Credit Union Capital, Insolvency, and Mergers Before and After Share Insurance

From their beginnings in 1908, U.S. credit unions have grown into a trillion-dollar industry with more than 100 million members. Despite many similarities, credit unions have always differed fundamentally from banks. One fundamental difference was that share accounts in credit unions, unlike bank deposits, were not debt. Thus, credit unions had options to delay and discount payments to account holders. Those options were one reason why, when thousands of banks failed, no credit unions failed during the Great Depression. Insolvency came to credit unions only after share accounts became federally insured in 1971. Insurance and its associated regulations had larger effects on the structure of the credit union industry than it had on the banking industry. Insurance turned bank deposits from risky debt into riskless debt. Insurance largely turned credit union share accounts from risky equity into riskless debt. Thus, insurance introduced insolvency risk and insolvency to credit unions. Before federal insurance, many credit unions voluntarily liquidated, and of those, only about one-fifth imposed losses on their members. After federal insurance took effect in 1971, voluntary liquidations of solvent credit unions became rare. To reduce insolvency risk and losses to the share insurance fund, regulators enabled and encouraged mergers of both strong and weak credit unions. They also discouraged new credit unions. These regulatory responses moved the credit union industry from high entry and low merger rates to near-zero entry and high merger rates. We further argue that the proximate causes of regulation differed between credit unions and banks. Major bank regulations almost always, and only, happened following banking crises. In contrast, major credit union regulations rarely followed crises, but rather usually followed prosperity in the credit union industry. Insurance is one of the examples we give

Credit unions and the common bond

Credit Unions are cooperative financial institutions specializing in the basic financial needs of certain groups of consumers. A distinguishing feature of credit unions is the legal requirement that members share a common bond. This organizing principle recently became the focus of national attention as the Supreme Court and the U.S. Congress took opposite sides in a controversy regarding the number of common bonds that could co-exist within the membership of a single credit union. Despite its importance, little research has been done into how common bonds affect how credit unions actually operate. We frame the issues with a simple theoretical model of credit-union formation and consolidation. To provide intuition into the flexibility of multiple-group credit unions in serving members, we simulate the model and present some comparative-static results. We then apply a semi-parametric empirical model to a large dataset drawn from federally chartered occupational credit unions in 1996 to investigate the effects of common bonds. Our results suggest that credit unions with multiple common bonds have higher participation rates than credit unions that are otherwise similar but whose membership shares a single common bond

Proposed audit and accounting guide : audits of credit unions ;Audits of credit unions; Exposure draft (American Institute of Certified Public Accountants), 1983, Oct. 21

This proposed audit and accounting guide describes operations and accounting practices that are unique to the credit union industry as well as matters that are unique to the audit of a credit unions\u27 financial statements. In addition, it describes some of the regulatory requirements of the industry. The proposed guide states that savings (share) accounts in a credit union should be classified as liabilities on the credit union\u27s statement of financial condition. This presentation is consistent with the prevailing practice in mutually owned savings and loan associations and savings banks. Furthermore, it is consistent with the concept of liabilities expressed in FASB Statement of Accounting Concepts No. 3, Elements of Financial Statements of Business Enterprises. There are those who believe that savings (shares) should be classified as equity for the following reasons: (1) Shares are legally defined as equity; (2) Shares function as equity and represent ownership; (3) As with any corporate stock, shares are at risk. In summary, shares function as equity and those functions are unique to the concept of what a credit union is and what it represents in the world of financial institutions--a cooperative pooling of funds (equity) to be managed for the benefit of the member owners.https://egrove.olemiss.edu/aicpa_sop/1464/thumbnail.jp

Bad loans in the meltdown: micro analysis of credit union performance versus banks, an initial investigation

The current economic crisis has had a devastating impact in the credit markets as evidenced by bank failures, large bailouts and foreclosures. Trillions of dollars have been spent to prop up the financial sector in the U.S. alone. Credit unions, commercial banks and thrifts are where Americans go for home loans, but credit unions have a very different track record when it has come to bailouts from the government. Credit unions instead of taking trillions may ultimately not take a dime from the taxpayer. This paper will try to discern this advantage that credit unions have by focusing on the direct impact felt by financial institutions in the United States through net charge-offs from 1994 through 2009 using an exceptional data set that combines information on credit unions and banks in the U.S. from 1994 through 2009.credit unions; banks; cooperative; defaults; net charge-offs

Audits of credit unions, with conforming changes as of May 1, 1996; Audit and accounting guide:

https://egrove.olemiss.edu/aicpa_indev/1414/thumbnail.jp

Attitudes Towards and Satisfaction with Credit Unions in Alberta. A Regression and Scale Analysis.

