Jan 01 1998

Financial Strength: A Comparison of State and Federal Credit Unions

Report  
Number  
39

This report examines and compares the financial strength of state credit unions and federal credit unions.

William A. Kelly, Jr.
Center for Credit Union Research
University of Wisconsin-Madison
Report Number 39

Executive Summary

Are state-chartered credit unions less safe and sound than federally-chartered credit unions? Or are federally-chartered credit unions on significantly less stable financial footings than state-chartered credit unions?

Answers to these questions are very important to credit unions, regulators, lawmakers, and consumers. This report finds that both chartering systems have remarkably similar operating rations and safety and soundness levels. Also included in the report is an examination of National Credit Union Share Insurance Fund losses over fifteen years. This study provides a building-block for future studies on the optimal role of federal and state governments in regulating and supervising credit unions.

What is this research about?

The Center for Credit Union Research undertook this study to determine whether, and to what extent, federally-chartered credit unions differed from state-chartered credit unions regarding financial performance in general and measures of safety and soundness in particular. This study rigorously examines and compares the levels of financial strength of 4,546 state credit unions to 7,149 federal credit unions. Overall, the results are clear: state-chartered credit unions and federally-chartered credit unions have remarkably similar operating ratios and safety and soundness levels. 

What are the credit union implications?

Inadequate levels of financial strength for either group could set the stage for widespread failures of credit unions. This would produce grave social and economic consequences for credit union members and the general public. Without the benefit of solid data about the relative financial strength of state versus federal credit unions, lawmakers and regulators might fail to respond to unique safety and soundness threats that might be associated with either type of charter. Or they might overreact to distorted claims of disparate levels of safety and soundness. For example, they might end dual-chartering options.

This report is sponsored by the Center for Credit Union Research at the University of Wisconsin - Madison.