Federal Credit Unions: Origin and Development

Federal Credit Unions.: Origin and Development by ERDIS W. SMITH*

HE attainments of Federal of the colonial government to this pose of buying raw materials at credit unions have aroused the s0ciety.l wholesale and selling them to mem- T interest of many individuals bers at cost. His second society-de- and groups during recent years. Although American colonial farm- veloped to raise capital for Persons Some basic questions are being ers may have been the flrst to organ- who had no money or to give them asked: Do Federal credit unions ize for cooperative credit purposes, credit without security-was organ- serve any useful purpose in the the beginnings of present-day credit ized in 1850. It was composed of present - day American economy? unions throughout the world can be poor mechanics and a few wealthy Haven’t Federal credit unions ex- traced to two plans that originated personswho provided the funds that panded their services beyond the in Germany about 1850. These two were loaned to the members. The area visualized for them by the systems were named for their found- loans were to be repaid, with inter- founders of the credit union move- ers, Schulze-Delitzsch and Raiffeisen. est, in small monthly installments, ment? Shouldn’t the size of Federal Detailed descriptions of their struc- and profits were to be used to build credit unions be limited because some ture and operating procedures are a fund from which further loans have grown beyond the point where available,’ but for the purposes of would be made. they can continue to be a credit this article only a few characteristic The third Schulze society, organ- union as defined by the early phi- principles that influenced the devel- ized in 1853, was founded on ‘the losophers of the movement? opment of Federal credit unions need principle that the capital would come Complete answers to these ques- be described. from the contributions of members tions would require several volumes Hermann Schulze, a judge in the alone. The following year Schulze of sizable proportions. The fact that Provincial court in Delitzsch, Prus- began a systematic promotional pro- they are being asked, however, is sian Saxony, was a student of co- gram, and a considerable number of evidence that a score of years and operative principles as then taught cooperative credit societies were es- $1 billion lay the groundwork for in England and France and had tablished. Their founder, while a some intensive, scholarly research in ideas on thrift adapted from the member of the Prussian Parliament, the field. It will be the purpose of plan of the English friendly socie- started a campaign that in 1867 re- this article to sketch the background ties. Schulze was shocked by the sulted in the adoption of Prussia’s for an objective appraisal of some of poverty of the working people during Arst cooperative law. Similar legisla- these basic questions. the famine of 184748, and in 1848 tion was adopted by the North Ger- he organized a society for the pur- man donfederation in 1868 and by European Antecedents the German Empire in 1889. It is The genesis of an idea or of an significant to note that the Schulze 1 James B. Morman, Farm Credits in the organization’s form is difficult, if not United States and Canada. 1924. _DBP~ _~ S. societies existed as vohmtary associ- impossible, to isolate with any real = Systemsof Rural &operativs Credit ations until 1867-for nearly 20 (S. Dot 574. 62d Cong., 2d se%%), Washing- years. certainty. Each generation of schol- ton. 1912: and U. S. Department of Agri- ars casts new light on the beginnings CultWe, Divklon of Statistics, Report No. A central bureau, composed of of many social institutions. The 2 (Misc. Series!, Washington, 1692. member societies, had been organ- credit union idea and form of, organization are no exceptions. One writer reports, for example: In 1954 the Federal credit union system passed two noteworthy In 1732, nearly 200 years ago, 61 milestones: It became 20 years of age, and, for the first time, aggre- farmers in Connecticut organized a gate assets exceeded $1 billion. Compared with the achievements cooperative credit society for trade of other financial institutions that concern themselves with per- and commerce. They subscribed for sonal savings and consumer loans, neither milestone may seem stock and paid for it by giving prom- issory notes which were secured by significant. Twenty years is long enough, however, to test the mortgages on their farms. But the feasibility of a plan, and $1 billion is a substantial amount of assets only borrowers from this society to be accumulated by working people in voluntary associationsthat were its stockholders who held com- invariably begin with no assetsand with a management composed plete control over its management. of part-time, unpaid volunteers. This effort, however, was soon dis- J. DEANE GANNON, Director continued because of the opposition Bureau of Federal Credit Unions *Division of Programs and Reports, Bu- reau of Federal Credit Unions. Bulletin, November 