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1.The term savings association has replaced S&L to capture the change in the structure of the industry. In 1978, The Federal Home Loan Bank Board (FHLBB), at the time the main regulator of savings associations, began chartering federal savings banks insured by the Federal Savings and Loan Insurance Corporation (FSLIC). In 1982, the FHLBB allowed S&Ls to convert to federal savings banks, the title associated with this sector of the thrift industry was revised to reflect this change.
2. In the 1970s, these Regulation Q ceilings were usually set at rates of 5 ¼ or 5 ½ percent.
Net Interest Margin
Interest income minus interest expense divided by earning assets.
Disintermediation
Withdrawal of deposits from depository institutions to be reinvested elsewhere, e.g., money market mutual funds.
Regulation Q ceiling
An interest ceiling imposed on small savings and time deposits at banks and thrifts until 1986.
Regulator forbearance
A policy not to close economically insolvent FIs, allowing them to continue in operation.
Savings institutions
Savings associations and savings banks combined.
3. At the time of its dissolution in 1995, the RTC had resolved or closed more than 700 savings associations and savings banks at an estimated cost of $200 billion to U.S. taxpayers.
QTL test
Qualified thrift lender test that sets a floor on the mortgage related assets that thrifts can hold (currently, 65 percent).
4. The major enterprises are GNMA, FNMA, and FHLMC.
5. Failure to meet the 65 percent QTL test results in the loss of certain tax advantages and the ability to obtain Federal Home Loan Bank advances (loans).
6. The Federal Home Loan Bank System, established in 1932, consists of 12 regional Federal Home Loan Banks (set up to the Federal Reserve Bank system) that borrow funds in the national capital markets and use these funds to make loans to savings associations that are members of the Federal Home Loan Bank. The Federal Home Loan Banks are supervised by the Federal Home Loan Bank Board.
The Office of Thrift Supervision. Established in 1989 under the FIRREA, this office charters and examines all federal savings institutions. It also supervises the holding companies of savings institutions.
The FDIC. The FDIC oversees and managers the Savings Association Insurance Fund (SAIF), which was established in 1989 under the FIRREA in the weak of FSLIC insolvency. The SAIF provides insurance coverage for savings associations. Savings banks are insured under the FDIC’s Bank Insurance Fund (BIF) and are thus also subject to supervision and examination by the FDIC.
Other Regulators. State chartered savings institutions are regulated by state agencies—for example, the Office of Banks and Real Estate in Illinois—rather than the OTS.
7. The sharp drop in ROA and ROE in 1996 was the result of a $3.5 billion special assessment on SAIF deposits. Without these one-time charges, ROA would have been 0.89 percent rather than the – 0.02 percent in Figure 12-5, while ROE would have been 10.36 percent rather than – 0.26 percent.
8. Behind Travelers Group/Citicorp ($74 billion), and BaneOne/First Chicago NBD ($30 billion).
9. Ownership in corporate credit unions is represented by the deposit accounts of their member credit unions, with each member having equal voting rights.
10. AWANE is a trade association of companies that serve the automotive aftermarket through sales of auto parts and other items. It is the association member companies and firms related to the automotive business, as well as their owners and employees, that AWANE Credit Union serves through its common bond.
Tuesday, March 31, 2009
Thursday, March 12, 2009
Information / monitoring costs . although global expansion allow FI potential to better diversify its geography risk the absolute level of exposure in certain areas such as lending can be high, especially if the FI fail to diversify in an optimal fashion. Portfolio frontier ( see chapter21 ) . foreign activities may also be riskier for the simple reason that monitoring and information collection costs are often higher in foreign markets . for example, Japanese and German accounting standards differ significantly from the generally accepted accounting principles ( GAAP ) that U.S. firms use. In addition, language, legal, and cultural issues can impose additional transaction costs on international activities. Finally, because the regulatory environment is controlled locally and regulation imposes a different array of net cost in each market, a truly global FI must master the various rules and regulation in each market.
