Skip to Main Content

Credit unions faring well in crisis

Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

The financial crisis hasn’t left credit unions unscathed but they appear to be considerably healthier than their bank counterparts. Industry experts say that’s due in part to the nonprofit nature of credit unions. They are owned by their members — the people who take out the loans and mortgages — and earnings are returned to those members. For-profit banks have shareholders, who may or may not be customers. And, as we all know, the profit incentive sometimes can lead to bad decisions.

While individual credit unions may have steered clear of subprime problems, corporate credit unions — credit unions that serve as credit unions to other credit unions — did run into problems with mortgage-backed securities, according to Michael Schenk, economist at Credit Union National Association, or CUNA, based in Madison, Wis.

“They purchased mortgage-backed securities, which were largely, if not exclusively, AAA-rated but ultimately went bad. These were assets that were created by others outside the credit union movement that were concentrated in what turned out to be these toxic mortgages. So, we’re suffering the indirect effects of that.”

Schenk says the costs associated with fixing the situation are “fairly large” and the industry is working its way through those issues. To date, only 11 of the nation’s 7,846 credit unions have failed during the current crisis compared to 98 failures among the approximately 8,200 banks and thrifts.

Better off than banks

“I would say, generally, given what we’ve just gone through (credit unions) are in very good shape,” Schenk says. “Asset quality isn’t stellar, it’s deteriorated a lot but compared to what the banking sector is dealing with — we’re one-third of what they are in delinquencies and half in net charge-offs.”

Schenk says credit union membership grew by nearly 2 percent the past year in part because people are finding it difficult to get loans elsewhere. CUNA statistics show credit union loan balances growing by approximately 4.5 percent in the 12 months ending June 2009 versus loan balances at banks shrinking by that same percentage during the same time period.

Read about how banks are doing in this article. Explore Bankrate’s Safe & Sound to see how banks in your area and across the nation are faring. Find out if a bank in your state has closed by clicking on this map of failed banks.