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

Real rates and recovery

Interest rates ; Business cycles ; Inflation (Finance) ; Money supply

Inflation-proof long-term bonds

Indexation (Economics) ; Bonds ; Great Britain

OPEC, inflation, and monetary policy

Inflation (Finance) ; Power resources - Prices ; Monetary policy - United States

Policies and prescriptions for safe and sound banking: shocks, lessons, and prospects

The author illustrates the extent to which ensuing regulatory changes conform to the prescriptions of Perspectives on Safe and Sound Banking. He probes whether relatively untested regulatory strictures, such as prompt corrective action, will prevail when banking is heavily stressed. He then discusses how "home-run regulation" extends the reach of individual states' bank charters nationwide and whether the Fed will eventually regulate financial institutions marketwide.Banks and banking ; Bank supervision

Tax-free bonds

Securities, Tax-exempt ; Municipal bonds

Leading economic indicators

Economic indicators

Inflation: retreating or reheating?

Inflation (Finance)

Short-Term Movements of Long-Term Real Interest Rates: Evidence from the U.K. Indexed Bond Market

The central goverment now issues both nominal and iflation indexed long-term bonds in the United Kingdom. The difference in their yields provides one measure of the long-term expevted rate of inflation. The evidence suggests that higher long-term, expected , real yields are associated with forecasts of higher income, with tigher monetary policy, and with positive aggregate supply shocks. Changes in the short-termgrowth rate of the monbetary base, which presumably capture the so-called liquidity effect on the short-terminterst rates, do not perceptibly alterlong-term real rates. Long-term real rates also appear to be unaffected by the rate of expected inflation. Comparison with nominal interest rate equiation estimates reveals that conclusions about the effect of all variables are extremely sensitive to the choice of a proxy for expected long-term inflation.

Excess Reserves in the Great Depression

This article assesses the extent to which government-administered financial shocks and lower interest rates can account for the massive accumulation of bank excess reserves in the Great Depression. Both factors are shown to be statistically significant. Financial shocks did exert astatistically detectable influence on the demand for excess reserves but those shocks at best can account for a step-like increase in the level of reserves held, an increase which was completed in less than a year. Financial shocks can explain no more than 1 percent of the variation in excess reserves during the Great Depression. We demonstrate that the most statistically appropriate form of the demand function is one which flattened rapidly as interest rates fell. The fall in interest rates can account for 80 percent of the movement of excess reserves during the Great Depression.