How safe are credit unions amid bank turmoil? (2024)

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Regional banks are the 'backbone of our economy': Eric Cantor

Former House Majority Leader Eric Cantor argues federal regulators and large banks came to the bankruptcy rescue to ensure Americans' 'confidence' in regional banks.

The failure of Silicon Valley Bank (SVB) and other institutions in recent weeks sparked fear that contagion could catch on, leading many depositors to move their funds to major banks for safety.

However, two regulatory experts say credit unions are actually safer places for folks to put their money than traditional banks, pointing to how the institutions – which largely cater to individuals rather than companies – are much less vulnerable to bank runs or liquidity issues.

How safe are credit unions amid bank turmoil? (2)

Experts say credit unions are a safer place for individuals to park their money than banks. (iStock / iStock)

Credit unions – which are owned by their members – have their own regulator, the National Credit Union Administration (NCUA), which is very much like the Federal Deposit Insurance Corporation (FDIC) that regulates banks. The NCUA insures depositors' funds up to the same threshold as the FDIC, $250,000.

Just like banks, deposits above the $250,000 mark at credit unions are uninsured, But unlike banks, credit unions do not have the same level of risk exposure to the factors that took down SVB and other troubled lenders.

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Mark Treichel, who spent 33 years at the NCUA and served as executive director of the agency, points out the recent bank runs have been driven by uninsured deposits, and it is "substantially less likely" for that to happen to a credit union.

Treichel, who now assists credit unions with the NCUA via his company, Credit Union Exam Solutions, points out that the banks that have failed recently – namely SVB, Signature and Silvergate – all held a large percentage of uninsured deposits, with SVB's uninsured deposits upwards of a whopping 90%.

How safe are credit unions amid bank turmoil? (3)

A worker, middle, tells people that the Silicon Valley Bank headquarters is closed on March 10, 2023 in Santa Clara, California. Silicon Valley Bank hit with a bank run amid a liquity crisis. (Justin Sullivan/Getty Images / Getty Images)

When several uninsured depositors became alarmed over SVB's liquidity issues, many scrambled to pull out their money, causing regulators to step in and stop the bleeding.

However, credit unions are much less likely than banks to have that problem, given that they cater to working people and their depositors are largely individuals whose accounts are lower than $250,000.

Treichel says data shows that the largest 800-or-so banks in the U.S. have an average of roughly 36% of their deposits uninsured. However, even the largest credit unions with more than a billion dollars in assets only have around 9% of their deposits uninsured.

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Dr. Angela Vossmeyer, associate professor of economics at Claremont McKenna College and faculty research fellow at the National Bureau of Economic Research, agrees that on the liability side, credit unions are in a much better place than banks because a greater percentage of their deposits are insured.

On the asset side of things, credit unions and banks alike could run into the same problem SVB had by investing in long-term Treasury securities that end up underwater as the Federal Reserve hikes rates.

How safe are credit unions amid bank turmoil? (4)

Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on Nov. 2, 2022. The central bank has hiked interest rates nine consecutive times since last spring as it aims to rein in inflation. (Photo by Liu Jie/Xinhua via Getty Images / Getty Images)

However, Vossmeyer says the new Bank Term Funding Program set up by regulators in the aftermath should provide the liquidity institutions need in the instance of that occurring moving forward, and both banks and credit unions have access to the program.

It is important to note that credit unions can fail, and have, even prior to the current banking crisis. However, their depositors are made whole from payouts from the NCUA insurance fund.

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Vossmeyer says most credit unions are regulated by the NCUA, but any members concerned about the safety of their deposits can check to be sure their institution is covered by that insurance fund.

In the meantime, she reiterated that a full-fledged "bank" run on a credit union would be highly unlikely, telling FOX Business, "It would take a lot of odd stuff to happen."

How safe are credit unions amid bank turmoil? (2024)

FAQs

How safe are credit unions amid bank turmoil? ›

While credit unions don't receive FDIC protection, member funds are generally insured up to $250,000 by the National Credit Union Administration. (All federal credit unions and most state credit unions offer this coverage.)

Will credit unions be affected by the banking crisis? ›

Beverly Anderson , president and CEO of $29.2 billion-asset Boeing Employees Credit Union in Tukwila, Washington, said the crisis highlighted the fact that credit unions saw little stress from members, and in some cases, credit unions in close proximity to some of the failed banks saw net gains in members and deposits ...

Are credit unions safer than banks during recession? ›

bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money.

