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Congressional Research SenAce
Informing the legislative debate since 1914
December 14, 2018
Introduction to Bank Regulation: Credit Unions and
Community Banks: A Comparison
Depository institutions-specifically, credit unions and
banks-provide financial services to savers (via accepting
checking and savings deposits) and borrowers (via
providing consumer and business loans). A credit union is a
membership-owned cooperative organization established on
the basis of its common bond (occupation, association, or
geographical definition), specified by its federal or state
charter. Credit unions face statutory restrictions on their
customer base and commercial lending activities because,
as specified in the Federal Credit Union Act of 1934 (FCU
Act; 48 Stat.1216), they are formed for the purpose of
promoting thrift among their members and providing them
with a low-cost source of credit. Conversely, a bank is a
for-profit institution owned by equity holders who may not
necessarily be customers (depositors or borrowers).
Although it must also obtain a state or federal charter, a
bank does not have similar membership and commercial
lending restrictions. Credit unions and banks-particularly
community banks-still provide similar financial services
as a result of financial market evolution over the last several
decades. This In Focus highlights selected similarities and
differences between credit unions and community banks for
Congress as it deliberates regulatory policy issues that
pertain to their roles as financial service providers. For the
purposes of this In Focus, community banks will be defined
as those with $1 billion or less in assets.
Selected Si ar tI es
Business models. The business models of credit unions and
community banks share some similarities, thus making
them competitors. For example, community banks and
credit unions both engage in relationship banking, which
involves developing close familiarity with their customer
bases. Because community banks frequently provide
financial services within a circumscribed geographical area,
the development of close relationships with customers helps
them understand local and idiosyncratic lending risks.
Similarly, developing close relationships with customers
helps credit unions tailor financial product offerings and
services to their defined memberships. For this reason,
small depository firms have been able to provide financial
services (e.g., small-dollar personal loans and small
business loans, including microloans to businesses with five
or fewer employees) to some niche markets with cost
advantages in underwriting and servicing.
Community banks and credit unions rely primarily on
borrowings from their depositors (and less frequently from
the short-term financial markets) to obtain the funds
necessary to provide customer loans. (The Federal Deposit
Insurance Corporation [FDIC] insures bank deposits. The
National Credit Union Administration [NCUA] insures
credit union share deposits, analogous to bank deposits.)
Consolidation trends. Figure 1 presents the total number
and total asset holdings of U.S. community banks (referred
to as small banks in Figure 1) and credit unions from
2004 to 2017.
Figure I. Credit Unions and Community Banks:
Number of Firms and Total Assets
2004-2017
Total Assets (in miIlionsof$)
1800000
1 LOOC
1400C
1200C
'Qooc
soot
6cxDC
400(
20CC
Total Number of Institutions
10000
'00
100
i00
x)Q
)00
X3Q
)00
0
'2' ~
%
C> C
z z~ V 0 0 0
Thta N~ nte S~~a Banks Sib ~on or Less ~
Tota Nt~rb~ Cred t 'ii; crs ~R 8¾tY a~s~
-Thud Assets C ed t U von ($1 ~ N a e)
~-~~Thta A~sets Cred tUne System n m~ ens of
-Tota Assets Sm!I Saiks ($1 B one - Less)
a
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Y axts)
Source: CRS, using data provided by the FDIC and the NCUA.
Figure 1 illustrates the following trends over 2004 to 2017.
* Community banks declined in numbers (blue bars), from
8,379 to 4,920, and in total aggregate assets, from $6.47
trillion to $1.38 trillion.
* The total number of credit unions (yellow bars) declined
from 9,014 to 5,573. The number of small credit unions
with total assets below $1 billion declined from 8,915 to
5,176 (not depicted separately in Figure 1).
* The number of credit unions with $1 billion or more in
total assets increased from 99 to 287. By 2017, large
credit unions held 63.5% of aggregate assets in the
credit union system.
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