Question

Why were credit unions less affected by the sharp increase in interest rates in the late 1970s and early 1980s than the savings institution industry?

How does the size of the credit union industry compare to the commercial banking industry? (LG 14-5)

Answer 1

Answer:

1)

Effects on Credit Unions In 1970's CUs were less affected by the crisis due to increase in the interest rates because CUS consists of depositors and funded the consumer loans on their own. And also at that time a small amount of loans were given to consumers due which they had less risk. In 2004 CUs considered as depository institution segments of finance industries. It was observed that there were 9210 industries in 2004. These Cus not affected by an increase in interest rates like commercial banks and savings institutions because above 40 percent of assets provided as loans to small consumers. Mostly they provided the credit less than $10,000 was funded by the depositors due which they had fewer credit risks during those years and even the maturity of assets and liabilities left them with that much amount that they could easily cover up the credit risks.

Another reason is that they had a large amount of government securities. It was recorded that at least 20 percent of assets were government securities in 2004. They had less amount of residential mortgages. 83 trillion members funded the credit on their own in credit unions. So these are the reasons why the credit unions were less affected by the increase in interest rate in 1960's and early 1970's than saving institutions.

2)How does the size of the credit union industry compare to the commercial banking industry:

The total assets of all credit unions are smaller than the largest U.S. banking organization