The Wonderful tourism

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.