Credit Unions & The Great Depression

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MADISON, Wis.-As credit unions mark their centennial in 2008 and 2009, some analysts have been comparing the state of the economy and financial markets to the Great Depression of the 1930s.

As economists have finally confirmed what many companies and their workers could have told them much earlier, the United States is mired in a severe recession - but not a depression. But how did the country's fledgling credit unions fare during the Great Depression?

The March 1958 issue of the Credit Union Bridge did an in-depth study of the question and the short answer was found in one article's conclusion that "a well-managed credit has nothing to fear from a depression; so say supervisory authority staffmen and credit union veterans alike."

Bridge staff surveyed established credit unions in Illinois, New York and Massachusetts. Here is a summary of what they found:

* Liquidations during the Depression were few; most that occurred were the result of poor management.

* When liquidations occurred as a result of a plant closing, CUs usually paid off 100 cents on the dollar.

* The lack of an effective system for collections and follow-up got some credit unions in trouble.

* Most CUs reported they charged-off no more bad loans during the Depression than they do today (late 1950s).

* Members generally felt strong loyalty. They made an effort to save. Attendance at annual meetings was good.

* Loan demand fluctuated depending on local factors. Some membership groups cut borrowing dramatically, others borrowed steadily.

* The Depression wasn't as difficult for most credit unions as were the World War II years.

Some saw the Great Depression as a "blessing in disguise," as it brought home the core values of "credit unionism."

Household savings did increase in 2008. Claude E. Clarke, president of CUNA during 1936-1937, viewed the Depression years this way:

"It taught the people the value of money and importance of saving. It helped the members to realize the need for teamwork in saving and borrowing. And it impressed upon board members the need to adhere to the credit union principle of limiting the use of loan funds to provident and productive purposes."

Credit unions in 2008 and the Depression years of the 1930s have several things in common in contrast to the banks of that era and today. Credit unions today and then are generally well-capitalized, as evidenced by Sidney Stahl, managing director, of the New York State Credit Union League, who noted in 1958:

"The Depression strengthened the credit unions in the state of New York... One of the reasons why most credit unions were able to come through the Depression not only unscathed but, in a large number of cases, actually stronger than they had before, is that their reserve requirements were adequate to meet the contingencies of the 1930s.

"No credit union was liquidated during the Depression because of economic hardship," said Stahl.

Credit union organizing efforts fared well during the Depression as well, according to Agnes Gartland, managing director of the Massachusetts CUNA Association, also quoted in the 1958 Bridge.

"We organized more credit unions through the Credit Union National Extension Bureau during the Depression than we ever had before," observed Gartland.

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