Nationalization / expropriation . to the extent that an FI expands by establishing a local presence through investing in fixed assets such as branches or subsidiaries, it faces the political risk that a change in government may lead to the nationalization of those fixed assets .31 if foreign FI in U.S. courts rather than from the nationalizing government. For example, the resolution of the outstanding claims of depository in City corp’s branches in Vietnam following the communist takeover and expropriation of those branches took many years .
Fixed costs . the fixed costs of establishing foreign organization may be extremely high . for example, a U.S.FI seeking an organizational presence in the London banking market faces real estate prices significantly higher than in New York. Such relative cost can be even higher if and F1 choose to enter by buying and existing U.K bank
30.one reason that Sumitomo bank took a limited partnership stake in Goldman Sachs in 1986 was to acquire knowledge and expertise about the management and valuation of complex financial instruments.
31. such nationalizations have occurred with some frequency in African countries
Rather than establishing a new operation because of the cost of acquiring U.K equities (i.e. paying an acquisition premium).these relative cost considerations become even more important if expected volume of business to be generated , and thus the revenue flows, from foreign entry are uncertain. The failure of U.S acquisition of U.K merchant banks to realize expected profits following in the 1986 deregulations in the United Kingdom is a good example of unrealized revenue expectations vis-à-vis the high fixed costs of entry and the cost of maintaining a competitive position.32
Global Banking Performance
While U.S depository institution performance deteriorated only slightly in the early 2000s, not all countries faired as well. In April 2001 the Japanese government announced plans for a government backed purchase of Y 11000 billion ($90 billion) of shares of Japanese banks as part of an increasingly desperate drive to avert a banking collapse, recover from a16 year low in the levels of Japanese equity markets, and stem the country’s real sector decline into recession .this was the third major attempt to bail out the banking system since 1998. previous attempts at bailing out the banking industry were unsuccessful. For example , in march 2001 Fitch investors service ( a major international rating agency ) put 19 of the biggest Japanese banks on their credit watch list. The purchase of bank shares was intended to offset losses from the writing off of the situation has been better in Europe .despite the slowdown in the U.S economy, European banks continued to perform well, even those banks without a significant presence in the United states J.P Morgan securities estimated than in the early 200s more than half of European banks loans outside western Europe were to North America . banks with the largest exposure included those with a retail presence ( Mortgages small business loans )such as ABN AMRO, deutsche bank and HSBC. In most cases, however, these exposure were less than 20 percent of their loan portfolios. There is some concern that economic slow down in the United state will spread to Europe in the 2000s, affecting the performance of all European banks. Indeed in mid 2001, economic growth rates in European Union countries started to fall.
32. however U.S banks and securities firms fared better since the Canadian deregulation of securities business in 1987 (see “Canada’s borrowing its Fat Fees Lures Wall Street” The New York Times , April 15, 1995, p. D1)
Summary
This chapter provided an overview of the major activities of commercial banks and recent trends in the banking industry. Commercial banks rely heavily on deposits to fund their activities, although borrowed funds are becoming increasingly important for the largest institutions. Historically, commercial banks have concentrated on commercial or business lending and on investing in securities. Differences between the asset and liability portfolio of commercial banks and other financial institutions, however , are being eroded due to competitive forces, consolidation, regulation, and changing financial and business technology. Indeed, in the early 2000s , the largest group of assets in commercial bank portfolios were mortgage related. The chapter examined the relatively large decline in the number of commercial banks in the last decade and reviewed reasons for the recent wave of bank mergers. Finally, the chapter provided an overview of this industry’s performance over the last decade and discussed several global issues in commercial banking.
Nationalization / expropriation . to the extent that an FI expands by establishing a local presence through investing in fixed assets such as branches or subsidiaries, it faces the political risk that a change in government may lead to the nationalization of those fixed assets .31 if foreign FI in U.S. courts rather than from the nationalizing government. For example, the resolution of the outstanding claims of depository in City corp’s branches in Vietnam following the communist takeover and expropriation of those branches took many years .
Fixed costs . the fixed costs of establishing foreign organization may be extremely high . for example, a U.S.FI seeking an organizational presence in the London banking market faces real estate prices significantly higher than in New York. Such relative cost can be even higher if and F1 choose to enter by buying and existing U.K bank
30.one reason that Sumitomo bank took a limited partnership stake in Goldman Sachs in 1986 was to acquire knowledge and expertise about the management and valuation of complex financial instruments.
