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.
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.
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.
Credit Union National Association. Website for the national trade association for the industry.
Good, Barbara A., “The credit union industry – an overview.” Economic Commentary, Federal Reserve Bank of Cleveland, May 1996.
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.