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Federal Credit Unions Without Federal Share Insurance: Implications for the Future

This report showcases comparisons between the performance of uninsured credit unions and to uninsured banks and presents potential policy changes.

  • William Kelly Center for Credit Union Research at University of Wisconsin-Madison

Executive Summary

This study fills a major gap in the literature on the performance of uninsured credit unions compared to uninsured banks. The results suggest a potentially important policy change that would allow some uninsured accounts at credit unions. Evidence for allowing such a policy change for commercial banks is much weaker. 

What is this research about?

Uninsured credit unions behave more conservatively toward risk-taking than uninsured commercial banks. Kelly and Karofsky thoroughly evaluated the financial performance of federal credit unions before federal share insurance. They then developed a theoretical analysis to predict the behaviors of credit unions and banks without federal deposit insurance. 

What are the credit union implications?

Millions of households now keep liquid fund in uninsured money market mutual funds. These funds began operating in the early 1970s, and now have more than twice the household assets of all credit unions combined. Therefore, we have clear evidence of strong household demand for generally safe, liquid funds, which earn a modest risk premium in return for a bearing a tiny risk.

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