31. such nationalizations have occurred with some frequency in African countries
Rather than establishing a new operation because of the cost of acquiring U.K equities (i.e. paying an acquisition premium).these relative cost considerations become even more important if expected volume of business to be generated , and thus the revenue flows, from foreign entry are uncertain. The failure of U.S acquisition of U.K merchant banks to realize expected profits following in the 1986 deregulations in the United Kingdom is a good example of unrealized revenue expectations vis-à-vis the high fixed costs of entry and the cost of maintaining a competitive position.32
Global Banking Performance
While U.S depository institution performance deteriorated only slightly in the early 2000s, not all countries faired as well. In April 2001 the Japanese government announced plans for a government backed purchase of Y 11000 billion ($90 billion) of shares of Japanese banks as part of an increasingly desperate drive to avert a banking collapse, recover from a16 year low in the levels of Japanese equity markets, and stem the country’s real sector decline into recession .this was the third major attempt to bail out the banking system since 1998. previous attempts at bailing out the banking industry were unsuccessful. For example , in march 2001 Fitch investors service ( a major international rating agency ) put 19 of the biggest Japanese banks on their credit watch list. The purchase of bank shares was intended to offset losses from the writing off of the situation has been better in Europe .despite the slowdown in the U.S economy, European banks continued to perform well, even those banks without a significant presence in the United states J.P Morgan securities estimated than in the early 200s more than half of European banks loans outside western Europe were to North America . banks with the largest exposure included those with a retail presence ( Mortgages small business loans )such as ABN AMRO, deutsche bank and HSBC. In most cases, however, these exposure were less than 20 percent of their loan portfolios. There is some concern that economic slow down in the United state will spread to Europe in the 2000s, affecting the performance of all European banks. Indeed in mid 2001, economic growth rates in European Union countries started to fall.
32. however U.S banks and securities firms fared better since the Canadian deregulation of securities business in 1987 (see “Canada’s borrowing its Fat Fees Lures Wall Street” The New York Times , April 15, 1995, p. D1)
Summary
This chapter provided an overview of the major activities of commercial banks and recent trends in the banking industry. Commercial banks rely heavily on deposits to fund their activities, although borrowed funds are becoming increasingly important for the largest institutions. Historically, commercial banks have concentrated on commercial or business lending and on investing in securities. Differences between the asset and liability portfolio of commercial banks and other financial institutions, however , are being eroded due to competitive forces, consolidation, regulation, and changing financial and business technology. Indeed, in the early 2000s , the largest group of assets in commercial bank portfolios were mortgage related. The chapter examined the relatively large decline in the number of commercial banks in the last decade and reviewed reasons for the recent wave of bank mergers. Finally, the chapter provided an overview of this industry’s performance over the last decade and discussed several global issues in commercial banking.
27.this bank began formal consolidated operations in 2002
28. A.N Berger, Q. Dai , S. Ongena , and D.C Smith, in “To what Extent will the banking industry be Globalized ? A study of bank nationally and reach European Nations. They find that foreign affiliates of multinational companies choose host nation banks for cash management services more often than home-nation or third-nation banks. They also find if a host nation is the choice of nationality, then the firm is much less likely to choose a global bank.
29. this, of course, assumes that stockholders are sufficiently undiversified to value FI s diversifying on their behalf.
28. A.N Berger, Q. Dai , S. Ongena , and D.C Smith, in “To what Extent will the banking industry be Globalized ? A study of bank nationally and reach European Nations. They find that foreign affiliates of multinational companies choose host nation banks for cash management services more often than home-nation or third-nation banks. They also find if a host nation is the choice of nationality, then the firm is much less likely to choose a global bank.
29. this, of course, assumes that stockholders are sufficiently undiversified to value FI s diversifying on their behalf.
20.in the case of bank supplied credit cards, the merchant normally is compensated very quickly but not in stantaneously (usually one or two days) by the credit card issuer. the bank then holds an account receivable against the card user. However , even short delay can represent an opportunity cost for the merchant.