What banks are in danger of failing? ›

7 Banks to Dump Now Before They Go Bust in 2023
SHFSSHF Holdings$0.50
WALWestern Alliance$27.32
ECBKECB Bancorp$11.24
PACWPacWest Bancorp$5.97
FFWMFirst Foundation$4.35
2 more rows
May 8, 2023

Is my money at risk in a credit union? ›

All deposits at federally insured credit unions are protected by the National Credit Union Share Insurance Fund, with deposits insured up to at least $250,000 per individual depositor. Credit union members have never lost a penny of insured savings at a federally insured credit union.

What happens to credit unions when banks collapse? ›

If the bank fails, you'll get your money back. Nearly all banks are FDIC insured. You can look for the FDIC logo at bank teller windows or on the entrance to your bank branch. Credit unions are insured by the National Credit Union Administration.

What happens to credit unions when banks crash? ›

Are Credit Unions FDIC Insured? No. Credit unions are insured by the National Credit Union Administration (NCUA). Just like the FDIC insures up to $250,000 for individuals' accounts of a bank, the NCUA insures up to $250,000 for individuals' accounts of a credit union.

Are any credit unions in financial trouble? ›

National Credit Union Administration (NCUA) credit unions had seven conservatorships/liquidations in 2022 and two so far in 2023. While credit unions have experienced several failures in 2022, there were no Federal Deposit Insurance Corp.

Is my money safer in a credit union than a bank? ›

Generally, credit unions are viewed as safer than banks, although deposits at both types of financial institutions are usually insured at the same dollar amounts. The FDIC insures deposits at most banks, and the NCUA insures deposits at most credit unions.

What are the biggest risks facing credit unions? ›

Here are eight risks that credit union leaders can expect in 2024.
  1. People-Centric Practices Are In, Passwords Are Out. ...
  2. Cybercrooks Will Prefer Social Engineering. ...
  3. Identity Attack Surface Will Expand as Digital Engagement Grows. ...
  4. Multi-factor Authentication Schemes Will Find Favor With Cybercriminals.
Feb 2, 2024

Which 4 banks are in trouble? ›

About the FDIC:
Bank NameBankCityCityClosing DateClosing
Heartland Tri-State BankElkhartJuly 28, 2023
First Republic BankSan FranciscoMay 1, 2023
Signature BankNew YorkMarch 12, 2023
Silicon Valley BankSanta ClaraMarch 10, 2023
56 more rows

What banks are most at risk right now? ›

These Banks Are the Most Vulnerable
  • First Republic Bank (FRC) . Above average liquidity risk and high capital risk.
  • Huntington Bancshares (HBAN) . Above average capital risk.
  • KeyCorp (KEY) . Above average capital risk.
  • Comerica (CMA) . ...
  • Truist Financial (TFC) . ...
  • Cullen/Frost Bankers (CFR) . ...
  • Zions Bancorporation (ZION) .
Mar 16, 2023

Which banks are collapsing in 2024? ›

2024 in Brief

There are no bank failures in 2024. See detailed descriptions below.

Should I worry about my money in a credit union? ›

Money held in credit union accounts is insured through the National Credit Union Administration (NCUA). Many types of accounts are covered by insurance such as checking, savings, certificates of deposit, money market accounts, and others.

Should I leave my money in a credit union? ›

Credit unions are federally insured by the National Credit Union Share Insurance Fund (NCUSIF), which is backed by the full faith and credit of the U.S. government. The bank equivalent is the (more widely known) Federal Deposit Insurance Corporation (FDIC).

Which is safer FDIC or NCUA? ›

One of the only differences between NCUA and FDIC coverage is that the FDIC will also insure cashier's checks and money orders. Otherwise, banks and credit unions are equally protected, and your deposit accounts are safe with either option.

Are credit unions protected from collapse? ›

Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.

Are credit unions safe from a bank run? ›

Just like banks, credit unions are federally insured; however, credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, the National Credit Union Administration (NCUA) is the federal insurer of credit unions, making them just as safe as traditional banks.

Are credit unions safe from economic collapse? ›

Stocks, mutual funds and other investments aren't guaranteed in a recession. But money held in a federal credit union, and most state-chartered credit unions, is protected. Credit unions are regulated by the National Credit Union Administration (NCUA), the federal insurer of credit unions.

Are credit unions safe from collapsing? ›

DEPOSITS AT CREDIT UNIONS ARE OFTEN INSURED

The failures we have seen in recent months are highly unlikely at a credit union. Credit unions are similarly insured up to $250,000 by either the National Credit Union Administration or private organizations like American Share Insurance (ASI), rather than the FDIC.

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