Credit unions have played an important historical role in the Canadian economy. However, recent changes in the financial, agricultural and agri-food industry are posing great challenges to Credit unions in Western Canada. Much attention has been given to the impact of competitive rates and the environment offered by banks on credit union performance to the neglect of issues relating to member satisfaction and commitment which may be adding to other problems in the credit union sector. Studies by Feinberg (2001), Sibbald, et al (1999), Loser et. al (1999) , Fried, et. al (1999), Karels and McClatchey (1999) and Tokle, and Tokle (2001) among others have identified key issues relating to the competitive financial roles of credit unions in small financial services, in comparative analysis studies as well as merger related issues. However many of these studies have focused on the financial aspects of credit unions, and have not dealt with broader issues of whether or not the public understands the nature of credit unions, why people stop or intend to continue being members of credit unions. A mailed questionnaire, designed to elicit understanding of and attitudes towards credit unions was sent out to 1500 Alberta residents. In spite of the fact that the survey was complex with no reminder notice sent, the response rate was 12%. Analysis was conducted with a series of scale and logit regression analyses based on the Theory of Planned Behaviour (TpB) (Ajzen and Fishbein 1975, 1980 and Ajzen (2001) to elicit respondents´ beliefs, satisfaction and attitudes towards credit unions, and to measure the factors affecting their intention to patronize credit unions. Results indicate 78% of respondents were familiar with and understood the concept of credit unions. The majority (58%) was male, and 71% were aged 45 or older. Respondents who are active members of a credit union generally held positive attitudes towards their credit unions, and 89% rated their credit unions as performing well under a set of six performance categories. Analysis from the logit models found credit unions involvement with the local community and customer service to be the major reasons for credit union patronage. Elicitation of respondents´ intentions to patronize a credit union from the TpB analysis show that among the three attributes (attitude, subjective norm, and perceived behavior control), respondents´ subjective norm (siblings influence) and perceived behavioral control significantly explained patronization intentions. Results suggest that a 22 percentage of the public is unaware of credit unions, a further 30 percentage was once and is no longer a member of a credit union. For the 58% of the population that remain committed to credit union, there are still significant issues around member involvement in decision making, communication and provision of education/training to them.Agricultural Finance,

Audits of credit unions, with conforming changes as of May 1, 1992; Audit and accounting guide:

https://egrove.olemiss.edu/aicpa_indev/1412/thumbnail.jp

Proposed audit and accounting guide : audits of credit unions ;Audits of credit unions; Exposure draft (American Institute of Certified Public Accountants), 1992, March 20

This proposed audit and accounting guide has been prepared to assist the independent auditor in auditing and reporting on the financial statements of credit unions. It describes relevant matters or procedures unique to these entities and focuses on specific problems of accounting, auditing, and reporting on their financial statements. This proposed guide would supersede the AICPA Audit and Accounting Guide Audits of Credit Unions issued in 1986. One objective of this proposed guide is to heighten auditors\u27 awareness of the complex issues encountered in audits of credit unions\u27 financial statements. Interest-rate risk, liquidity, asset quality, and internal control structure are among the most important concerns in the credit union industry. These areas should also be essential considerations in the auditor\u27s assessment of risk at the financial statement level. A credit union\u27s management must exercise considerable skill and judgment to manage interest-rate risk and maintain liquidity, asset quality, and an effective internal control structure. Similarly, the auditor of a credit union\u27s financial statements should exercise considerable skill and judgment when considering these matters in planning and performing an audit. Interest-rate risk, liquidity, asset quality, internal control structure, and their effect on the auditor\u27s consideration of risk at the account-balance or class-of-transactions level are each discussed in this proposed guide. This proposed guide also describes relevant specific internal control structure policies and procedures and auditing procedures. Further, it stresses the need for industry knowledge and training in auditing certain areas, including the allowance for loan losses. Significant accounting matters addressed in this proposed guide include establishing an adequate allowance for loan losses, valuing real estate acquired, accounting for mortgage-banking activities, accounting for business combinations, and accounting for investment securities held by a credit union. This proposed guide includes illustrations of the form and content of financial statements for credit unions and the auditor\u27s report thereon.https://egrove.olemiss.edu/aicpa_sop/1565/thumbnail.jp

Audits of credit unions (1986); Audit and accounting guide:

https://egrove.olemiss.edu/aicpa_indev/1410/thumbnail.jp

Audits of credit unions, with conforming changes as of May 1, 1994; Audit and accounting guide:

https://egrove.olemiss.edu/aicpa_indev/1413/thumbnail.jp