America Needs Credit (Unions)

The importance of credit unions in this struggling economic environment is so obvious, even Congress is taking notice.


"The 4,900 federal credit unions and almost 3,000 federally insured state chartered credit unions in the U.S. play a vital role in our economy by providing access to credit for nearly 82 million Americans. With total credit union assets exceeding $800 billion, maintaining the stability of credit unions is vital to the economic health of the nation, and even that of the global financial system."
~Representative Luis Gutierrez (D- IL)

The Subcommittee on Financial Institutions and Consumer Credit, a subcommittee of the House Committee on Financial Services, met on Wednesday, May 20, to hold a hearing shortly after Congressional approval of H.R. 2351, the Credit Union Share Insurance Stabilization Act.

One recurring theme throughout the hearing, as articulated by Representative Gutierrez above and Representative Sherman (D- CA) below, was the role that credit unions played in providing credit. Specifically, in light of the recession, credit unions’ historically conservative lending standards have put them in an ideal position to continue to lend as others pulled back or exited the marketplace altogether.

Source: Federal Reserve Consumer Credit Report

Yearly outstanding consumer credit growth has slowed to a halt; year over year growth of total outstanding credit was a meager 0.08% as of March 2009. Total outstanding credit has contracted $32 billion since its September 2008 peak of $2.58 trillion.

Outstanding consumer credit growth hit 5.81% in October of 2007, the fastest growth since February of 2003, when a recovering economy met a booming housing market. In the fourth quarter of 2007, credit union net worth was at 11.1%. It was from this well-capitalized position that credit unions entered the recession and the accompanying credit crisis. Drawing on this pool of reserves, credit unions grew their loan origination volume throughout 2008, and now into 2009.

Source: Peer-to-Peer 2.0, Callahan First Look

The 1Q 2009 projection is based on Callahan's First Look credit unions, which at the time of the writing of this article accounted for 90% of the industry by assets. Projected first-quarter origination volume of $71.8 billion is expected to be the highest on record, with year-over-year growth at almost 18%. This origination growth has been fueled primarily by first mortgage origination volume of $26.5 billion, approximately 40% growth over first quarter of 2008.

Some lenders have tightened their lending standards, others have pulled back to recapitalize, while others have simple left the market entirely. Meanwhile, credit unions remain a key source of credit in the U.S. economy.

"I look forward to credit unions being in a position to help us get out of this mess."
~Representative Brad Sherman (D- CA)