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Expert Clarifies His Earlier Advice on How to Check Out the Security of a Credit Union

September 09, 1990

The headline on the July 29 story "Federal Credit Unions Offer Safety, Great Deals" couldn't have been better, or more accurate, from my point of view.

But what I read in the third paragraph caused me some real problems: "Make sure that its (the credit union's) capital-to-assets ratio is at least 6%, Patrick Keefe of the National Assn. of Federal Credit Unions suggests."

I did, in fact, say words to that effect. But those words have caused grave concern among credit unions in Los Angeles and elsewhere. So I would like to clarify and correct.

First, the concern credit union members may have about the safety of their money is relieved at the door by a sigh that reads: "Your Savings Federally Insured to $100,000--NCUA--National Credit Union Administration, a U.S. Government Agency."

As Stanford economist R. Dan Brumbaugh noted on the July 30 edition of ABC's "Nightline": "As long as there's deposit insurance under the current system, any consumer or depositor in particular need not worry one iota (about the safety of their money) because those deposits are guaranteed by the federal government."

Second, capital ratios may be important for investors in banks or thrifts in order to determine the overall "risk" they are incurring for investing their money. But at credit unions, the ratio has much less meaning--and virtually none, as Brumbaugh noted above, for credit union members.

Credit unions are owned solely by their member-savers, who equally share the risk and the benefits of the credit union. In fact, credit unions are not in the business to amass capital. Credit unions do not issue stock to raise capital, for example, but are in the business of offering service to their members.

Indeed, the fact that credit unions--to serve their members--are often willing and able to make loans and offer services that other financial institutions would consider only marginally profitable demonstrates the credit union philosophy: "Not for profit, not for charity--but for service."

Credit union capital ratios have very little meaning for credit union members or consumers in general regarding savings safety. Deposits of up to $100,000 are federally insured and backed by the "full faith and credit" of the U.S. government. The not-for-profit aspect of credit unions minimizes the need to amass capital.

Credit unions consider themselves unique financial institutions--that is, they do not operate like banks and thrifts. Yet the temptation to apply the values and terminology of banking to credit unions is often overwhelming. Often, this occurs because the individual applying those values and terms is unfamiliar with credit unions.

But I am, and I know better.

Concentrating on capital ratios in a story about credit unions is, to a large degree, inappropriate. I regret that I did not point that out to your reporter. I further regret that credit unions may have felt betrayed by a representative of their community.

They deserve better.


The writer is director of communications of the Washington-based National Assn. of Federal Credit Unions.

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