They can hold clearing balances They can provide educational services The US

They can hold clearing balances they can provide

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They can hold clearing balances. They can provide educational services. The U.S. Central Credit Union was organized in 1974 to act as a central bank for credit unions. It is chartered as a commercial bank in Kansas, and its primary function is to provide banking services to the 44 state central credit unions. It allows these institutions access to the money markets and to long-term capital markets. Most individual credit unions and even most state central credit unions lack sufficient size and transaction volume to operate efficiently in these whole- sale markets. M26W_MISH5006_09_GE_C26.indd 40 20/10/17 12:28 PM
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CHAPTER 26 Savings Associations and Credit Unions W-41 In 1978 the Financial Institutions Reform Act created the Central Liquidity Facility (CLF) as the lender of last resort for credit unions. This agency provides many of the functions for credit unions that the Federal Reserve provides for commercial banks. Although most day-to-day liquidity needs of credit unions are met by the state central organizations, in the event of a national liquidity crisis, a federal agency can raise far more funds. For example, in a crisis, the CLF can bor- row directly from the Federal Reserve. Membership in the CLF is voluntary, and any federally or state-chartered credit union may join the CLF by pledging 0.5% of capital. Most of the funds in the CLF are borrowed from the federal government. Credit Union Size Credit unions are small relative to other depository financial institutions. The industry accounts for only about 10% of all consumer deposits and about 15% of all consumer loans. One reason for credit unions’ limited size is the common bond restraint. Because credit unions can enroll only members who satisfy the common bond, their growth potential is severely restricted. Nevertheless, some credit unions have grown quite large. Table 26.2 lists the largest credit unions. As discussed earlier, mergers between credit unions help them capture econo- mies of scale and diversify their risk. This trend has resulted in fewer but larger credit unions. Figure 26.7 reports the number of credit unions active from 1933 to 2016. The number has fallen steadily since 1970 as credit unions merged. Trade Associations Because credit unions are so small, they often lack the economies of scale necessary to service their customers at competitive costs. For example, a credit union with only $5 million of deposits cannot afford the costs of maintaining a computer center for processing checks and sending out statements. Similarly, most credit unions cannot afford to maintain their own automated teller machine network. One solution to this problem is the use of trade associations , TABLE 26.2 Ten Largest U.S. Credit Unions in 2015 Previous Year Rank Current Year Rank Name of Credit Union Assets ($ Billions) City State Year Chartered 1 1 Navy 63.6 Vienna VA 1947 2 2 State Employees 29.5 Raleigh NC 1937 3 3 Pentagon 17.8 Alexandria VA 1935 4 4 Boeing Employees 13.1 Tukwila WA 1935 5 5 Schools First 10.7 Santa Ana CA 1935 6 6 The Golden 1 8.8 Sacramento CA 1933 8 7 Security Service 8.3 San Antonio TX 1956 7 8 Alliant 8.1 Chicago IL 1935 NR 9
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