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Credit Unions

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Re: Credit Unions

#21

Post by toast0 »

causality0 wrote: post #2

I exclusively use a credit union, but frankly I could not tell you whether it's more or less vulnerable to market instability or bank runs than a larger bank. It might be more stable for the sheer fact of being very local and nobody around here really cares what's going on in big cities or in silicon valley.

Many of the credit unions I've looked at don't allow commercial accounts. There's not a whole lot of need for people to hold more than the deposit insurance amount in one institution, whereas it does make sense for many companies. If more of the deposits are covered by deposit insurance, I think there's less of a risk of a bank run --- I wouldn't try to get a significant amount out of my accounts even if I knew the credit union was going to fail, because I know I can get it all on the Monday after it fails; guaranteed by NCUA, backed by the US Government. Still, I think a significant run would likely cause the credit union to fail, it's not easy to provide 20% of deposits on one day.

Some credit unions do provide service to businesses though. So they might have similar concentration of account issues.

Re: Credit Unions

#22

Post by SkyMarshal »

FormerBandmate wrote: post #17
SkyMarshal wrote: post #6

Earlier quoted context omitted.

It seems possible any deposit-taking financial institution could have made the same mistake as SVB, be they a bank or credit union or anything else. I don't think merely being a credit union will shield them from this. They may have some by-laws though that do protect them, but that's on a case-by-case basis.

You can look up call reports to see how much exposure they have to long-dated treasuries. Most major credit unions have almost nothing, and they also don’t have nearly the amount of depositors above $250k so they’re not really vulnerable to bank runs

Thanks. Looks like you can find call report data for all credit unions here:

https://ncua.gov/analysis/credit-union-corporate-call-report...

Re: Credit Unions

#23

Post by justin66 »

causality0 wrote: post #2

I exclusively use a credit union, but frankly I could not tell you whether it's more or less vulnerable to market instability or bank runs than a larger bank. It might be more stable for the sheer fact of being very local and nobody around here really cares what's going on in big cities or in silicon valley.

> frankly I could not tell you whether it's more or less vulnerable to market instability or bank runs than a larger bank

For starters, there is not a conceivable credit union equivalent to VCs telling all their companies to withdraw all they can from their bank on a single day. Credit unions can offer business accounts as well as individual accounts... but still.

Re: Credit Unions

#24

Post by SkyMarshal »

crabmusket wrote: post #19
SkyMarshal wrote: post #6

Earlier quoted context omitted.

It seems possible any deposit-taking financial institution could have made the same mistake as SVB, be they a bank or credit union or anything else. I don't think merely being a credit union will shield them from this. They may have some by-laws though that do protect them, but that's on a case-by-case basis.

*by-laws

Thx, fixed :)

Re: Credit Unions

#25

Post by dhosek »

toast0 wrote: post #21
causality0 wrote: post #2

I exclusively use a credit union, but frankly I could not tell you whether it's more or less vulnerable to market instability or bank runs than a larger bank. It might be more stable for the sheer fact of being very local and nobody around here really cares what's going on in big cities or in silicon valley.

Many of the credit unions I've looked at don't allow commercial accounts. There's not a whole lot of need for people to hold more than the deposit insurance amount in one institution, whereas it does make sense for many companies. If more of the deposits are covered by deposit insurance, I think there's less of a risk of a bank run --- I wouldn't try to get a significant amount out of my accounts even if I knew the c…

You’re assuming rationality on the part of depositors. I remember there being a run on a local savings and loan in the town where I grew up when I was in my 20s. I knew a few people who had money in CDs, well below the insurance amount, who took the early withdrawal penalties to take their money out of the S&L even though they were insured and their was no chance of any loss if they just held tight. Sort of like all the people who panic sell at a loss when the stock market dips.

Re: Credit Unions

#27

Post by toast0 »

dhosek wrote: post #25
toast0 wrote: post #21

Earlier quoted context omitted.

Many of the credit unions I've looked at don't allow commercial accounts. There's not a whole lot of need for people to hold more than the deposit insurance amount in one institution, whereas it does make sense for many companies. If more of the deposits are covered by deposit insurance, I think there's less of a risk of a bank run --- I wouldn't try to get a significant amount out of my accounts even if I knew the c…

You’re assuming rationality on the part of depositors. I remember there being a run on a local savings and loan in the town where I grew up when I was in my 20s. I knew a few people who had money in CDs, well below the insurance amount, who took the early withdrawal penalties to take their money out of the S&L even though they were insured and their was no chance of any loss if they just held tight. Sort of like all…

I mean, if people run, the bank or credit union will fail. But people are fundamentally lazy and there's not much of a difference between getting your money on thursday and the next monday, so there's less urgency. People are also fundamentally panicy too, so I agree there's still a risk.

Stock market 'circuit breakers' that halt trading when the stock moves too fast seem to be pretty helpful. Maybe banks need something that halts withdrawals when they reach 10% of last reported deposits. (Spit ball: each depositor may withdrawal at least 10% of their current balance or last two statement balances, whichever is more, any excess is allocated on a dollar basis across the day's withdrawal requests. Some mechanism to pre-request funds so you can be sure you can wire large payments for houses, etc)

Re: Credit Unions

#30

Post by Scoundreller »

UncleOxidant wrote: post #10
causality0 wrote: post #2

I exclusively use a credit union, but frankly I could not tell you whether it's more or less vulnerable to market instability or bank runs than a larger bank. It might be more stable for the sheer fact of being very local and nobody around here really cares what's going on in big cities or in silicon valley.

> It might be more stable for the sheer fact of being very local Being very local (and concentrated on one sector) didn't help SVB. Most credit unions require (or used to) you to be in some industry or union, etc to join. Like teacher's credit unions, etc. So potentially there would be sector exposure. But I think in recent years most CUs have relaxed those requirements (I know the one I'm in did) and allow pretty mu…

Usually the key words you're looking for here are "open-bond" (open to all, but sometimes still geographical restrictions) vs. "closed-bond" (ethnicity, occupation, religion)
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