Posted by: Doug Henwood | March 10, 2012

Credit union switch fizzles

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.

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Responses

  1. On the point of what credit unions are doing, rather than invalidate the notion isn’t the issue to use the fact that credit unions are member controlled to change their policy so that instead of pushing their funds back into the same ecosystem, they start to use them differently to put them to more productive use?

  2. Your information is really interesting with facts of the issue. However, it was still a successful campaign and got some very positive p.r. and put some useful information out there. And being in credit unions is still better for consumers because there are less or no fees for their general banking servies (and deprives the big banks of those recurring fees going forward).

  3. Doug, I really appreciated your analysis on this–it opened my eyes to the jibber jabber coming from well meaning but meaningless conversations on the liberal left. I have been a member of a credit union for years, but mine is a large one and I joined through my work. It does have some nice perks like lower fees, but I do not think that nice perks can fix our major economic problems. I no longer fool myself that I am doing tremendous good for all of society by being a member of a credit union. As soon as the PR campaign died down and the media stopped pumping the story, most people forgot about the credit union push and went back to their neighborhood bank branches. PR campaigns sell movies, sneakers, and soap but not major political and economic reform. Life just isn’t that easy. One day it is credit unions and the next day it is whether Lindsay Lohan bombed or was a roaring success on Saturday Night Live.

  4. Good point, Dave. Credit Unions has boards. Get elected to your board!

  5. Kim and Dave. What is the difference between ethics and politics?

  6. Thanks for your interesting and provocative analyses, but there seems to be a bit of apples-and-oranges here.

    First, the money-moving initiatives are not just about credit unions–especially since not everyone qualifies for local ones–so a move to independent / community banks needs to be factored more clearly into your commercial bank statistics.

    Second, your previous “Carver financing gentrification” argument is not clear to me.

    “What is ‘the community’? Is it Carver, financing gentrification? Is it a geographic concept? A demographic? What does it mean in a place like Brooklyn compared to, say, Utica, New York? Why should money stay local? Shouldn’t richer areas help develop poorer ones? None of this has been thought through at all.” (November 9, 2011 at 10:23 am)

    In “thinking this through” for practical purposes, how do you think a CDFI in gentrifying neighborhoods can or should operate?

    http://mybedstuy.com/2012/03/15/whose-bed-stuy-is-it-anyway/#comments

    http://www.observer.com/2008/06/bedstuy-restoration-corporation-marks-40-years-amid-gentrification-chatter/

    Third, you seem to be much gentler on the limitations of Occupy Wall Street than on the limitations of, say, Move Your Money:

    “Occupiers: I love you, I’m glad you’re there, the people I talked to were inspiring—but you really have to move beyond this. Neoliberalism couldn’t ask for a less threatening kind of dissent.” (September 29, 2011)

    It seems to me that the LEAST threatening kind of dissent is the all-or-nothing belief that the personal financial choices of the richest fifth of the world’s people have nothing to do with broader institutional change.

    Regina

  7. […] Fargo to my local credit union, Doug Henwood of the Left Business Observer posted a blog entry “Credit union switch fizzles.” In it he cites the Federal Reserve’s flow of funds account for the forth quarter of 2011 […]


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