21.for example, the U.S postal service estimates that $2.4 billion was spent on postage foe bills and bank statements in 1995 and that electronic billing will save $900 million of that within 10 years. See “ paying Bills without Any Litter “, “New York Times, July 5, 1996, pp D1-D3
22.in October 1998, city group announced a new internet service covering all areas of retail financial services. This will require it to scrap its existing computer system and build a whole new infrastructure. The new service will be know as E-city (see New York Times, October 5, 1998, pp C1-C4)
23.K.Furst, W.W Lang and D. E. Nolle find that , as of the third quarter of 1999, while only 20 percent of U.S national banks offered internet banking, these transactions accounted for almost 90 percent of the national banking system’s assets and 84 percent of the total number of small deposit accounts. See “internet Banking : developments and prospects” office of the comptroller of the currency, economic and policy analysis working paper 2000-9, September 2000
24. See R.J Sullivan, “How has the adoption of internet banking affected performance and risk in banks?” financial industry perspective, federal reserve bank of Kansas city, December 2000, pp 1-16
21.for example, the U.S postal service estimates that $2.4 billion was spent on postage foe bills and bank statements in 1995 and that electronic billing will save $900 million of that within 10 years. See “ paying Bills without Any Litter “, “New York Times, July 5, 1996, pp D1-D3
22.in October 1998, city group announced a new internet service covering all areas of retail financial services. This will require it to scrap its existing computer system and build a whole new infrastructure. The new service will be know as E-city (see New York Times, October 5, 1998, pp C1-C4)
23.K.Furst, W.W Lang and D. E. Nolle find that , as of the third quarter of 1999, while only 20 percent of U.S national banks offered internet banking, these transactions accounted for almost 90 percent of the national banking system’s assets and 84 percent of the total number of small deposit accounts. See “internet Banking : developments and prospects” office of the comptroller of the currency, economic and policy analysis working paper 2000-9, September 2000
24. See R.J Sullivan, “How has the adoption of internet banking affected performance and risk in banks?” financial industry perspective, federal reserve bank of Kansas city, December 2000, pp 1-16
Wednesday, March 4, 2009
Lanjutan Thrift Institution
In 1997, the banking Industry field two lawsuits in its push to restrict the growing competitive threat from credit unions. The first lawsuit (filed by four North Carolina banks and the American Bankers Association) challenged an occupation-based credit union’s (the AT&T Family Credit Union based in North Carolina) ability to accept members from companies unrelated to the firm that originally sponsored the credit union. In the second lawsuit, the American Bankers Association asked the courts to bar the federal government from allowing occupation-based credit unions to convert to community-based charters. Bankers argued in both lawsuits that such actions, broadening the membership base of credit unions, would further exploit an unfair advantage allowed through the credit union tax-exempt status. In February 1998, the Supreme Court sided with the banks in its decision that credit union could no longer accept members that were not a part of the “common bond” of membership. In April 1998, however, the U.S. House of Representatives overwhelmingly passed a bill that allowed all existing members to keep their credit union accounts. The bill was passed by the Senate in July 1998 and signed in to law by the president in August 1998. This legislation not only allowed CUs to keep their existing members but allowed CUs to accept new groups of members—including small businesses and low-income communities—that were not considered part of the “common bond” of membership by the Supreme Court ruling.
Balance Sheet and Recent Trends
As of 2001, 9,984 credit unions had assets of $505.5 billion. This compares to $192.8 billion in assets in 1988, or an increase of 162 percent over the period 1988-2001. Individually, credit unions tend to be very small, with an average asset size 0f $50.6 million in 2001 compared to $813.0 million for banks. The total assets of all credit unions are smaller than the largest U.S. banking organization(s). For example, Citigroup had $1,111.7 billion in total assets, J.P. Morgan Chase had $712.5 billion in total assets, and Bank of America had $619.9 billion in total assets. This compares to total credit union assets of $505.5 billion in 2001.
