Are Credit Unions Safe After SVB’s Collapse?
The recent collapse of SVB, one of the largest banks in the US, has shaken the confidence of many customers and investors. The bank failed due to its exposure to risky loans and derivatives, triggering a massive run on its deposits. The Federal Deposit Insurance Corporation (FDIC) stepped in to take over the bank and protect its insured depositors. However, some people may wonder: how safe is my money in a credit union after SVB’s collapse?
What is a Credit Union?
A credit union is a nonprofit financial cooperative that is owned and controlled by its members. Credit unions offer similar services as banks, such as checking accounts, savings accounts, loans, credit cards, and mortgages. However, credit unions usually have lower fees and higher interest rates than banks, because they operate for the benefit of their members rather than for profit.
How are Credit Unions Regulated?
Credit unions are regulated by different agencies depending on their charter type. Most credit unions are federally chartered and supervised by the National Credit Union Administration (NCUA), an independent federal agency that also insures credit union deposits up to $250,000 per account through the National Credit Union Share Insurance Fund (NCUSIF). Some credit unions are state-chartered and supervised by state regulators, but they may also be insured by the NCUSIF or by private insurers.
How are Credit Unions Affected by SVB’s Collapse?
The collapse of SVB has not directly affected most credit unions, because they have limited exposure to the risky assets that brought down SVB. However, some credit unions may face indirect effects from SVB’s failure, such as liquidity problems or reputational damage.
Liquidity problems may arise if credit union members panic and withdraw their money en masse from their accounts. This could create a cash crunch for some credit unions that rely on external sources of funding or have low reserves. To prevent this scenario, the Federal Reserve and the FDIC announced a new program that will allow both banks and credit unions to borrow from a special facility at low interest rates until June 2023.
Reputational damage may occur if credit union members lose trust in their institutions or confuse them with banks. This could reduce their willingness to deposit or borrow from credit unions or make them switch to other financial providers. To prevent this scenario, credit unions should communicate clearly with their members about their financial health and stability and reassure them that their money is safe and insured.
How Can I Protect My Money in a Credit Union?
If you have money in a credit union account, you can take some steps to ensure that your money is safe and secure:
- Check your account statements regularly for any errors or unauthorized transactions.
- Keep your personal information and passwords confidential and avoid phishing scams.
- Verify that your credit union is federally insured by the NCUA or state-insured by a reputable private insurer.
- Know your coverage limits under the NCUSIF or other insurance programs and diversify your accounts accordingly.
- Stay informed about your credit union’s financial performance and governance practices.
Conclusion
Credit unions are generally safe places to keep your money after SVB’s collapse. They are regulated by federal or state agencies and insured by reliable entities up to $250,000 per account. They also have lower risk profiles than banks because they focus on serving their members rather than maximizing profits. However, some credit unions may face challenges from SVB’s failure such as liquidity problems or reputational damage. Therefore, it is important for credit union members to monitor their accounts regularly, verify their insurance coverage limits, and stay informed about their credit union’s financial health.
