Credit unions in good shape

October 19, 2008
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Small community banks, like Commercial Bank in Greenville, aren’t the only financial institutions that have so far escaped the nearly unprecedented and grizzly clutches of the current fiscal meltdown.

It’s also mostly business as usual for almost all of the state’s credit unions right now.

“Credit unions are performing well in a very, very tough financial market. Obviously, that’s an understatement. They continue to grow. They continue to expand. They continue to have money to lend,” said David Adams, president and CEO of the Michigan Credit Union League, in a phone conversation from his office in Northville Township.

Adams said credit unions added 2 million members nationwide during the first half of this year, with 100,000 of those joining one in Michigan. Over a full year, that membership gain represents an annual growth rate of 6 percent nationally.

Total assets in the state’s credit unions grew by $1.9 billion, or 5.89 percent, over the same six-month period. State credit unions now have 4.4 million members.

“We’re continuing to see people look to a credit union as a safe haven, if you will. And when you look at the performance metrics, credit unions are very well capitalized. The primary measure of strength is the capital-to-assets ratio and, on average, that’s at 12 percent in Michigan and the highest it’s ever been,” said Adams. “So they’re faring very well.”

Still, Adams said MCUL members haven’t completely sidestepped the home mortgage and investment banking scandals. Foreclosures are up this year at credit unions, too, but only slightly, he said. And the economic fallout from declining home values and job layoffs also has hit credit unions.

“I am not right now aware of a single credit union that is affected to the point where they’re going to have to merge into another credit union, which is typically what happens when a credit union or a bank fails. I’m not aware of a single one that has those kinds of problems,” said Adams.

“Now, that’s not to say we won’t have some. We have 350 credit unions. We may well have a few credit unions, as a result of this, that will have to merge. But the strength of credit unions is better than it’s ever been,” he added.

Adams said credit unions have stayed strong because the businesses are conservatively run and have remained focused on what’s right for their members. He called those two factors the “big differentiator” that distinguishes credit unions from others.

“When other institutions are making these so-called liar loans and cranking out mortgage loans that aren’t good for people, or making investments in mortgage-backed securities that have proven to be the heart of this meltdown, credit unions have not engaged in those practices because their mission is to serve their members,” he said.

Credit union accounts are now federally insured for up to $250,000 until the end of next year through the National Credit Union Association, a cousin to banking’s Federal Deposit Insurance Corp.

While depositors everywhere are looking for safety during this crisis, Adams senses that isn’t the only thing people are hoping to find.

“It goes beyond safety — that’s the bare minimum people expect. What people should want, and I think do want, is they want to trust their financial-services partner — somebody who is not going to put you into a liar loan, a mortgage you can’t afford. Somebody who is not going to just sell you product,” he said.

“Because credit unions are not-for-profit cooperatives, they’ve earned a reputation of being the most trusted financial institution in the market. Their mission is to serve their members and not to generate a profit.”

Credit unions came about because of the damage the Great Depression did beginning in 1929, which is somewhat ironic because that is the time the current financial crisis is most often compared to. MCUL was organized near the end of that horrible period, in 1934.

“When you look at what’s happening in the financial-services industry right now, it is a result of some larger banks and some larger financial institutions taking their eye off the ball and focusing more on swinging for the fences and hitting a home run from a profit standpoint, as opposed to asking themselves, ‘What is best for our customers?’” said Adams.

“If they had been asking themselves (that), most of those large banks that were at the heart of the problem with this would not have been putting people into those mortgage loans that were made for their customers. We don’t do that.”

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