A new study seeks to examine how credit unions have performed in terms of failures and insurance losses since the 1971 inception of the National Credit Union Share Insurance Fund (NCUSIF).
The study, from the Filene Research Institute and authored by James A. Wilcox of the Haas School of Business at the University of California-Berkeley, also seeks to compare CU losses with the losses experienced by other deposit insurance funds.
The report notes that federal insurance coverage for savings in credit unions has increased greatly since 1971, currently covering more than 96% of credit unions and 96% of credit union savings. But it also found that over the past decade savings that are uninsured, that is above the $100,000 insurance cap, in FICUs have increased to 10% from 3% of credit union savings, which acts to reduce the NCUSIF's potential insurance losses by transferring risk to these savers.
The study shows that FICU failures and NCUSIF insurance losses have been low. From 1971 through 2004, NCUSIF insurance losses totaled $1.474 million (in 2004 dollars) and averaged 0.018% of NCUSIF-insured savings per year, about 2% of aggregate, annual credit union net income.
Wilcox also found that FICU failures and NCUSIF insurance losses have also been lower than those for federally-insured banks. From 1971 through 2004, BIF (FDIC) insurance losses totaled $59.2 million (in 2004 dollars) and averaged 0.073% of BIF-insured deposits per year, about 7% of aggregate, annual bank net income.
The highest failure rates and largest insurance losses were concentrated among smaller FICUs, according to the study. From 1981 through 2004, 966 FICUs with less than $1 million in assets failed, which means that on average 1.24% of small FICUs failed annually. Among FICUs with $1million to $10 million in assets, 583 failed (0.42%); among FICUs with $10 million to $100 million in assets, 140 failed (0.17%); and among FICUs with over $100 million in assets, seven failed (0.05%).
Compared with surviving FICUs, failed FICUs tend to have lower levels of assets, net worth, short and long securities holdings, assets in corporate credit unions, and ROAs. Failed FICUs also tend to have higher levels of net loans, unsecured loans, interest spreads, interest income, operating expenses, delinquent loans, provisions for loan losses, and net charge offs. Failed FICUs also had higher average levels of member business loans during 1987-94 and more real estate loans in the early 1990s than surviving FICUs.
"The Wilcox database covers the entire credit union experience since the inception of federal share insurance in 1971, and provides research, policy, and business strategy analysis and discussions with a solid, common empirical foundation," says George Hofheimer, Filene's Director of Research. "This research provides a platform upon which to base future public policy decisions regarding credit union safety and soundness."
For more information on both studies, or to order copies, visit www.filene.org. Copies are free to Institute members; $125 to non-members.