Banks weak but Credit Unions Strong?

15 years ago

Looking at a couple bank rating sites, it seems that there are a large number of financially healthy credit unions, but I'm seeing very few strong banks.

Has anyone else checked into this?

My plan was to move my savings to a bank selected based on these ratings, but if the closest 5-star bank is over an hour away! (and there are a LOT of banks in my city)

Healthy credit unions are quite plentiful, though.

I suppose I'll make the transition to a credit union.

Unfortunately, there aren't nearly as many branches, and the savings/moneymarket rates are much lower. Perhaps this is partly why they are so strong?

By "healthy" or "strong" I suppose this means that the bank/credit union is flush with cash and not connected to poorly designed loans.

My current savings are in FDIC insured accounts, but is that all that counts? Is it OK to work with a lowly rated bank because of FDIC?

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Comments (12)

duluthinbloomz4
15 years ago
The biggest lesson here is that rankings/ratings canÂt be viewed as an absolute indicator of bank health. Individual performance levels are determined from publicly available regulatory filings and are compared to "asset-size peer norms, industry standards and key absolute benchmarks".

Most banks seem to fall within the 3-4 star rating and most of those have not been involved in overreaching with risky loans. There are more factors involved with the ratings, but (1)Capital adequacy, (2)Asset quality, (3)Profitability, and (4)Liquidity are the ones best understood.

Having your funds FDIC insured is primary - convenient locations and friendly tellers are secondary.
kframe19
15 years ago
Credit unions are member owned and not-for-profit.

There (or there used to be) pretty significant restrictions on their abilities to do the kind of speculative investment lending that many banks have been engaged in over the past few years.

I belong to Navy Federal Credit Union, the largest in the world. Exceptional service, and untouched by the mortgage fiasco.
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joyfulguy
15 years ago
Which game would you rather play:

-patronize a bank, owned by a bunch of rich shareholders, who are interested in building shareholder values?

-involve yourself in a financial agency that's owned by the people who do business there?

ole joyful
turnage (8a TX)
15 years ago
I've been doing business with Navy Federal since 1978. Same old clunky credit union that won't even change its name to keep things interesting.

My mother, on the other hand, has her cash in a Capital One branch.

Guess which one I'm nervous about?
kframe19
15 years ago
I just closed my mortgage refinance with Navy Federal yesterday. I'll stick with same old clunky for the kind of service and rates that I get. :-)
kec01
15 years ago
Credit Unions fail, too.
duluthinbloomz4
15 years ago
I don't think there's any current reliable published information regarding the health of credit unions. But, it stands to reason that credit unions may be following banks and mortgage companies because credit unions are allowed to finance mortgages. Generally being smaller than banks, any mortgage default can compromise a CU's bottom line. Credit unions, being run by non-banking professionals, could have taken on risky loans.

Two federally insured Credit Unions failed in Connecticut in the last couple of months - New London Security Federal
and Meriden F.A. Federal.

kec01 is right - nothing is immune.
triciae
15 years ago
Credit unions are regulated by the NCUA. You can find all the information you need from the NCUA's website. It's very user friendly.

Federally chartered credit unions provide deposit insurance through the NCUA. The insurance fund is in better shape than the FDIC.

/tricia

Here is a link that might be useful: NCUA
duluthinbloomz4
15 years ago
There isn't any question about depositors being protected in federally chartered CU's. Full faith and credit of the US government notwithstanding. The fact remains that credit unions can and do fail.
triciae
15 years ago
Absolutely, they fail. I was just noting that there is publically available information regarding the soundness & safety of credit unions.

Some credit unions were overly aggressive with both small builder spec & owner/builder residential construction loans over the past few years & are now struggling with workout of those loans.

The larger ones keep some level of portfolio loans (usually a few jumbos for income) but most of their purchase money mortgages go into the secondary market.

For the most part, HELCOs are kept in portfolio.

/tricia
kframe19
15 years ago
Yes, credit unions can fail. Any depository institution can fail.

I think it's safe to say, though, that credit unions fail at a rate far lower than banks.

If you are worried about your credit union's health, you can contact the NCUA.

"But, it stands to reason that credit unions may be following banks and mortgage companies because credit unions are allowed to finance mortgages."

Actually, no not really. Yes, credit unions can finance mortgages and other kinds of loans (but they don't necessarily have to).

But credit unions are generally exempt from the strictures of the Community Reinvestment Act because they loan only to members.

Credit unions were not required to increase their lending portfolios to marginal borrowers as banks were under the 1998 (?) revisions to the CRA. As such, the number of at risk loans in a credit union's portfolio is very like a lot smaller.

Ah, the link below explains why credit unions are not bound by the Community Reinvestment Act.

Here is a link that might be useful: Credit Unions and the CRA
behaviorkelton
Original Author
15 years ago
What I'm seeing in the bank-ratings are a heck of a lot of credit unions with good marks, and only two or three banks.... and the closest of those banks is an hour away.

BK

Banks weak but Credit Unions Strong?

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