Why credit unions are running circles around banks

by: Jay Jenkins

Bank investors typically don’t pay much attention to credit unions. That’s a mistake.

Since the financial crisis, credit unions have seen an explosion of business at the expense of banks across the country.

There are very clear cut reasons why. It’s time for banks and bank investor to sit up, pay attention, and start catching up.

Credit union advantages banks won’t easily overcome
To be fair to all the retail and commercial banks out there, credit unions do have some meaningful structural advantages that banks won’t be able to replicate.

For one, credit unions don’t pay taxes. Credit unions also operate under a less burdensome regulatory framework than comparable commercial banks. These are huge advantages.

Some in the banking industry have made public calls to begin taxing and increasing regulation for credit unions, particularly those with large and complex operations rivaling some of the biggest commercial banks in the country.

Navy Federal Credit Union, for example, has $60 billion in total assets and more than 10,000 employees worldwide. If a bank, Navy Federal would qualify for significant regulatory oversight because with more than $50 billion in assets it would be considered systemically important. That burden alone can cost hundreds of millions of dollars to shoulder.

That said, large credit unions are outliers. In general, credit unions are much smaller than the typical bank, particularly at the upper end of the spectrum. For example, the average bank is 14 times larger than the average credit union in total assets, and the four largest U.S. mega banks are each larger than the sum of all U.S. credit unions combined.

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