Credit Union

Let it not be forgotten that a credit union is, above all else, an association of people, not dollars.

Alphonse Desjardins

Banks at the turn of the 20th century were for rich people. A.P. Giannini founded his Bank of Italy, later renamed Bank of America, in 1904 as a bank for everybody else. But it took Giannini a long time to build to scale and, in the interim, there was nothing else.


Banking customers at the time fell into two broad categories. There was a small group of those today we’d call the 1%. They were treated well but there were few of them. Then there was everybody else. They weren’t treated so well: there were sky-high fees, usurious interest rates, and bank tellers who were indifferent at best.

Digression: that sounds a lot like banking today for most people though that’s a different issue, or maybe an opportunity.

Desjardins was Canadian and familiar with the guild-based savings banks in Europe. Summarizing, a group with common interests would pool their savings to make loans to others in their pool who had common interests at reasonable rates. Thanks to underwriting based on personal knowledge and peer pressure defaults were extremely low and, when they happened, unquestionably unavoidable.

Building on the idea of group-based banking with reasonable fees and interest rates, Desjardins brought a similar idea to North America. First, he introduced it to his native Canada then to the larger US market. In essence, people who work in the same area, the same field, or maybe for the same employer create a bank-like entity with low fees and reasonable rates. Rather than a bank, which carried a brand stigma and regulatory issues, he labeled his innovation a credit union.

Banks vs. Credit Unions

One major difference from banks is that credit unions are owned by the depositors, the customers, rather than a third party or anonymous shareholders. Therefore, the goals of the credit union are aligned with the customers of the credit union. Theoretically, there is no demand to maximize shareholder value from credit unions because the customers to be abused are the shareholders.

Credit unions still exist today for the same purpose. As of 2018, the Navy Federal Credit Union has over $90 billion in deposits. The largest private company credit union, for Boeing employees, has about $18 billion in deposits and ranks as the fifth-largest in the US. Credit union exist around the world but are especially in English-speaking countries. To this day, banks routinely attack credit unions as opaque loosely regulated banks that should be shuttered.

Leave a Reply

Your email address will not be published. Required fields are marked *