Executive Summary
Our story begins in 1971 when just over half of the 23,281 credit unions in the United States were beginning to adopt federal deposit insurance. Fast forward to the end of 2004 and we find over 95 percent of the 9,345 credit unions utilizing federal deposit insurance.
There are two interesting story lines here. First, there has been a significant decline in the number of credit unions over this time frame. Credit union consolidation through mergers due to such external factors as regulations, economic conditions, competition and technology are the main reason for this decline. Yet a small portion of the consolidation has been due to credit union failures. In the case of credit union failures, federal deposit insurance has proven to be an effective safety net for consumers, credit unions and the general public. This brings us to our second story line: the rapid adoption of federal deposit insurance at credit unions. Credit unions quickly adopted federal deposit to create parity with other depository institutions and for public policy (e.g. safety and soundness) reasons.
What is the research about?
This project constructs the first comprehensive and consistent database of the failures and insurance losses of federally-insured credit unions. The resulting database covers the entire experience since the inception of federal share insurance for credit unions during 1971 through 2004. The database provides data for the failure and loss experiences of credit unions across periods of high and low interest rates, periods of high and low capital ratios, periods of growth and stagnation, periods of regulatory stringency and accommodation, and periods of stasis and consolidation. The database also provides information for the failure and loss experiences of credit unions by asset size groupings. In short, the database provides research, policy, and business strategy analysis and discussions with a new, solid, common empirical foundation.
What are the credit union implications?
The failure of credit unions and the losses that such failures impose on the National Credit Union Share Insurance Fund are important in themselves. These failures are also important because they have repercussions on members of failed credit unions, on members of surviving credit unions, and on local economies. Losses may also have repercussions on surviving credit unions and their members, as well as on taxpayers. Appreciating the magnitudes and causes of these failures and losses can lead to better informed public policies, more appropriate surveillance and supervision of credit unions by regulators, and better risk management strategies for credit unions.