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Credit Unions Play Important Role in U.S. Financial Industry

In recent years, the credit union industry has grown faster than any other financial intermediary, adding more than $100 billion in assets between 1988 and 1995. A recent Economic Commentary from the Federal Reserve Bank of Cleveland looks at the industry: its history, structure, and role in today’s financial marketplace.

The Commentary’s author, Payments System Specialist Barbara A. Good, says that, like banks, credit unions are depository institutions and must have a state or federal charter. Unlike banks, however, accounts in federally chartered credit unions were uninsured until 1970, when President Nixon signed a law establishing the National Credit Union Share Insurance Fund (NCUSIF). All federal credit unions are required to have NCUSIF insurance, and state-chartered credit unions can obtain this insurance at their option if they satisfy the criteria established by law. From a financial standpoint, the tax benefits that most credit unions enjoy are the chief difference between them and other financial service providers.

Credit unions are also different from other depository institutions in that their services are not available to the general public. Credit union charters require a business plan directed at groups that have a common bond, such as occupation, association, or residence. Despite this restriction, credit unions have evolved into increasingly competitive, customer-oriented providers of financial services that today serve more than 68 million customers.

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