Two Independent Studies Point to Past and Future Health of Credit Unions

Two research firms recently studied various aspects of the financial services industry, and both pointed to the health and stability of the credit union movement—and to its possibility for an growth and an increased role in rejuvenating the recovering U.S. economy.

A study by the Filene Research Institute entitled, “Commercial Lending During the Crisis: Credit Unions vs. Banks,” showed that commercial loan growth rates for banks turn negative in the periods immediately following the last two recessions, while credit union growth rates remain positive during both periods. The accompanying report, authored by David Smith, an economist at Pepperdine University’s Graziadio School of Business and Management, seeks to quantify the performance of credit union commercial lending at a time when credit unions seek to widen their access to the business lending market.

In December 2010, a year and a half removed from the most recent recession, the study shows that bank commercial loans were still contracting. Though still growing, credit union commercial loan growth rates slowed over that period, suggesting that some credit unions may be nearing the member business lending (MBL) cap—and that without a cap increase, credit unions could be hindered in contributing to the next economic recovery.

The study also suggests that credit union delinquency and charge-off rates compare favorably to those at commercial banks.

The SNL Financial study, meanwhile, looked at deposits in banks and credit unions over the past several years and found that credit union deposit growth rates had been outpacing the banks’ since the financial crisis struck in 2008, almost three years before last fall’s much-publicized Bank Transfer Season.

In terms of sheer deposits, the big banks dwarfed even the largest credit unions, but on a percentage basis, growth was equal at banks and credit unions from late 2006 through late 2008. Credit union deposits have grown 15 percent more quickly since then, however, as credit union deposits at the time of the study were up approximately 43 percent, as opposed to bank deposit growth, which checked in at approximately 31 percent.

According to the study, turbulence in the banking system was the single greatest cause for credit union growth, pointing to the 2008 failure of Washington Mutual and subsequent flood of deposits at BECU as a prime example.

But despite any positive momentum that had already been underway, the study also confirmed that the single greatest factor behind increased credit union growth rates was Bank of America’s brief attempt to assess a $5 monthly fee for debit card use.

According to its website, “SNL Financial combines exclusive analysis and in-depth data in real time for the banking, financial services and insurance industries. From bank branch data and government assistance programs to executive compensation and league tables, SNL is the final word in business intelligence on financial institutions.”


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Posted in Advocacy News, CUNA.