8 Table 12-6 shows the breakdown of financial assets and liabilities for credit unions as of year-end 2001. Given their emphasis on retail or consumer lending, discussed above, 36.8 percent of CU assets are in the form of small consumer loans (compared to 6.20 percent at savings associations, 3.38 percent at savings banks, and 14.96 percent at commercial banks) and another 28.5 percent are in the form of home mortgages (compared to 73.42 percent at savings associations, 73.72 percent at savings banks, and 35.44 percent at commercial banks). Together these member loans compose 65.3 percent of total assets. Figure 12-8 provides more detail on the composition of the loan portfolio for all CUs. Because of the common bond requirement on credit union customers, few business or commercial loans are issued by CUs.
Credit Unions also invest heavily in investment securities (23.5 percent of total assets in 2001 compared to 7.5 percent at savings associations, 11.5 percent at savings banks, and 27.4 percent at commercial banks). Figure 12-9 shows that 55.2 percent of the investment portfolio of CUs is in U.S. government Treasury securities or federal agency securities, while investments in order FIs (such as deposits of banks) totaled 33.8 percent of their investment portfolios. Their investment portfolio composition, along with cash holdings (3.9 percent of total assets), allow credit unions ample liquidity to meet their daily cash needs—such as share (deposit) withdrawals. Some CUs have also increased their off-balance sheet activities. Specially, unused loan commitments, including credit card limits and home equity lines of credit, totaled over $83 billion in 2001.
Credit union funding comes mainly from member deposits (almost 90 percent of total funding in 2001 compared to 60.7 for saving associations, 63.0 percent for savings banks, and 66.8 for commercial banks). Figure 12-10 presents the distribution of these deposits in 2001. Regular share draft transaction accounts (similar to NOW accounts at other depository institutions—see Chapters 11 and 13) accounted for 34.2 percent of all CU deposits, followed by certificates of deposits (27.0 percent of deposits), money market deposit accounts (15.9 percent of deposits), and share accounts (similar to passbook savings accounts at other depository institutions but so named to designated the deposit holders’ ownership status) (12.4 percent of deposits). Credit unions tend to hold higher levels of equity than other depository institutions. Since CUs are not stockholder owned, this equity is basically the accumulation of past earnings from CU activities that is “owned” collectively by member depositors. As will be discussed in Chapters 20 and 23, this equity protects a CU against losses on its loan portfolio as well as other financial and operating risks. In December 2001, CUs’ capital-to assets ratio was 9.22 percent compared to 8.21 percent for savings associations, 8.96 percent for savings banks, and 9.09 percent for commercial banks.
5Regulators
Like savings banks and saving associations, credit unions can be federally or state chartered. As of 2001, 61.3 percent of the 9,984 CUs were federally chartered and subject to National Credit Union Administration (NCUA) regulation (see Table 12-1), accounting for 55.2 percent of the total membership and 53.8 percent of total assets. In addition, through its insurance fund (the National Credit Union Share Insurance Fund, or NCUSIF), the NCUA provides deposit insurance guarantees of up to $100,000 for insured credit unions. Currently, the NCUSIF covers 98 percent of all credit union deposits.
Industry Performance
Like other depository institutions, the credit union industry has grown in asset size in the 1990s and early 2000s. Total assets grew from $281.7 billion in 1993 to $505.5 billion in 2001 (79.4 percent). In addition, CU membership increased from 63.6 million to over 79.4 million over the 1993-2001 period (24.8 percent). Assets growth was especially pronounced among the largest CUs (the 1,677 CUs with assets of over $50 million) as their assets increased by 17.4 percent in 2001. In contrast, the 2,957 credit unions with assets between $10 million and $20 million grew by only 4.1 percent and the 5,350 smaller credit unions decreased in asset size by 4.2 percent. Figure 12-11 shows the trend in ROA for CUs from 1993 through 2001. The industry experienced an ROA of 0.96 percent in 2001 compared to 1.08 percent for savings institutions and 1.13 percent for commercial banks. The decreased in ROA over the period is mostly attributed to earnings decreases at the smaller CUs. For example, the largest credit unions experienced an ROA of 1.03 percent in 2001, while ROA for the smallest credit unions was 0.34 percent. Smaller CUs generally have a smaller and less diversified customer base and have higher overhead expenses per dollar of assets. Thus, their ROAs have been hurt.
