In Pictures: Banks vs. Credit Unions in the Financial Crisis

Credit unions are owned by their customers (or, in industry parlance, "members"). Big banks are owned by their shareholders.

A key narrative of the recent Bank Transfer Day was to pit normally sleepy credit unions against the big banking industry. Credit union skeptics are quick to point out the fact that credit unions hardly went unscathed during the 2008 financial crisis, yet CU advocates argue that their institutions fared better than commercial banks.

Are their claims backed up by the numbers?

To find out, I looked at statistics generated over the past 10 years by their respective regulators, the Federal Deposit Insurance Corporation for banks and the National Credit Union Administration for credit unions.

What I found is that in the case of failures, the years before the financial crisis seem to have been a wash, with both types of institutions failing at about the same low rate. When the financial crisis hit, however, the story changed.

In 2008, the rate of commercial bank failures was almost triple that of credit unions (0.60% to 0.23%), and that increased to almost five times the credit union rate in 2010 (1.86% to 0.40%). While the sluggish economy seems to have also negatively affected credit unions, they experienced nowhere near the surge of failures seen in the commercial banking sector.

A similar pattern is evident in the case of institutions considered to be problematic by NCUA or FDIC. Though slightly muddied by the fact that the FDIC does not differentiate between commercial banks and savings banks in their statistics, the picture is still pretty clear: While negatively affected by the crisis, credit unions did not experience the sort of radical departure from their baseline rate that banks did.

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Fool contributor Matt Cropp enjoys incentives, a good beef stew, and combinations of the two. He doesn't own shares in any of the companies mentioned in this article.


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  • Report this Comment On November 22, 2011, at 3:53 PM, DJDynamicNC wrote:

    Glad to see this. I moved my money over to a credit union last week and it's good to have my instinct backed up by solid numbers.

  • Report this Comment On November 22, 2011, at 4:50 PM, ndubb wrote:

    Before I start, I'll disclose that I've worked for a community bank. It's sad to see that smaller banks especially community banks get lumped into the same category of larger banks. The only equalizer smaller community banks have to compete and keep market share in their community is through great customer service and the majority of the time saying yes to the customer rather than saying no. That said, I will also add that these organizations have difficulty surviving and competing with credit unions. Nowadays when Credit Unions want to act like banks and originate commercial business like banks, they somehow manage to avoid paying Uncle Sam 40 cents of the dollar just like community banks. When I see credit unions paying their fair share like community banks, then that's when they'll start earning my business.

  • Report this Comment On November 23, 2011, at 5:08 PM, slpmn wrote:

    The financial crisis of 2008 and subsequent recession were both centered around real estate - first residential, then to a lesser extent, commercial. We all know big banks were burned by their residential mortgage CDOs, which were filled with garbage home mortgages. Community banks had almost no direct exposure to the CDOs, but were burned because they did a lot of the lending to local residential and commercial property developers who were building homes and condos during the boom times. When that market dried up, the loans went bad, and community banks suffered greatly. Historically, credit unions haven't been big players in the real estate lending area, so when the stuff hit the fan, they emerged relatively unscathed.

    Community banks are actively trying to market themselves as being fundamentally different from the big banks, which they are. It is too bad they are both called "banks" because there really is very little commonality between JP Morgan Chase and the First State Bank of Podunck.

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