Are Credit Unions Shooting Themselves in the Foot?

Recent Credit Union Rising analysis on overall credit union investment observed a trend that I feel is unbecoming of the industry:

“Over $13.3 billion [of credit union investments] was deposited in banks and S&L’s. This was a 40% increase in these institutions bringing the total investments to $46.8 billion.”

No, your eyes are not deceiving you. Credit union investment in banks jumped 40%. I know it is terribly hard to find investment options right now, but there must be a better alternative to funding direct competitors. In my opinion, credit unions are leaving themselves open to blow-back from misguided investments.

For any credit union leaders out there investing in banks who need to be reminded of what they are investing in, here’s a quote from a recent blog post, Are Credit Unions True to Their Mission?, from a senior economist at the American Bankers Association. He references a report released by the National Community Reinvestment Coalition:

According to the NCRC study, “large credit unions do not serve people of modest means as well as mainstream banks, which must comply with the requirements of the Community Reinvestment Act (CRA).

The NCRC study concludes that CRA should be expanded to large credit unions, because NCUA has failed to meaningfully measure credit union service to people of modest means.

It looks like the $46.8 billion credit unions invested in banks is being spent well. How many ABA economist and lobbyist salaries does that much money cover? How many research reports will those billions buy?

Sure enough, there was a vocal credit union advocate nearby who disputed the report in the comments at the bottom of the page:

The study only pulls data from financial institutions larger than $36M, which automatically excludes 66% of the credit union industry. Further, it ignores the majority of credit unions that were chartered specifically to serve low-income, underbanked, and unbanked populations. These ratios are comparable to the make-up of credit unions in Massachusetts.

Further, as far as I can tell, the study tracked ONLY mortgage lending. Only about half of credit unions are mortgage lenders, and a much smaller portion engage in real estate lending comparable to the rest of their loan portfolio. I don’t see where this is accounted for.

This study relies on a non-representative sample to draw unjustified conclusions.

It’s easy for me to be a Monday-morning quarterback, I’m not the one making the tough decisions. But, from what I’m reading, there is enough evidence that credit unions need to think more proactively on how they’re investing their money. There must be a better solution that is more in line with the best interests of the credit union industry.

Anybody have ideas for alternative capital sources and investment opportunities that will help credit unions stay true to their mission?