1955 ized in 1859 by Schulze to promote tained, regular office hours, and had none of his societies issued shares the cause of cooperatives, keep mem- paid employees. Management was of any kind. When it ‘became neces- bers informed on the progress of the by officers and committees, elected sary for all German cooperatives to movement, obtain loans from com- to carry out policies adopted by the have shares, the Raiffeisen societies mercial banks for members, and pub- members in their periodic meetings. issued shares of nominal value. No lish yearly statistics. They were paid by the society but dividends were paid. Net profits re- The Schulze societies drew their were not permitted to borrow from maining after transfers to reserves members from all occupations, it. Biennial inspections were made were earmarked for educational pur- though it is estimated that at one by inspectors appointed by one of poses and for community welfare time as many as one-fourth of them the 32 Provincial federations of projects. Upon dissolution of a so- were farm workers. The societies societies; such inspections were com- ciety, members received the amount were better adapted, however, to the pulsory after 1889. of their shares but did not partici- needs of workers in industry and Frederick W. Raiffeisen, like Her- pate in the distribution of the re- commerce because the loans were mann Schulze, was stimulated to ac- serves. Raiffeisen feared the influ- granted for only very short periods. tion by the 184’7-48 depression. He ence of selfish speculators, and the The average membership was about was then mayor of Weyerbusch, in plan for his societies was designed 600, but a number of the societies the Rhineland, and was a reformer to remove all possible temptation. had more than 10,000 members. The who worked to improve the charac- Savings deposits on which Axed rates members were carefully selected on ter as well as the economic status of of interest were paid were accepted the basis of character. the people. His flrst cooperative so- from both members and nonmem- The societies were organized to ciety was organized in 1848 to dfs- bers. obtain funds and to obtain them tribute bread and potatoes among Small loans were made to mem- from individuals, rather than from the poor. The following year he or- bers at reasonable rates of interest banks, as borrowed capital. Each ganized a society of wealthy men for maturities of up to 5 years. The member was required to own at least to sell cattle to poor farmers on easy loans were usually secured by liens one share, which could be paid for terms-a kind of cooperative bank; on personal property and were re- in small installments. High divi- a second society of this type was payable in five annual installments. dends were paid to encourage mem- established in 1854. His third co- The purpose of the loan was closely bers to save; dividends of 12 percent operative bank, which was an adap- scrutinized; it was recallable if the a Year were not uncommon. Deposits, tation of the Schulze plan, was estab- proceeds were used for other than on which interest was paid, were lished in 1862 at Anhousen. It was the approved purpose. This concern accepted from both members and this third cooperative credit society with the use of funds borrowed from nonmembers. Part of each society’s that was the beginning of the Raif- the society reflected Raiffeisen’s em- net earnings was set aside in re- feisen system, which. had spread by phasis on morality and his convic- serves, which were divided among 1920 to most countries of the world. tion that a loan obtained for a pro- the members in the event of the so- These societies were flrst organized ductive purpose and repaid in small ciety’s dissolution. In the beginning, to serve small groups of poor farm- installments would improve the eco to encourage deposits, unlimited lia- ers. The average society had fewer nomic status of the member. The bility of members was a feature of than 100 members, and some had member would become a capitalist, the societies. Although it never had only 15 or 20 members; members but his capital would be in the form to be put to the test, this feature were admitted on the basis of char- of land, cattle, or equipment. was dropped by the societies organ- acter. It was important to the plan A small number of members and ized after passage of the law of 1889. that each society serve a small group a limited amount of assets were con- Loans were made by the Schulze of persons who knew each other well. sidered desirable under the Raif- societies to members only at rates Raiffeisen visualized a cooperative feisen plan. Business was transacted charged by commercial banks for credit society serving each parish or after church, on holidays, or during loans to business concerns. Liquidity village, and to this end he sought the evening hours in the basement was emphasized in granting loans, the assistance of the parish priests. of the church, in the treasurer’s and for this reason real estate loans Although his rationale furnished the home, or in a corner of the