Credit union update
An update to my earlier skepticism about the transformative power of moving your money from a bank to a credit union (“Moving money (revisited)”).
The Federal Reserve is out with the flow of funds accounts for the third quarter, its periodic detailed view of the movements of money by instrument and sector. Credit union assets rose 0.9% (not adjusted for inflation) between the second and third quarters. Consumer credit (like credit cards and auto loans) extended to members rose 0.9%, and mortgages by 0.2%. Holdings of federal agency securities, meaning mortgage-backed securities like Ginnie Maes and Freddie Macs, were up almost 2%. Far greater increases were recorded in bank deposits, with checking accounts up by almost 50%, and savings accounts and the like up by almost 5%.
Over the last year, assets are up almost 5%, with mortgages flat and consumer credit down almost 1%. But holdings of Treasury bonds are up 95%, and of mortgage securities, 28%. Checking accounts are up 21%, and savings deposits, 9%.
Since the recession began at the end of 2007, credit union assets are up by 25%. About a quarter of that increase went to home mortgage loans—but over half (55%) went to mortgage-backed securities and 15% to savings deposits elsewhere.
In other words, the credit union is acting as a middle man for unknown banks, and to a lesser extent greasing the conventional mortgage markets. Lending to members is flat to mildly down.
Of course, all this predates the alleged CU boom inspired by Occupy Wall Street. But given their recent behavior, if the hard numbers bear out all the anecdotal supports of billions moved, then the lion’s share of the intake went to Ginnie Mae’s and bank deposits.
You may like the lower fees and more personal service of a credit union, but you’re not really doing anything dramatically political by banking there.
LBO News from Doug Henwood 
Doug, thanks for this. It very helpful to have a check against knee-jerk responses to the current crisis. I may not be grasping all of it and please correct me, but if half of one’s money in a CU goes to the same place as all of the money in a traditional bank account, isn’t that a blow to the traditional banks and therefore a useful political message?
Well there wasn’t much movement in the third quarter – we’ll see what happens in the fourth. But if half the money just ends up back where it started, the bankers might say, “heads I win, tails you lose.” And if it’s small accounts that are moved, their costs go down, since small accounts are expensive to administer, and big institutional clients (like CUs) much cheaper.
ah, good points. I suppose HSBC wouldn’t be too upset about losing my account. On the other hand, it’s mutual.
So Doug, what’s the big picture forecast? Do you think the world is heading into a ‘lost decade’ Japan style scenario as some are predicting?
Heading towards? We’re already four years into it!
What about the fact that credit unions are non-profits? I realize that most non-profits basically conduct business as usual, run the same way as for-profit corporations. But it seems like a good thing that by putting money into credit unions, capitalist owners aren’t shaving a profit off the top–that the money is staying with the CU “members” instead.
I completely agree that it’s not changing the banking industry in any way, but shouldn’t we be a little happy to see money flow away from for-profit enterprises more generally? (And if not, it would be extremely enlightening to hear why–I ask this more from ignorance than as criticism.)
Do you have any suggestions about how people should deposit their money?
Edward, my usual answer to that question is that it’s nearly impossible to do good works with your money. So do the right thing with the rest of your life.
Doug, do you think things are going to play out similarly to the way they have in Japan?
I know my local bank sold off my mortgage to BofA and WF after telling me how local and friendly they were.
We should be so lucky to be Japan, whose unemployment topped out at just over 5%.
Lower fees and personal service has to be the beginning. The point in putting your money in a credit union has to go beyond parking it there. As we learn more about bank practices vis-a-vis the rest of the world- (check out http://www.banktrack.org/show/pages/home) we have to develop ways of putting a democratic check on economic institutions. Credit unions have an underutilized structure that is different from the corporate structure in that as a depositor you can run for the board and affect investment decisions. The corporate structure has limited democratic space- you have to be an owner- a shareholder. In affect we need to push institutions to A be transparent about their business practices and B hold them accountable to a value system (whether that be supporting local business, offering just mortgages, not participating in arms trade, resource plunder…etc). This is obviously a lot more difficult and time-consuming than letting others decide for us. I don’t think the way forward is easy. But in exchange maybe we will actually be able to look the next generation in the eyes.
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