History matters. It provides perspective for how we arrived at our present circumstance. This context can highlight critical prior assumptions. It teaches about successes and failings.
Most critically, knowledge of the past can help identify important issues for future sustainability.
In the summary which follows, Ancin Cooley provides insight about the motivations during credit unions founding era. And what has been lost from that generation’s experiences.
Tomorrow I address the underlying question from this history lesson: What kind of regulator is most likely to sustain an independent cooperative financial option for America?
A Short History of Credit Union Federal Regulation
By Ancin Cooley
Did you know that between 1934 and 1970, credit unions had four different federal regulators, and none of them actually wanted the job?
Here’s the journey:
1934–1942: Farm Credit Administration
When the Federal Credit Union Act was passed, the Federal Reserve and the Treasury Department were the “logical agencies” to oversee a financial institution. Both said “Nah, we’ll pass.”
1942–1948: FDIC
During World War II, credit unions were temporarily transferred to the FDIC. But the FDIC didn’t want them either.
1948–1953: Social Security Administration
When the FDIC pushed credit unions out, they didn’t go to another financial regulator. Credit unions were placed in the Social Security Administration.
1953–1970: Department of Health, Education, and Welfare
When HEW was created, credit unions moved again.
In 1970, the NCUA was established and the NCUSIF created.
What does this tell us?
Credit unions weren’t seen as financial institutions in the same category as banks. The St. Louis Fed wrote: “Credit unions are exempt from federal taxation because Congress views them as member cooperatives and, therefore, quite different from banks and thrifts.”
But why?
Why were credit unions classified differently and given a non-profit status? Many credit unions from that era were born out of crisis. The Great Depression wasn’t an abstraction for the people who built these institutions; it was a lived experience.
From the 1929 crash through 1933, about 9,000 U.S. banks failed. Those failures resulted in approximately $1.3B in losses. (I am sure someone can convert that into today’s dollars)
If you’ve ever known someone from that generation, you know it changed them. My grandmother is 93 years old. She hid money in places we have not yet found. That era shaped how an entire generation related to trust, to institutions, and to one another. Credit unions didn’t grow from a clever marketing campaign. They grew as a community in response to a collapse of trust.
A note on where we are now.
I’ve been wondering why the norms in the credit union movement began to deteriorate about 25 to 30 years ago. I believe the early builders reached a point at which they could no longer protect their institutions.
Many of the things we are watching today would have been harder to pull off if those original guardians were still in the boardroom. I find myself often whispering to myself, “Now, you know this wouldn’t have gone like this if Mr. John were still alive.”
The people who built many of these institutions carried a lived memory of bank failures. They remembered what it felt like to lose everything. That memory did something important. It created guardrails. Because when you have experienced a trust collapse, you do not treat a cooperative as a commodity.
Next post: how the S&L crisis reshaped the credit union landscape, including the entry of bankers who both helped and harmed the movement.
Editor’s note: I will post my response to Ancin’s insight tomorrow.