treas- were discouraged. Maturities were basis for the limited field of member- urer’s barn. There was one paid usually limited to 3 months, and ship that characterizes the credit official, the accountant, who was of- small loans were preferred. union of today, his early societies ten the village priest, a local public The Schulze societies cashed were actually open to all. official, or the schoolteacher; his checks, discounted bills of exchange, Unlimited liability of members salary was nominal. There were no and engaged in other, similar activi- was the essential principle of the paid employees, at least partly be- ties regarded then as now as bank- Raiffeisen societies; capital was ob. cause none were needed. Manage- ing functions. Large size in mem- tained from the wealthy on the ment was by an executive committee bership and assets was encouraged understanding that the credit and and a supervisory council elected by in order to attain standing in the personal resources of all members the members and required to serve community. Many of the societies were pledged to make good the loan without compensation. The custom owned their own buildings, main- made to, any member. Before 1876 was to have a majority -of each com- 4 Social Security mittee composed of wealthier mem- the Raise&en plan was ever intro- ized successful societies during the bers who joined because of their in- duced by a poor farmer. next 16 years. The first general law terest in furthering the society’s ob- Luigi Luzzatti, who later became authorizing the organization of jectives, whose participation added Finance Minister and then Prime credit cooperatives in North America, to the prestige of the organization, Minister of Italy, introduced the however, was passed by the Quebec and who did not need to borrow from Schulze plan of cooperative credit Parliament in 1906 through the ef- it. The elected officials supervised into his country by organizing a so- forts of Alphonse Desjardins. not only the lending activities of the ciety in Milan in 1866. He made Desjardins was distressed by the society but also the cooperative buy. certain minor changes in structure suffering caused by usurious money ing and distribution of feed, ferti- and operating procedure to meet the lenders among the French-Canadi- lizer, cattle, and farm equipment, needs then prevailing in northern ans in the Province of Quebec. After which was carried on by most of the Italy. One change is pertinent to the studying the cooperative credit socie- Raiffeisen societies. purpose of this article. His society ties of Europe and the savings bank The Raiffeisen societies were made some character loans to mem- system of New England, he evolved grouped in Provincial federations, bers-that is, loans that were not a plan that was geared to the needs which were organized in turn into secured by pledges, assignments of of the people he wanted to help. three national federations-a central personal property, or cosigners. He While the plan was based on the bank, a general supply agency for is important for another reason as Luzzatti system, it included some of rural cooperatives, and the firm of well; through personal correspond- the distinctive features of the Raif- Raiffeisen & Co., which published a ence he aided Alphonse Desjardins feisen system. The result was a new paper, operated a printing office and to evolve the first credit union plan kind of cooperative credit society. a savings bank, and used the profits in America. Desjardins put about equal empha- for the benefit of the societies. Su- sis on thrift and on loans for useful pervision and inspection of the indi- Credit Unions in North America purposes and thus combined the vidual societies were provided by the Building and loan associations be- basic methods of the Schulze and Provincial federations. gan as special purpose cooperative Raiffeisen plans. He provided for The Schulze societies and the Raif- thrift and credit societies in Ger- limited liability and limited fields of feisen societies flourished side by mantown, Pennsylvania, in 1831. membership and adopted the Raif. side. The former engaged in bank- This development, however, appar- feisen principle that all officials ex- ing activities, emphasized material- ently had no influence on the estab- cept the treasurer should serve with- istic and financial aims, avoided all lishment of credit unions as they are out compensation. His first society connection with religion and charity, known today. was established among the Catholic promoted the improvement of the In 1870 and 1871, Josiah Quincy parishioners of Levis near the city of members’ economic status by encour- and others attempted to get a law Quebec in 1900, the second in 1901, aging saving, and refused outside aid patterned after the Schulze plan and the third in 1905. All three were of any kind. The Raiffeisen societies passed by the Massachusetts Legis- successful. In 1906 the Quebec Syn- engaged in a yariety of cooperative lature. The attempt failed in spite dicates Act, as drafted by Desjardins, distributive