Banks are making headlines lately. We recently saw the collapse of Silicon Valley Bank, which was the 16th largest bank in the country. There have also been the creation of new banks, such as the first Black-owned bank in Ohio, Adelphi Bank, and the first woman-owned bank in Ohio, Fortuna Bank.
The news has caused us to reflect on the nonprofit sector and the role credit unions, as nonprofit entities, play in our communities.
Many people are unaware the credit unions are nonprofits. The purpose of credit unions is to promote the well-being of their members through equitable access to loans and cost savings on fees and rates. Under the IRS code, federal credit unions fall under 501(c)(1) and state-chartered credit unions fall under 501(c)(14).
Credit unions are owned by the members, and those member-owners vote for an independent board to oversee operations. Credit unions may serve a specific region or group of individuals such as employees of a certain company or those who are veterans, first responders, educators, or representatives of other groups and industries.
The National Credit Union Administration (NCUA) is the equivalent of the FDIC and its role with for-profit banks, including safeguarding the assets of depositors. It is an independent federal agency whose vision is to strengthen communities and protect consumers by ensuring equitable financial inclusion through a robust, safe, sound, and evolving credit union system.
Last week, a credit union CEO was quoted last week in an article on TheStreet about one of the differences between credit unions and for-profit banks amid the recent failures. He said, “Without a mandate to maximize profits, we have little incentive to make large, risky investments or engage in risky business practices that may generate large returns.”
Although credit unions are run more conservatively than for-profit banks, that does not mean they can’t fail or close. In fact, Bankrate has a list of credit unions that have been in conservatorship, liquidation, and/or merger status. However, it does mean that a credit union’s tax-exempt status may provide more protection because the greater purpose is member benefit rather than shareholder value.
The following NCUA resources provide insight to better understand credit unions and how they serve our community:
- To determine if a credit union is located in your community, visit the credit union locator.
- To understand credit union data, such as total assets held, number of members, name of the CEO, charter year, and membership type, visit this research feature.
- To understand financial performance and other key data points, there are a wide range of reports.
We recognize the role that all financial institutions play in the life and health of people and communities, and we honor the unique role of credit unions in both the nonprofit and banking sectors.
Article by: Kerri Laubethal Mollard, Founder & CEO