Given the mutual-ownership status of this industry, however, growth in ROA (or profits) is not necessarily the primary goal of CUs. Rather, as long as capital or equity levels are sufficient to protect a CU against unexpected losses on its credit portfolio as well as other financial and operational risks, this not-for-profit industry has a primary goal of serving the deposit and lending needs of its members. This contracts with the emphasis placed on profitability by stockholder-owned commercial banks and savings institutions
Summary
This chapter provided an overview of the major activities of savings associations, savings banks, and credit unions. Each of these institutions relies heavily on deposits to fund loans, although borrowed funds are becoming increasingly important for the largest of these institutions. Historically, while commercial banks have concentrated on commercial or business lending and on investing in securities, savings institutions have concentrated on mortgage lending and credit unions on consumer lending. These differences are being eroded due to competitive forces, regulation, and the changing nature of financial and business technology, so that the types of interest rate, credit, liquidity, and operational risks faced by commercial banks, savings institutions, and credit unions are becoming increasingly similar.
In 1997, the banking Industry field two lawsuits in its push to restrict the growing competitive threat from credit unions. The first lawsuit (filed by four North Carolina banks and the American Bankers Association) challenged an occupation-based credit union’s (the AT&T Family Credit Union based in North Carolina) ability to accept members from companies unrelated to the firm that originally sponsored the credit union. In the second lawsuit, the American Bankers Association asked the courts to bar the federal government from allowing occupation-based credit unions to convert to community-based charters. Bankers argued in both lawsuits that such actions, broadening the membership base of credit unions, would further exploit an unfair advantage allowed through the credit union tax-exempt status. In February 1998, the Supreme Court sided with the banks in its decision that credit union could no longer accept members that were not a part of the “common bond” of membership. In April 1998, however, the U.S. House of Representatives overwhelmingly passed a bill that allowed all existing members to keep their credit union accounts. The bill was passed by the Senate in July 1998 and signed in to law by the president in August 1998. This legislation not only allowed CUs to keep their existing members but allowed CUs to accept new groups of members—including small businesses and low-income communities—that were not considered part of the “common bond” of membership by the Supreme Court ruling.
Balance Sheet and Recent Trends
As of 2001, 9,984 credit unions had assets of $505.5 billion. This compares to $192.8 billion in assets in 1988, or an increase of 162 percent over the period 1988-2001. Individually, credit unions tend to be very small, with an average asset size 0f $50.6 million in 2001 compared to $813.0 million for banks. The total assets of all credit unions are smaller than the largest U.S. banking organization(s). For example, Citigroup had $1,111.7 billion in total assets, J.P. Morgan Chase had $712.5 billion in total assets, and Bank of America had $619.9 billion in total assets. This compares to total credit union assets of $505.5 billion in 2001.
8 Table 12-6 shows the breakdown of financial assets and liabilities for credit unions as of year-end 2001. Given their emphasis on retail or consumer lending, discussed above, 36.8 percent of CU assets are in the form of small consumer loans (compared to 6.20 percent at savings associations, 3.38 percent at savings banks, and 14.96 percent at commercial banks) and another 28.5 percent are in the form of home mortgages (compared to 73.42 percent at savings associations, 73.72 percent at savings banks, and 35.44 percent at commercial banks). Together these member loans compose 65.3 percent of total assets. Figure 12-8 provides more detail on the composition of the loan portfolio for all CUs. Because of the common bond requirement on credit union customers, few business or commercial loans are issued by CUs.
Credit Unions also invest heavily in investment securities (23.5 percent of total assets in 2001 compared to 7.5 percent at savings associations, 11.5 percent at savings banks, and 27.4 percent at commercial banks). Figure 12-9 shows that 55.2 percent of the investment portfolio of CUs is in U.S. government Treasury securities or federal agency securities, while investments in order FIs (such as deposits of banks) totaled 33.8 percent of their investment portfolios. Their investment portfolio composition, along with cash holdings (3.9 percent of total assets), allow credit unions ample liquidity to meet their daily cash needs—such as share (deposit) withdrawals. Some CUs have also increased their off-balance sheet activities. Specially, unused loan commitments, including credit card limits and home equity lines of credit, totaled over $83 billion in 2001.