activities; emphasized of favorable committee reports in passed Parliament without a dissent. humanitarian and moral reform both houses of the legislature. These ing vote. Enactment of this law aims: organized in connection with bills provided for the incorporation stimulated great interest in coopera- churches wherever possible ; worked of several kinds of cooperatives. tives in Quebec and in the United to improve the economic status of Since legislation was subsequently States as well. members through the proper use of passed to cover cooperatives other In December 1908, Desjardins or- credit; and accepted aid from any than those dealing with credit, it ganized a society among the French- source. Both were organized to com- may be concluded that the Massa- Canadians who had emigrated to bat the evils of usury among people chusetts Legislature was not ready Manchester, New Hampshire. A of small means. for credit unions in the early 1870’s. special charter was granted for this When the two plans spread. to After the German legislation of society by the State Legislature on other countries of Europe the 1868, numerous articles describing April 6, 1909. Schulze plan was usually introduced the cooperative credit societies of In the 1908 report of Pierre Jay, first, but these societies were soon Germany appeared in banking jour. bank commissioner for the Common- outnumbered by those organized nals, literary magazines, and co- wealth of Massachusetts, reference along the lines of the Raiffeisen operative journals in the United was made to the five cooperative plan. Both plans were spread by States. It was not until 1892, how- credit societies then operating with- public-spirited persons who felt, after ever, that such a society was organ- out legal authority in Boston. Mr. studying results accompliched in ized. In that year the employees of Jay recommended legislation to en- Germany, that one or the other was the Boston Globe established the courage them and to continue their suited to the needs of their coun- Globe Savings and Loan Association. existence. He also called attention tries. There is no evidence that the The success of this association was to the societies then operating in Schulze plan was ever introduced the inspiration for four other em- Europe and India with a combined by a poor resident of a city or that ployee groups in Boston that organ- membership of 3 million members Bulletin, November 1955 5 Table l.-Federal credit unions operations in IO States, 1 December 31. 1954 specks: basically, however, they all follow the pattern of the Massachu- Loans out. setts law of 1909. At the end of state Number Assets Shares standing 1954 there were an estimated 7,340 credit unions operating under the Total. all States.-.- ______.._.___ 7,227 3,598,790 $1,033,li9.042 $931,407.456 $6.81, QiO, 336 10 states: various State laws, with total mem- Total.. __... .____...______._ 4 630 2,459,548 i24,819,oYi 467,78X650 As percent of all States .._... -_ k.1 68.3 70.2 68.6 bership of 3.7 million and total assets of $1.2 billion. New York . ..___. ..__ -_--.-- ___. -.-. - 753 346,481 87,4ti8,254 79,023.327 53,498.734 Pennsylvania-... ..__..._ -.- ___._. -. 739 361.801 88.4.%, i6Y 78,794,7QCJ 52, 587.992 Statechartered and Federal credit Calitomla-~-.-- ____. . . .._____..___. ii72 424, Y% 143,361,422 129,811,5CM 102,666,996 TlXEl.- ._.__ -- . .._ -_--.-- _._... --.. 4% 255,520 81.831,222 73 184 Zii C?, 165,610 unions have common antecedents. Micbigsn .____ --.- ____... __._... -._. 452 ZKI, ow 83.720,552 75: 200: 731 g, 42 ;;” They have flourished side by side in Ohio ._._.__._. -.-._--.-.- __._... --__ 448 ZlY, 468 H3.1~2,678 F-i, 199,530 i New Jersey. _....._...._..__.....-.. 369 lY2,ZW 3t.o64,985 45.051, Yli 23: 582: 763 most areas of the United States. Conneetirut- _....____.... .___...... 172,292 n2.220, iii8 57 160 724 XI, 431.421 Indi3nn.~-_.-.--.--....--.--...... z 133,306 44,471.495 40: 40s: 769 23.322.570 This duality is not unique among Imlisiana...- _._.__ . .._..-.-..... 1X8 i3,412 19.039,042 I6.Q84,115 13, xY6, Q63 financial institutions. There are State-chartered banks and national 1 States with the largest number of opemting Federal credit unions. banks; there are State-chartered building and loan associations and and $1 billion in assets. Through his of sponsoring Federal credit union Federal savings and loan associa- efforts, Desjardins came to Boston legislation. In 1920 this association tions; and there is a national sys- to confer with the banking commit- prepared a draft of a proposed uni- tem for agricultural credit as well tees of the Massachusetts Legisla- form State credit union law. In 1921 as State-chartered institutions that ture. An act embodying the princi. Edward A. Filene and Roy F. Bergen- specialize in providing the kind of ples he advocated was enacted and gren organized the Credit Union credit services that are required by signed by the Governor on April 21, National Extension Bureau to pro- farmers. 