Credit Union Security
Credit Unions: Safe & Sound
"The Credit Union System"
Credit unions have a network that allows them to better respond to member needs. For example, when loan demand rises unexpectedly, your credit union can borrow funds at a good rate from a credit union for credit unions, called a "corporate credit union," which also is closely regulated.
In addition, BACU belongs to a the Illinois Credit Union League, a state trade association that, in turn, belongs to the Credit Union National Association. Those associations lobby for laws and regulations that benefit you and all consumers. And leagues provide training and information to help volunteers and staff do their jobs better.
Trained credit union volunteers act for fellow members to oversee the operation of the organization all members own. And volunteers reduce credit union expenses, helping keep service costs low.
At for-profit banks and S&Ls, paid directors and stockholders can exert pressure to invest low-risk deposits in high-risk ventures, knowing that potential losses are insured. In contrast, unpaid credit union volunteers have no personal stake in earnings leading to more-conservative investment choices.
Credit union members elect fellow members to a board of directors. Directors act as trustees of member funds. At regular meetings, board members set policies for loans and other services.
Board policies must reflect sound business practices, and federal and state laws and regulations. The board also must adhere to the credit union's charter and bylaws. The charter is the federal or state document that allows the credit union to form. The bylaws are the rules for membership and operation. The board also sees that the manager puts its policies into effect.
Many credit unions, including BACU, appoint members to conduct unannounced audits. This group of volunteers goes by the name of supervisory, audit, or examining committee. Among other tasks, its thorough inspection assures the board - and members - that all records are in order and all funds are accounted for. It also assesses the effectiveness of the credit union's "internal controls," those procedures designed to prevent losses or theft.
Financial institutions must have someone check their books according to standard auditing procedures. Credit unions often turn to certified public accountants (CPAs) or other professionals to perform this duty.
All financial institutions also must follow the dictates of government regulators. Credit unions with state charters and private deposit insurance such as BACU have state regulators. Those regulatory agencies routinely examine credit unions to make sure they're healthy.
Your credit union's safety net is its capital - the sum of undivided earnings, regular reserves, and other reserves. If your credit union has a high capital-to-asset ratio, it will weather temporary setbacks.
The national average for capital to assets is about 9.9%. That means the credit union can lose 9.9% of its assets and still pay off all its members' savings with the remaining assets. The average varies with asset size, and the National Credit Union Administration monitors the ratio for your protection.
All financial institutions retain some earnings as a cushion. Undivided earnings and the statutory or regular reserve provide a kind of "self-insurance" against losses. Accounts in a credit union's financial statement, known as the "allowance for loan losses" and the "allowance for investment losses," work the same as retained earnings.
These funds "make good" on defaulted member loans. One sign of a credit union's health is delinquencies - loans with payments more than two months late. High rates suggest a credit union's loan policy may be too liberal. Low rates suggest a loan policy may be too strict. The goal is to avoid extremes.
Your savings at BACU is insured up to $250,000.00 per account by American Share Insurance, a private insurance company, not a government agency.
The person the board hires to run the credit union has the title of manager or president. This person oversees day-to-day operations. The manager also plans responses to economic and regulatory changes that affect you and your credit union.
It's the manager's duty to keep the board informed. But you have ultimate authority.
During the roughly 85 years credit unions have existed in the United States, they have grown to serve more than 69 million members - about one of four adult Americans. Credit unions have helped members adapt to economic depression, recession and inflation, and learn to use ever-more-complicated financial services. This is another way of saying members have helped themselves. If you want your credit union to remain strong, there's no better guarantee of security than to become active in its affairs. Attend the annual meeting, and study your credit union's annual report and financial statement. And, if you can't volunteer, get to know the members who are able to.
As an informed credit union member, you'll do more to keep your financial institution strong and your money safe than any bank or S&L customer can.