Credit Union Structure, Growth and Regulatory Problems

Abstract

At year end 1979, there were 12,738 Federal and 4,769 state chartered federally insured credit unions in the United States. Their assets were $36.5 billion and $18.5 billion, respectively. The industry was the fastest growing of all financial intermediaries during the early to mid-1970s. Factors contributing to a growth rate of 18 percent from 1970 to 1978 were the absence of Regulation Q restrictions on CU dividend rates, tax exempt status of CUs, the advent of share insurance in 1970 and the impact of sponsor subsidies. However, during 1979, federal credit union savings grew by only 2.4%, which was more than 85% lower than in the preceding year and was the slowest annual growth rate on record. Indeed, since 1977, federal credit unions have gone from the fastest growing to the second slowest growing type of depository institution. The reason for the changes in credit unions will be discussed after this section which provides background information on the structure of the industry. That structure has, historically led to a reduction in risk. The basic components of that structure are common bond and sponsorship.' Common Bond Credit unions are unique financial depository institutions in that they are consumer cooperatives and are limited to serving the market for consumer credit and savings. Generally, these institutions cannot do business with the general public due to charter limitations based on serving a membership that is characterized by a common bond. The common bond is based on occupation, association or residence. The only exceptions are generally found under state law and apply to state chartered institutions. The common bond restriction on credit union membership is assumed to reduce the cost of gathering credit information, reducing bad debt losses and manifests * National Credit Union Administration. The views expressed herein are those of the authors and do not necessarily reflect those of the National Credit Union Administration. ' An extensive review of the history of credit unions and the institutional structure is found in