1909. The credit union movement mote the adoption of credit union Federal credit unions are to be in the United States was begun, and laws and the organization of credit found today in every State and in the pattern was set. unions. The Bureau was succeeded the District of Columbia, Hawaii, The extension of credit unions in by the Credit Union National As- Alaska, the Canal Zone, Puerto Rico, the United States was stimulated by sociation in August 1934, with Mr. and the Virgin Islands. They serve the studies and reports of Presiden- Filene as the first president and Mr. many kinds of groups but are most tial commissions that were appointed Bergengren as the first managing di- numerous, and in some respects more primarily to deal with problems rector. Between I934, when the Fed- successful, when organized to serve of agricultural credit. Missions to eral Credit Union Act was passed, a group of employees working for Europe between 1908 and 1914 and 1937, the chartering and organi- the same establishment. Some of the studied the systems of Schulze, Raif- zation of Federal credit unions was associations are small and some are feisen, and Luzzatti. The subject directly and actively promoted by very large, but all are chartered, of cooperative credit was discussed the Federal Credit Union Section of operate, and are supervised in ac- in 1910-12 at annual meetings of the Farm Credit Administration. cordance with the provisions of one the American Bankers Association Today State laws authorizing the law-the Federal Credit Union Act. in several States. chartering of credit unions are in In terms of number of units, mem- In addition, there were a number force in the District of Columbia, bership, and assets the sample is of direct promotional efforts. Massa- Puerto Rico, and in all States ex- of sufficient size to warrant the seri- chusetts, after the passage of the cept Delaware, Nevada, South Da- ous attention of students of finance, 1909 act and again in 1914, issued kota, and Wyoming. These laws and sociology, economics, and adminis- pamphlets explaining credit unions: the Federal Credit Union Act vary tration. Of interest, too, is the fact North Carolina appointed a superin- in their provisions concerning loan that operating Federal credit unions tendent of cooperatives and credit maturities and permitted invest- outnumber any other type of flnan- unions in 1915; his job was to pro- ments and in a few other minor re- cial institution chartered and super- mote and organize these associations. The Russell Sage Foundation Table 2.-Federal credit unions, by ca$ory of members served, December 31, did effective promotional work in New York and published some materials on credit unions that had a Category much wider circulation and impact. The Massachusetts Credit Union As- sociation was incorporated in 1917 Total.... _____.....___.____._-. 7.227 498 $142.961 SZ59 $394 to promote and organize credit Assoclationsl groups. _-.-- ______1.080 298 71,831) 213 519 Qovemment employee groups: unions. In 1919, credit unionists from Federal __.______. ._-______.. ..__ 642 141,Q44 1QQ 352 Loc!a1~~~..~. ______._.-- iii 5i7 207,525 321 497 Massachusetts and New York organ- state--.---.-...-.-.----.---..-.. 101 3i8 93,328 21R ized the National Association of Ail other employee groups _.______. 4-g 526 158,362 272 z Residential groups .__._._._.._._.__ 2i3 i Fi.8Q7 222 508 Credit Union Banks for the purpose 6 Social Security vised by any one agency of govern- Table 3.-Federal credit unions, by amount OJ assets, December 31. 1954 ment, State or Federal. .4vcnge Federal Credit Unions, 1954 shares per 1 member The 20 years since the passage of - _- the Federal Credit Union Act have Total. -....-_._._._._.._._.-. 7.227 498 %142.961 $259 been almost entirely a time of Ixss than $l,ooO- .._....._.._. .._ .. 35 452 12 105 l,oaO-?,4~-.--...... - ...... 69 1. TtM 114 growth and development. Only in 2,,~,999...... - ...... 3. 727 : 114 the war and early postwar years was s,ono-9,999...... ~..- ...... 1E i, 4i4 5i 15G the upward movement checked, and lO,ooO-24,999 ...... 169 16.812 89 194 25,00049,~9...... -.-.- .. 1.140 240 36.174 132 267 even in those years the growth in 50,CH%99,999...... _. _. _._ 1.207 352 il, S28 182 342 the amount of members’ savings was 1OO,oo(t24Q.Q9!l-...... _..._ ._ 1.233 SSfi 1.56. G36 239 37 25n,nnn499,99!i ...... _._. _. _ .. 1.092 342,843 282 425 uninterrupted. Since 1945 there have 500,000-999,999 ...... _. .. _. _. _. 315 1,815 6i6,582 336 450 been continuous increases in the 1,ooaoilo or more .._._ .. _._ ...... 