Credit Unions and the People’s Money: Estimating the Benefits of Allowing Credit Unions to Accept Public Deposits
Public deposits are pretty much the same as other deposit products, but the deposits trends are far different. A hodgepodge of laws, regulations, and practices in many states restrict the ability of many public entities to deposit funds in credit unions, and of credit unions to accept those funds.
Public deposits in commercial banks ($433 billion, 5% of commercial bank deposits) far outweigh those in credit unions ($1.5B, 0.2% of credit union deposits). Filene seeks to build on local and state-level analyses of this public deposits discrepancy by taking a national look at the consequences of the state-level confusion. This report reviews the state statutes, summarizes interviews with credit union stakeholders, and provides a national and state-by-state analysis of the advantages public entities could reap if they were uniformly allowed to use credit unions as depositories.
It's good policy to allow credit unions to accept public deposits, because it increases choice in the marketplace, provides greater competition, and in many cases provides better convenience for trustees of the public’s money. And the benefits of allowing public entities to deposit funds in credit unions go beyond better interest rates. For instance, there are many very small communities in the United States without a commercial bank but where a credit union is present. Since many of these communities are also low-income areas with special economic challenges, much of the cost of the inefficient public policy of restricting credit unions from participating in the public deposit market falls on those least able to afford it.
Public entities have an obligation to handle their funds wisely, and this research shows why credit unions should be among their options.