As a result of the recent banking crisis, which started in March 2023, many people have feared for the safety of their money – wondering if the financial institutions they use will also collapse. In this article, we will respond to some of the common questions posed by our members recently: Are credit unions safer than banks in a collapse? Are credit unions FDIC insured? Is my money protected?
Before we dive in, let’s give an overview of what happened. Beginning on March 10 2023, Silicon Valley Bank (Santa Clara, CA) and Signature Bank (New York, NY), failed within two days of each other after major bank runs following a 40-billion dollar loss from investors.
The two collapses began a spiral of panic, alluding to banks moving emergency funds in preparation of more failures. Credit Suisse, First Republic Bank, and UBS were three major financial institutions affected. Each of these banks is protected under the FDIC, but only to a certain limit which we will expand more on.
Now, we will take a closer look at common questions regarding credit unions, and how they compare to banks regarding risk exposure, insurance, and safety.
Are Credit Unions Safer than Banks in a Collapse?
Yes. Generally speaking, credit unions are safer than banks in a collapse. This is because credit unions use fewer risks, serving individuals and small businesses rather than large investors, like a bank.
Credit unions are member-owned, not-for-profit organizations that serve a smaller, more defined client base within a community. On the other hand, banks serve most of the population with multiple locations and access to bankers nationally or globally. Because of this, investors and large corporations will choose a bank over a credit union.
Are Credit Unions FDIC Insured?
No. Credit unions are insured by the National Credit Union Administration (NCUA). Just like the FDIC insures up to $250,000 for individuals’ accounts of a bank, the NCUA insures up to $250,000 for individuals’ accounts of a credit union. Beyond that amount, the bank or credit union takes an uninsured risk.
According to Marc Treichel, who served as executive director during his 33-year career at the NCUA, U.S. banks have an average of 36% uninsured assets compared to 9% uninsured with credit unions. He emphasized that the failing banks had significantly more uninsured assets – Silicone Valley Bank had a whopping 90% uninsured risk.
Is Money Safe at a Credit Union?
Yes, money is safe at a credit union which is protected and insured through the NCUA. A credit union is safer than a bank during a banking crisis because:
- Credit unions are owned by members, not by stockholders like a bank
- Credit unions take much lower risks than banks
- Credit unions are insured by the NCUA and will have a logo on the website
- Credit unions serve a smaller community and member base
1st Ed Credit Union is Here to Help
For any additional questions concerning the current bank crisis, 1st Ed Credit Union is here to help by phone or email. If you live in Pennsylvania and believe that a credit union is right for you, review our membership eligibility and apply now to become a part of our credit union family!
As an expert in the field of finance and banking, my deep understanding of the intricate workings of the financial sector allows me to provide informed insights into the recent banking crisis described in the article. My expertise is grounded in a comprehensive knowledge of banking systems, risk management, and regulatory frameworks. I've closely followed the developments in the financial landscape, including the events that unfolded during the crisis starting in March 2023.
Now, let's break down the key concepts presented in the article:
Banking Crisis Overview:
The banking crisis, initiated in March 2023, involved the collapse of Silicon Valley Bank and Signature Bank within two days of each other. This was triggered by a substantial 40-billion dollar loss from investors, leading to major bank runs. The repercussions extended beyond these initial failures, affecting notable institutions like Credit Suisse, First Republic Bank, and UBS. It's important to note that these banks are protected under the FDIC, but coverage has limits.
Credit Unions vs. Banks in a Collapse:
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Risk Exposure:
- Credit unions are generally considered safer than banks during a collapse. The article attributes this to the fact that credit unions take fewer risks, primarily serving individuals and small businesses rather than large investors as banks do.
- Credit unions are member-owned and operate as not-for-profit organizations, focusing on a more defined client base within a community.
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Insurance and Safety:
- Credit unions are not FDIC insured; instead, they are insured by the National Credit Union Administration (NCUA). Similar to the FDIC, the NCUA insures up to $250,000 for individuals' accounts in a credit union.
- The article provides insights from Marc Treichel, emphasizing that credit unions have a significantly lower percentage of uninsured assets compared to banks. For instance, failing banks, like Silicon Valley Bank, had a substantial 90% uninsured risk.
Safety of Money in a Credit Union:
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Ownership and Risk Management:
- Money is deemed safe at a credit union due to several factors: credit unions are owned by members, not stockholders; they engage in lower-risk practices compared to banks; and they are insured by the NCUA.
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NCUA Insurance:
- The NCUA insures up to $250,000 for individuals' accounts in a credit union. This insurance provides a level of protection for depositors in the event of a financial crisis.
Call to Action:
The article concludes by highlighting 1st Ed Credit Union as a resource for those seeking assistance and information amid the current banking crisis. It encourages individuals in Pennsylvania to consider credit unions, specifically 1st Ed Credit Union, as a safe and viable alternative, providing information on membership eligibility and how to apply.
In summary, my expertise in finance supports a detailed analysis of the concepts presented in the article, shedding light on the dynamics of the banking crisis, the comparative safety of credit unions, and the insurance mechanisms in place to protect depositors.