111 4,359 1,861,2~0 391 4% number of operating Federal credit unions, the number of members, and the volume of loans outstanding. At assets of less than $100,000. The to be the younger ones. Available the end of 1954 there were more 31.8 percent with assets of $100,000 data do not indicate an optimum than 7,200 Federal credit unions, and or more accounted, however, for 85.1 size or optimum age for Federal the 3.6 million members owned percent of the total assets and 71.6 credit unions; the largest units that percent of the total membership of shares worth $931.4 million (table 1). are among the oldest continue to ail Federal credit unions. As shown Loans outstanding amounted to grow. The exceptions to the general $682.0 million, and assets totaled in table 3, the larger units had a trend, although relatively few in larger average membership, higher more than $1,033.2 million. number, constitute a serious admin- More than 64 percent of the credit average savings per member, and istrative problem under the present unions operating under a Federal granted larger loans during 1954. mandate that sufficient fees shall be charter at the end of 1954 were in Variations in size, generally speak- collected to cover the total cost of 10 States. These 4,630 units had 68 ing, follow variations by age groups. the program. percent of the total membership, 70 In table 4, Federal credit unions operating at the end of 1954 are Administration of the Federal Percent of all assets and shares, and Act 69 percent of the total amount of grouped by the year in which they loans outstanding. California, al- were chartered. A comparison of There are no precedents in the though ranked third in number of table 3 with table 4 indicates a posi- early history of credit unions that units, led in size ,and activity as tive and high degree of correlation are particularly pertinent or appli- between size and age. There are ex- cable to the administration of a measured by membership, assets, shares, and loans outstanding. The ceptions, of course. Some units grow national law like the Federal Credit differences among the States reflect very rapidly, and some units remain Union Act. In Germany, Italy, and the kinds of groups being served. small after a long period of opera- in Quebec at the time of Alphohse Large Federal credit unions in the tion. On the basis of national aver- Desjardins, the Government did not aircraft and petroleum industries ages,however, the smaller units tend supervise or examine the affairs of materially influence the totals for California. Table 4.-Federal credit unions, by number of years in operation, December When Federal credit unions are -31, 1954 grouped by type of membership, ‘4vcrsge striking differences are disclosed. Imn prantcd The plan has .had greater appeal for in 1854 employee groups than for associa- 498 $142, Q61 $259 $394 tional or residential groups. Units __-- ~-___ 149 10.218 I84 serving employee groups are larger 220 2i. il9 1:; 236 and in general serve more members 279 4.i.236 14fl 2% 400 %3,9X 189 374 than those serving other types of 30.5 Y3. KtQ 216 335 422 10;. 02s 228 396 groups. Only in average size of loans 574 143.643 226 337 granted during 1954 did the units 742 213,2i2 258 427 566 i42.3n9 22i 383 serving associational and residential 444 112,644 227 325 groups exceed the averages for all tW0 198,440 302 3s3 Federal credit unions (table 2). ioll ls4, uil 234 354 .m 141, 62.5 254 394 At the end of 1954, 19.6 percent tiQA 223, %Q 292 423 .5Q,nci wo. F50 274 3’99 of the operating Federal credit 62.5 204.027 294 399 542 1S2.232 304 430 unions had assets of less than $lO,- 774 268. a2 311 424 000; 35.7 percent had assets of less ii3 2b2.070 330 49x than $25,000;’ and 68.2 percent had SYl W, 290 311 131 -__ Bufletin, November 1955 7 the societies. These services were credit unions should pay their way: costs plus enough to cover the costs provided by district federations, (1) World War II was being fought, of the new or small units that were whose memberships consisted of the and (2) because the Federal Deposit not to be required to pay their way? societies themselves. Insurance Corporation was a self- When it is remembered that each For the purposes of this article, supporting agency, no questions new Federal credit union starts only two of the problems of admin- were raised about the deficit in the with no assets and no income and istration that arise from the nature Federal credit union operations be- that the potentialities of some groups of credit unions need be cited. The fore congressional appropriations that need the services of such an first concerns the method of financ- committees. organization are severely limited, an ing the operations of the unit of Six years later, when the bill to even more basic question arises: Does government charged with the re- transfer the administration of Fed- the mandate to be self-supporting sponsibility of chartering and super- eral credit unions to the Federal mean that Federal credit unions have vision; the second relates to the Security Agency was being con- moved beyond the reach of other- scope and standards of supervision. sidered, the question of financing wise eligible groups at the lowest In the hearings that preceded the came up for serious review. The economic level? Does there now passage of the Federal Credit Union cumulative deficit for 7 years was a exist a need for a subsidized pro. Act, it was stated by the proponents factor of some consequence. In the gram to provide cooperative thrift that the program would not only be settlement, the Federal Deposit In- and credit societies for the benefit self-supporting but in time would surance Corporation was in