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Posted by: Doug Henwood | November 9, 2011

More on credit unions

From a post to the lbo-talk listserv, which I moderate:

A big CU failed in South Florida a few years back. They’d been investing in subprime CDOs, actually. Another few failed in FL and out west – they had large member business ADC loan exposure to projects that stalled at the acquisition phase. Just browse the NCUA news center and marvel at the number of CUs placed into conservatorship or acquired by other CUs in NCUA-facilitated firesales

I’ve seen stats saying 2/3s of credit unions don’t have any meaningful member loans, and that the dollar majority of all CU business loans is simple syndicate participation by the very largest of CUs.

These guys largely fail on their own terms (lack of scale/competence – looking at one of these recent failures, I see it had 429 members and $1.3MM in asssets; how the hell can you even keep the lights on?) or quickly grow into facsimilies of the big boy. [See below-Ed.].

Oh, and the NCUA’s being pushed to allow greater use of derivatives to moderate interest rate risk as we speak.

A visit to the NCUA’s news pages do confirm this. For example:

  • Last August, the NCUA sued Goldman Sachs over the sale of some bad mortgage securities. Earlier, they’d sued JP Morgan and RBS on similar grounds, and more suits are anticipated. The bad securities—which, according to the NCUA, the Wall Street bankers had (familiarly) claimed were blue chip—led to the failure of five wholesale CUs, which are entities that act as bankers to smaller CUs.
  • On October 27, the NCUA put the Birmingham (Alabama) Financial Federal Credit Union—which had just 429 members and $1.3 million in assets—into conservatorship because of fatal losses. Unlike too big to fail, this one was too small to live.
  • On September 23, the NCUA placed the Chetco Federal Credit Union, serving a region on the California–Oregon border, into conservatorship. It had bought pieces of other CU’s loans, and held $10 million in loans on foreclosed real estate. Buying pieces of other institution’s loans is what you do when you don’t have enough good options of your own.
  • On July 22, the NCUA put the Saguache County (Colorado) Credit Union into conservatorship. Too many of its loans had gone bad. Its focus, reported The Denver Postwas community development in an underbanked part of the state. This is a reminder that credit is no cure for poverty and underinvestment.

And so on. All of which means that CUs are subject to the same problems as the rest of the financial system. As I said in an earlier post, you may like the friendlier service and lower fees of a credit union, but they’re no escape from the financial reality of the USA.

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Responses

  1. Perhaps, but are any of them engaging in illegal activity, or buying off congress? And a failure of a small institution is far more managable. I’m not sure its quite as B+W as you’re making it out to be.

  2. Yeah….i never had any illusions about credit unions. I like them because they’re nicer and have lower fees. Maybe a mass migration to credit unions would pressure the bigger banks to lower their fees but thats aboutit.

  3. I agree with cian. Dollar for dollar, and ethic for ethic, I’d much prefer to have my banking done where the CEO doesn’t make millions and knows my name. At the larger banks, you can go to the same teller every day for a year and she’ll still want to see your ID or have to put your check on hold etc etc…

  4. One last quick note. 11 CUs have failed this year (most for very understandable reasons for modest sums, all of which federally insured.

    87 banks have failed so far this year, for much higher dollar amounts and more than half having multiple depositer accounts in excess of $250,000. Which means that the account holders at CUs will not lose a penny, bank depositers in excess of $250K on the other hand are screwed. Strangely enough, it’s far more difficult to get the details on the bank failures than it was for the CUs. Hmmm I wonder why that is…?

  5. During 2009, when I was unemployed without benefits and trying to finish my dissertation, my wife had an account at JPMChase, and we had a joint account with the Brooklyn Coop FCU in Bushwick. Guess which one was more arbitrary, punitive, moralizing, nasty, and incompetent? A lot of FCU’s are highly dependent on the person running them. Bushwick’s credit union was great until the guy who founded it left it in the hands of Samira from hell.

  6. Indeed. Credit union, coop bank, and mutuals fetishes reek of neo-Proudhonism. There should be just one state-owned enterprise responsible for banking, credit cards, other financial services, and insurance.

    (EU-wise, the European Central Bank should have this monopoly over all members of the EU, really making the historical Gosbank look like a pipsqueek.)

  7. It is not a bad thing to stop doing business with a large organization that has come to believe that it is entitled to a large share of every dollar deposited or traded: Big Banks. Yes CU are subject to the same economic forces as other financial institutions, but they aren’t likely to, or able to blackmail us.
    Transfer you business today. And yes, some of that business will come back to the banks indirectly, but it will erode their power and be a strong message to them: they are not entitled to our business and money.

  8. One of the stronger arguments for moving money:

    http://www.rollingstone.com/politics/blogs/taibblog/another-weapon-for-ows-pull-your-money-out-of-b-of-a-20111028

  9. I visited my local Occupy camp today. An organizer there told me that they are planning to open a bank account. A second organizer clarified, “In a credit union, of course.” It seems that the superiority of credit unions is still conventional wisdom. This critique doesn’t have the same standing yet.

  10. Given that Credit Unions in theory are run by their members, might it not be worth going with the momentum and looking for ways of improving Credit Unions? Maybe ways in which they could be turned into a model, or on a smaller scale a different model of banking.

    People are moving their money on a big scale. Maybe for naive reasons, but that’s still movement and its movement in a direction that has some potential (people can all run for the board of a credit union. There’s something to that). I dunno, but it seems like a teachable moment, or an opportunity or something.

    There was a strong history in the UK of mutual societies, and while they weren’t perfect, they were still a powerful force on the side of the working class. I think people need to be thinking a little more creatively at this point.


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