Today's question: We would like to know if our money is as safe in a credit union as it is in a bank insured by the Federal Deposit Insurance Corp. If the plant or agency that sponsors the credit union closes, how long would it take for us to get our money, assuming that all the employes tried to withdraw their money at once?
This is a particularly rough period for the nation's credit unions, which now number about 22,000 with close to 40 million members.
With numbers like that, it is easy to understand why executives of commerical banks and savings and loan associations are concerned about new competition from the credit union front.
But, as with the other financial institutions, nothing should be taken for granted by consumers when deciding where to put their savings. Most credit unions do not account insurance that parallels coverage of deposits at insured banks and S&Ls, but there are some without such protection. Similarly most savings and loan accounts are insured by the Federal Savings and Loan Insurance Corp. or institutions in various states (such as the Maryland Savings Share Insurance Corp.), and most banks are insured by the FDIC.
And now is the time to find out about insurance if you have a credit union account, because raging inflationary pressures and high costs of borrowing money have caused a significant outflow of savings funds from credit unions. As is true with all types of financial institutions, those which may have bad management could face a squeeze so tight that they have to close down.
In the past week, two very small banks have been forced to go out of business because of long-term problems. Livingston State Bank in New Jersey and American National Bank of Houston were closed last weekend; by last Monday, the Livingston accounts had been transferred to an existing bank and American accounts were in a newly formed institution.
One bank had suffered from chronic loan and management problems, and the other had dabbled in high-risk loans. No depositors suffered losses in either case. The FDIC covered accounts up to a statutory limit of $40,000 for each account but all deposits were protected in these two cases because federal and state bank regulators arranged for other institutions to assume the banking activities.
If a credit union failed, consumers would be in a similar situation, at least for those institutions with federal or state insurance.
A little history is in order at this point. A credit union is a cooperative and nonprofit organization of persons with some common tie -- occupation, association or residence. Their purpose is to form a pool of savings among members on which interest is paid and from which loans can be made to members.
Credit unions started in Germany in the mid-19th Century, specifically to fight high interest rates. Churches frequently organized the groups. The first U.S. credit union opened in 1908, in New Hampshire, and the concept spread gradually to other states. At the time of the Depression, there were about 2,000 credit unions, and a Federal Credit Union Act passed in 1934 spurred the development of credit unions at the time.
Waves of credit union membership and deposit growth took place in the 1950s and 1960s, and particularly after enactment in 1970 of federal share insurance legislation. Total assets of credit unions now top $60 billion.
Of the more than 22,000 credit unions, 12,700 have federal charters and federal insurance under the National Credit Union Administration, a federal agency. Some 4,400 state-chartered credit unions also have federal insurance and virtually all of the remaining 5,000 or so credit unions have either state insurance from agencies in their respective jurisdictions or private insurance.
Credit unions are particularly active in the Washington region, principally because of the big base of federal workers with common employment ties. Six of the 40 largest credit unions are based here, including the two biggest -- Navy Federal Credit Union and Pentagon Federal Credit Union. b
In the District, credit union deposits are a much more substantial part of total financial institution deposits than in other large cities. In 1977, for example, D.C. credit union deposits were $2.1 billion compared with $455 million in San Francisco and $514 million in Dallas-Ft. Worth. At the same time, D.C. bank deposits were more than $4 billion, and S&L deposits totaled about $3 billion.
So, although credit union totals still are less than for banks and S&Ls, they are a more substantial portion of overall deposits here than in other metropolitan areas. All D.C. credit unions are federally insured.
NCUA is the symbol to look for to determine whether a credit union has federal insurance. The letters stand for National Credit Union Administration and indicate that member share accounts are insured to a maximum of $40,000. The credit unions pay the cost of insurance through annual premiums of one-12th percent of total savings deposits. A National Credit Union Share Insurance Fund consists of this money and earnings from investments of the fund.
Credit unions approved for federal insurance are subjected to regular examinations by state and federal regulators. But failures do occur, and in such instances each insured account is backed. Joint accounts and individually owned accounts are covered. State insurance also covers at least $40,000, where applicable.
A member with more than $40,000 in a closed insured credit union also has a claim for amounts in excess of the insured maximum. After creditors' interests have been satisfied, account owners will share on a pro rate basis in proceeds from liquidation of the credit union assets.
A brochure, "Your Insured Funds," has been printed for the NCUA and is available for 50 cents from the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402. Ask for document number 054-000-00051-1.
Single copies of separate brochures about credit union operations -- available in English or Spanish -- are free from NCUA, Washington, D.C. 20456. In addition, questions about credit union operations in this region (Delaware, D.C., Maryland, Virginia, West Virginia and Pennsylvania) may be forwarded to the Regional Director of NCUA, Federal Building, 228 Walnut Street, Box 926, Harrisburg, Pa., 17108.