effect re- of persons of very small means? bring revenue into the United States imbursed for the deficit, and the Answers to these questions may re- Treasury. An original grant of $50,. new Bureau of Federal Credit Unions quire not only research but also the 000 was made to launch the program. in the Social Security Administra- judgment of Congress in the form In the period 193541, however, the tion was faced with the prospects of deiinitive legislation. The ques- people of the United States were of becoming self-supporting. Through tions are fundamental to the future working their way back from the a series of increases that began in role of a national system of credit depths of a major economic depres- 1949 in the fees charged Federal unions. sion, and the emphasis was on the credit unions for examination and Determining the scope and stand. development of social welfare pro- supervision, the Bureau progressed ards of operation of Federal credit grams of various kinds. It was not to the point where, in the flscal year unions requires administrative judg- a propitious time to enforce a pro- 1953-54, it was unnecessary to re- ment of a high order. Some ofllcials vision requiring a group of strug- quest an appropriation to cover an who serve as part-time volunteers gling, small organizations like the operating deficit. are unschooled in the techniques of credit unions to pay their way. The mandate to become self-sup. financial management. To teach In 1942, when administration of porting meant a schedule of fees them the techniques essential to the Federal Credit Union Act was that would recover on an overall sound operations without destroying transferred from the Farm Credit basis the total costs of administra- their sense of responsibility for man- Administration to the Federal De- tion. Did this mean that each and agement and control is not easy; to posit Insurance Corporation, two fac- every Federal credit union should curb the enthusiasm of the few offi- tors combined to postpone attention Pay its way? If not, at what age or cials who come up with overambi- to the question of whether Federal size should they begin to pay total tious ideas without destroying their interest in credit unions is even more difficult. In some respects the Fed- Table 5.-Znvestments of individuals in savings accounts, U. S. savings bonds, eral Credit Union Act is speciflc- and life insurance reserves, selected years 1944-54 limited fleld of membership, service [Amounts in millions] - to members only, type of investment, 1954 ’ 1953 1949 1944 maximum interest rates, maximum I T - _- - T - loan limits, and organizational struc- Type of inrestment I Amount Percent ?Lmotmt Percent 4mount Pcrccnt 14mount Percent ture; in other respects, its provisions -- . . _ _ .- _- are subject to interpretation. The Total ._.__...... $221,960 100.0 eL07,731 loo. 0 $170,463 loo. 0 &llG, 699 loo. 0 -- .- _- .- latter area includes the definition Savings accounts: of incidental powers-the so-called savings and loan associations ._ . . . . 27,259 12.3 22,778 11.0 12.4il 7. 3 G. 305 5.4 “basket clause” under the powers of Mutual savings banks. .._.___ _.___ 26.235 11.8 ;g, g; 1l.i 19,269 11.3 13,332 11.4 Federal credit unions. As the system Commcrcml banks 44,746 20.2 20.2 35,145 20.6 23,971 matures, clarifying amendments to POStal savings --..... 2,240 1.0 2: 466 1.2 3,302 1.9 2,400 ‘i: : Credit unions )--...- 2,030 0.9 1,691 0.8 745 0.4 373 0.3 the act may be required. Savmgs bonds, U. S. Oovemment...... - 49,9lxl 22.5 49,300 23. i 49, 300 29.0 36,200 31.0 Reserves of life hsur- Federal Credit Unions in ame companies.... G9,5Qo 31.3 65,150 31.4 50,231 29.5 34,212 29.3 Today’s Economy ------L As a group, FederaI credit unions 1 Preliminary. . . . . million; and 1944, $134 mdlion. 1 Includes State-chartered and Federal crecuc Source: Home Loan Bank Board, release dated have made an outstanding record of unions. Total savings in Federal credit unions: April 1~55. 1954, $931 million; 1953, $763 milllon; 1949, $285 success. Their growth in numbers, 8 Social Security Table 6.-Consumer installment credit, by type of financial institution, have done only a little better than selected years 1939-54 1 hold their relative position since 1945 [Amounts in millions1 and that today they have but a Small proportion of the total personal Saks finance Con1rnrruin1 banks compsnics savings and the total installment End of Total consumer loan business. year I I I Percent It is significant, however, that during 1954, 852 eligible and quali- lY3Y . .._..... 39. 1 $6,5i 21.4 fied groups voluntarily took advan- 1940...... 41'. 2 720 1x.3 1911.. . . 4n. 1 759 17.0 tage of their rights under the law to IN.-...-.. 1.776 74.i .41.!1 3nn 16.9 1112 5.i 629 35. 5 apply for Federal credit union char- 1!146 _..... ~. 3, 235 1,567 48.4 677 20. Y x40 26.0 IN.... 5. 2,x5 2,625 50.0 1, 3s:, 2s. h 15123.5 :.; 1.040 19.7 ters. This was the second highest lY448... _-_.. 7.002 3.529 49.8 1.990 28 1 334 4. 7 1,239 Ii.4 number of charters granted in any lY49.. .- 9.247 4,439 4Y.U 2. 9,s4l 31.9 438 4. 