CREDIT UNIONS

1
CHAPTER 21

• CREDIT UNIONS

2
CHAPTER OBJECTIVES

• Describe characteristics of credit unions
• Describe main sources and uses of funds
• Review how credit unions are regulated
• Review the risks of credit unions

3
MAJOR CHARACTERISTICS

• Nonprofit
• Mutual form of ownership
• Common bond of members
• Federal and state charters
• Limited diversification
• Relatively small

4
ADVANTAGES

• Pay no federal income taxes
• Able to offer attractive rates
• Employer supported facilities volunteer workers
• Powerful grass-roots lobby and trade associations

5
DISADVANTAGES

• Poor diversification
• High liquidity needs
• Concentrated default risk
• Management concerns
• Internal controls
• Volunteers vs. Professionals
• Small entities
• Difficult to attain scale economies

6
SOURCES OF FUNDS

• Member Share Deposits
• Share Accounts
• Share Certificates (CDs)
• Share Draft Checking Accounts
• Other Borrowing
• State Corporate Credit Unions
• Federal Central Liquidity Facility
• Capital (Retained Earnings)

7
USES OF FUNDS

• Member Consumer Loans
• Member Mortgage Loans
• Investment Securities

8
REGULATION OF CREDIT UNIONS

• Federally Chartered
• National Credit Union Administration
• National Credit Union Share Insurance Fund
  (NCUSIF)
• State Chartered
• State Regulators
• Private or NCUSIF Deposit Insurance

9
RISKS OF CREDIT UNIONS

• Liquidity Risk
• Default Risk
• Interest Rate Risk