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January 17, 2018 

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MARSHALLIAN CROSS: The standard market diagram, so beloved by undergraduate economics students, with price measured on the vertical axis and quantity measured on the horizontal axis, that presents the law of demand as a downward-sloping demand curve and the law of supply as an upward-sloping supply curve. The derivation of this name comes from it's creator, Alfred Marshall, and that market equilibrium is achieved where the demand and supply curves intersect, or "cross."

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CREDIT UNIONS:

Non-profit depository financial institutions that were originally established to provide members of a specific group, such as employees of a company, with low-cost personal loans higher interest on deposits than available through traditional banks. Credit unions are chartered and regulated by the National Credit Union Administration. While credit unions are not "officially" chartered as banks, similar to other thrift institutions (savings and loan associations and mutual savings banks) they do function comparable to any traditional bank, offering a wide range of deposits, loans, and other financial services.
Credit unions are non-profit checking-account-issuing financial intermediaries that tend to be relatively small operations compared to traditional banks. They offer a wide range of financial services, including checking accounts, savings accounts, certificates of deposits, personal loans, credit cards, and car loans.

By virtue of their non-profit status, they do not officially have "owners" but are operated by and for their members (that is, customers). The members pool their funds (that is, make deposits) which are then used for loans to other members. Any revenue generated over and above expenses (that is, profit) is returned to the members through dividend (interest) payments on deposits.

Credit unions were originally credited to fill a perceived gap in the banking services offered by traditional banks. Many credit unions were originally affiliated with labor unions or at least the employees of a particular business, having titles something like "Mega Corporation Employees Credit Union." In the same way that labor unions were created because employees felt they were not being treated fairly by their employers, credit unions were created because these same folks also felt they were not be treated fairly by banks.

All For One, One For All

Credit unions are non-profit cooperative organizations. Qualified members join by "buying" shares in the credit union, which is achieved by making a minimum deposit of $5 to $10. For this reason deposits are commonly termed "share" accounts. The share terminology is used for a range of accounts--share deposits (savings), share drafts (checking), and share certificates (certificates of deposit).

As a cooperate organization, each member has a voice in the operation of the credit union. Members vote for the governing board of directors and can also volunteer to serve on the board. This governing board is responsible for setting credit union policy, especially interest rates charged for loans and paid on deposits.

As a non-profit organization, credit unions are "owned" by the members, rather than third-party stockholders. Any "profit" generated by a credit union is then returned to members as dividends on share accounts.

Membership is usually confined to those in a particular group, such as employees of a particular business, members of a particular church, or workers in a particular occupation. In recent years, many credit unions have relaxed membership qualifications to broaden their potential customer bases (such as residents of a particular city).

Credit union deposits are insured by the National Credit Union Share Insurance Fund, a counterpart to the Federal Deposit Insurance Corporation, which insures deposits at traditional banks. While the amount is subject to change, deposits are currently insured up to $100,000. This insurance fund is operated through the National Credit Union Administration.

The Regulators

Comparable to traditional banks, credit unions are subject to a number of government regulatory agencies. The two most notable ones are:
  • National Credit Union Administration: The primary credit union regulating authority is the National Credit Union Administration (NCUA). The NCUA is responsible for chartering federal credit unions (credit unions can also be chartered by each of the 50 states) and also keeps a regulatory eye on their operation.

  • Federal Reserve System: Credit unions are also subject to money supply regulations by the Federal Reserve System. Because share drafts are included in the checkable deposits component of the M1 money supply, credit unions come under the same money supply regulations that were original established to control checkable deposits held by traditional banks.

A Little Background

The first credit union established in the United States, The Caissse Populaire St. Marie, popped onto the economic scene in Manchester, New Hampshire in 1909. It now operates under the name St. Mary's Bank. The concept of a credit union type organization, however, was actually developed in Germany in 1847 by the mayor of Bavaria, who sought a way to help local poverty-stricken farmers. The farmers pooled their savings and extended loans to other farmers. The concept spread throughout Europe in the ensuing years before reaching North America in the early 1900s.

Credit unions received a big boost with passage of the Federal Credit Union Act in 1934. This act established the initial credit union regulatory agency, that evolved into the current National Credit Union Administration. While credit unions more than held their own during the economy-wide financial difficulties of the Great Depression, they experienced tremendous growth after World War II as the middle class boomed and prospered.

During their early history, credit unions offered limited "banking" services, savings accounts and personal loans. But like other thrift institutions, they began expanding their offerings in the 1970s to include checking accounts and other services that were traditionally offered only by traditional banks. Their foray into checkable deposits, also termed share drafts, made them active players in the M1 money supply. As such, they now come under many of the same money supply regulations as traditional banks.

Historically, credit unions have been associated with groups of people with something in common, such as employees of the same company. Credit union members would pool their savings and make loans to members of their groups, and only to members. Credit unions were formed due to real or perceived concerns that traditional banks did not provide adequate services at reasonable prices.

The motivation behind the establishment of credit unions was similar to that of labor unions. Labor unions were formed because employees felt that they were not being treated fairly by their employers--big business. Credit unions were formed because many of these same employees felt that they were not being treated fairly by their bankers--big banks. While credit union membership usually centered around company employees, some centered around churches or occupational groups.

Two Other Thrift Institutions

Credit unions are one of three types of financial institutions commonly terms thrift institutions as a contrast to traditional banks. While traditional banks were the only financial institutions to operate as banks throughout much of the history of the United States, three types of thrift institutions began operating as banks in the 1970s. While most were not technically considered "banks" when they were established, all now function much like traditional banks.
  • Savings and Loan Associations: Savings and loan associations (S&Ls) are depository financial institutions that were originally established to assist home owners with low-cost mortgage loans. The funds for these loans were obtained by offering simple savings deposits. S&Ls were an outgrowth of the exploding housing needs of the middle class in the mid-1900s.

  • Mutual Savings Banks: Mutual savings banks are something of a cross between credit unions and savings and loan associations. They are nonprofit, like credit unions, but originally specialized in mortgage loans, like savings and loan associations. Mutual savings banks were created for reasons similar to that of credit unions--concern that traditional banks were not providing adequate services at reasonable prices.

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Recommended Citation:

CREDIT UNIONS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: January 17, 2018].


Check Out These Related Terms...

     | banking | banks | fractional-reserve banking | reserve | traditional banks | savings and loan associations | mutual savings banks | thrift institutions |


Or For A Little Background...

     | money | M1 | profit | industry | monetary economics | government functions | financial markets | liquidity |


And For Further Study...

     | money creation | Federal Reserve System | Federal Deposit Insurance Corporation | Comptroller of the Currency | central bank | monetary policy | bank panic | monetary aggregates | barter |


Related Websites (Will Open in New Window)...

     | National Credit Union Administration | Federal Reserve System | Federal Deposit Insurance Corporation |


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