Last fall, there was a lot of buzz about moving money out of banks and into credit unions. Grand claims were made about results. I had my doubts—politically (see here) and financially (see here). One can disagree with me on the politics, but it turns out that not much money was moved.
The Federal Reserve is out with its flow of funds accounts for the fourth quarter. These are a detailed accounting of assets, liabilities, and money flows throughout the U.S. financial system. And before anyone says that the Fed is lying to defend its Wall Street constituency, consider that the main audience for these accounts is banks and bourgeois economists. You could probably count the number of radicals who study these accounts seriously without taking off your shoes.
So, here’s the verdict. In the fourth quarter of last year, credit union deposits increased by $9.9 billion, or 1.2%. In the same quarter, commercial banks increased their checking and savings deposits by $232.2 billion, or 3.5%. The increase in bank deposits (and my measure of this excludes deposits exclusively used by large financial institutions) was 23 times the increase in credit union deposits.
And what did the credit unions do with their very modest windfall? They actually reduced their consumer lending (things like credit cards and auto loans). They increased their mortgage lending, but they increased their purchases of federal agency (e.g. Freddie Mac and Ginnie Mae) and Treasury bonds considerably more. They also increased their short-term lending to commercial banks via the federal funds market—in fact, more than a quarter of their increase went there. As I’ve said before, they already have more money than they know what to do with. Put your money in a credit union and it’s more likely than not to end up in very orthodox pursuits.
Sure, we need a better financial system. We need tighter regulation of the old one and new institutions that can lend preferentially to worker co-ops and other non-capitalist enterprises. But this credit union thing won’t cut the mustard. As I’ve said before, it’s a matter of politics, not individual portfolio allocation decisions.