Credit union funding comes mainly from member deposits (almost 90 percent of total funding in 2001 compared to 60.7 for saving associations, 63.0 percent for savings banks, and 66.8 for commercial banks). Figure 12-10 presents the distribution of these deposits in 2001. Regular share draft transaction accounts (similar to NOW accounts at other depository institutions—see Chapters 11 and 13) accounted for 34.2 percent of all CU deposits, followed by certificates of deposits (27.0 percent of deposits), money market deposit accounts (15.9 percent of deposits), and share accounts (similar to passbook savings accounts at other depository institutions but so named to designated the deposit holders’ ownership status) (12.4 percent of deposits). Credit unions tend to hold higher levels of equity than other depository institutions. Since CUs are not stockholder owned, this equity is basically the accumulation of past earnings from CU activities that is “owned” collectively by member depositors. As will be discussed in Chapters 20 and 23, this equity protects a CU against losses on its loan portfolio as well as other financial and operating risks. In December 2001, CUs’ capital-to assets ratio was 9.22 percent compared to 8.21 percent for savings associations, 8.96 percent for savings banks, and 9.09 percent for commercial banks.
5Regulators
Like savings banks and saving associations, credit unions can be federally or state chartered. As of 2001, 61.3 percent of the 9,984 CUs were federally chartered and subject to National Credit Union Administration (NCUA) regulation (see Table 12-1), accounting for 55.2 percent of the total membership and 53.8 percent of total assets. In addition, through its insurance fund (the National Credit Union Share Insurance Fund, or NCUSIF), the NCUA provides deposit insurance guarantees of up to $100,000 for insured credit unions. Currently, the NCUSIF covers 98 percent of all credit union deposits.
Industry Performance
Like other depository institutions, the credit union industry has grown in asset size in the 1990s and early 2000s. Total assets grew from $281.7 billion in 1993 to $505.5 billion in 2001 (79.4 percent). In addition, CU membership increased from 63.6 million to over 79.4 million over the 1993-2001 period (24.8 percent). Assets growth was especially pronounced among the largest CUs (the 1,677 CUs with assets of over $50 million) as their assets increased by 17.4 percent in 2001. In contrast, the 2,957 credit unions with assets between $10 million and $20 million grew by only 4.1 percent and the 5,350 smaller credit unions decreased in asset size by 4.2 percent. Figure 12-11 shows the trend in ROA for CUs from 1993 through 2001. The industry experienced an ROA of 0.96 percent in 2001 compared to 1.08 percent for savings institutions and 1.13 percent for commercial banks. The decreased in ROA over the period is mostly attributed to earnings decreases at the smaller CUs. For example, the largest credit unions experienced an ROA of 1.03 percent in 2001, while ROA for the smallest credit unions was 0.34 percent. Smaller CUs generally have a smaller and less diversified customer base and have higher overhead expenses per dollar of assets. Thus, their ROAs have been hurt.
Given the mutual-ownership status of this industry, however, growth in ROA (or profits) is not necessarily the primary goal of CUs. Rather, as long as capital or equity levels are sufficient to protect a CU against unexpected losses on its credit portfolio as well as other financial and operational risks, this not-for-profit industry has a primary goal of serving the deposit and lending needs of its members. This contracts with the emphasis placed on profitability by stockholder-owned commercial banks and savings institutions
Summary
This chapter provided an overview of the major activities of savings associations, savings banks, and credit unions. Each of these institutions relies heavily on deposits to fund loans, although borrowed funds are becoming increasingly important for the largest of these institutions. Historically, while commercial banks have concentrated on commercial or business lending and on investing in securities, savings institutions have concentrated on mortgage lending and credit unions on consumer lending. These differences are being eroded due to competitive forces, regulation, and the changing nature of financial and business technology, so that the types of interest rate, credit, liquidity, and operational risks faced by commercial banks, savings institutions, and credit unions are becoming increasingly similar.
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