporting criteria, including
credit unions, report their deposit liability data to the Federal Reserve,
and those data are used to determine each institution’s reserve
requirements, to calculate national
money supply statistics, and to generate statistics
on banking system reserves.
Access to the discount window
Most discount window borrowing from the Federal Reserve is done by commercial
banks. See also, Dr.
Econ for June 2002. However, credit unions, along with other types
of depository institutions (including federal savings banks, mutual savings
banks, and savings and
loan associations), also may borrow from the Fed’s discount window
to offset temporary shortages of funds. While credit unions may have
access to the discount window, they typically would first go the Central
Liquidity Facility (CLF) operated
by the NCUA for such borrowings.
Consumer protection rules
The Federal Reserve makes consumer protection rules (including rules
that implement the Truth in Lending, Home Mortgage Disclosure, and, Equal
Credit Opportunity Acts) that all lenders, including credit unions, must
follow. While the Federal Reserve is responsible for writing these rules,
enforcement is handled by the NCUA for federally chartered credit unions
and by the Federal Trade Commission (FTC) and state regulators for state-chartered
credit unions. Like other financial institutions, credit unions are subject
to a variety of other laws and regulations that are enforced at both
the state and federal levels. See the Federal Reserve Bank of San Francisco’s
Consumer Information website for additional
information. For a review of Federal Reserve regulations, you may review
the Federal
Reserve Board’s website.
Ask Dr. Econ. Federal Reserve Bank of San Francisco.
“Banking Institutions and Their Regulators.” Federal Reserve
Bank of New York, February 2003.
Board of Governors of the Federal Reserve System.
Central Liquidity Fund. National Credit Union Administration.
Credit Union National Association. Website for the national trade association
for the industry.
Federal Deposit Insurance Corporation.
Federal Reserve Bank of San Francisco.
Good, Barbara A., “The credit union industry – an overview.” Economic
Commentary, Federal Reserve Bank of Cleveland, May 1996.
National Credit Union Administration.
Wilcox, James
A. “Credit Union Failures and Insurance Fund Losses:
1971-2004.” Economic Letter, Federal Reserve Bank of San Francisco,
2005-20; August 19, 2005.
Zimmerman,
Gary C. “Growing Pains.” Weekly
Letter, Federal Reserve Bank of San Francisco. December 11, 1987.
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