Bank failures

Risky lending at commercial banks helped precipitate the failure of 331 banks between 2009 and 2011, while only 64 credit unions failed during that same period despite there being roughly the same number of banks and credit unions in 2008.

In fact, the Federal Deposit Insurance Corp.’s (FDIC) Bank Insurance Fund became insolvent in both 2009 and 2010, while the National Credit Union Share Insurance Fund (NCUSIF) was remarkably stable during that time, declining only 6% between 2006 and 2009.

NCUSIF retained a strong balance of $1.23 per $100 in insured deposits versus a negative $0.39 per $100 in insured deposits at the FDIC. Thus, via the Troubled Asset Relief Program (TARP), the government provided emergency loans totaling $236 billion to 710 banks—or 1.93% of all bank assets.

On the other hand, only 48 credit unions received TARP funding for a total of $70 million, or just 0.008% of credit union assets.

While there are many reasons credit unions didn’t engage in the same kind of subprime lending as mortgage companies and banks, credit unions’ unique structure is the main reason.

As not-for-profit, member-owned entities, credit unions have significantly fewer incentives to seek short-term profits and bonuses that clearly aren’t in their members’ best interests.

This creates greater financial stability—benefiting both members and the overall economy.

JORDAN VAN RIJN is CUNA’s senior economist.