7 1.420 15.4 I!lSO.. _ 11,520 5. 708 4Y.l j 3.785 32.0 50 5. 0 1,647 13. 9 year since the Federal Credit Union 1951____..... 12,Oi7 5 ix 31.2 635 5.3 l,(roZ 15. i 1952 ..__..... 15.410 i:624 31.4 e3: 5. 4 2,216 14.4 Act was passed,exceeded only by the 1953 ..__..... 1 s, 7.58 P. Y9R 32. 8 1.124 6.0 2.4SY 13.2 total of 956 granted in 1936. There 1Y54--e..m.. 18, 935 R. 633 33.9 I.293 6. 8 2. xi 13.7 was direct promotional work by the 1 Estimated amou~~is outstanding at md “f year. million; 1946, $138 million; 1849, $186 million supervising agency’for Federal credit 2 lncludrs both State-rhartrrrci and Frderal credit 1950 8264 million; 1951, WI3 milliOn; 1952, 8415 unions in 1936 but none in 1954. If unions. Total Fcdcral credit union loans outstand- milljon; 1953, $574 nullion; and 1954, $652 million. ing: 1939, $38 million; 1940, $56 million; 1941, 56Y it is .assumedthat, under conditions million; 1945. $3.5 million; 1046, $5; million; lY4i, $91 of freedom of choice among a number of available alternatives, men membership, and assets,particularly have a favorable credit rating at a and women will select what they be- since 1948, has been vigorous. bank and still more who assumethey lieve is best for them, it seemsclear Shareholdings (members’ savings) would not. In addition, Federal that Federal credit unions have a and the volume of consumer install- credit unions make some loans to place in the economy in 1955 as ment loans reported by these organi- their members that no commercial they did in 1934, when the law was zations indicate that they are pro- bank would grant. passed. moting thrift among their members That credit is made possible by The question of size of Federal and are providing a source of credit accumulated savings is an economic credit unions has come up for dis- at reasonable rates for them. Has principle unknown to some persons. cussion quite frequently since 1953, this growth been at the expense of The idea of capital, whether in the when total outstanding loans of all other financial institutions that deal form of industrial equipment or dur. credit unions in the United States in savings and consumer credit? able consumer goods, is seldom asso- (as reported in the series on install- There is no easy answer to this ciated with the practice of individual ment credit prepared by the staff of question in 1955. thrift. Because of institutional spe- the Federal Reserve System) ex- Because of the convenience of cialization and great size the rela- ceeded $1 billion for the ilrst time. Federal credit union facilities and tionship between savings and credit Both the critics and the advocates the missionary zeal of their officials is not always obvious. It is in this of credit unions have contended that and advocates, the members have area that the Federal credit union the large units are no longer credit learned to save regularly from cur- makes a contribution that redounds unions-that they have outgrown the rent earnings. Others have learned to the benefit of all institutions that remedial-loan concept of the social that there is a better way to save deal in personal thrift and credit. It philosophers who were the founders. money than to drop an occasional not only makes capitalists out of While it is true that Raiffeisen and coin in the unused sugar bowl or put the members in terms of personal Desjardins advocated small coopera- a spare dollar bill under the mat- possessionsbut also teaches them tive societies, Schulze did not. Her- tress. Federal credit unions have some of the basic principles of a free mann Schulze believed that size had undoubtedly made savers out of capitalistic system. It combines in virtue becauseit enabled the society some persons whom the other insti- a direct and understandable way to accomplish its purpose more ef- tutions would not have reached and personal thrift and credit. It is an fectively. There have been two have mobilized for useful purposes adult education laboratory in per- schoolsof thought on that issuefrom funds that would otherwise have sonal finance. the very beginning. been sterile hoardings. Commercial Table 5 shows the growth of per- There is nothing in the Federal banks have changed their attitude sonal savings in Federal credit Credit Union Act that limits directly toward consumer installment loans unions and in other institutions. the size of a credit union organized since 1935. Federal credit unions Table 6 compares the growth in the under its provisions. No maximum may have contributed to this change volume of outstanding loans in Fed- capitalization is fixed, and the in- in attitude and thereby increased the eral credit unions and in other insti- corporators are not required to source of this kind of credit at legiti- tutions that extend installment con- adopt any such self-imposed limita- mate rates. Even today, however, sumer loans. These comparisons in- there are many persons who do not dicate that Federal credit unions (Continued on page 27) Bulletin, November 1955 9 Table 5.-Public assistance in the United States, by month, August 1954-August 1955 1 [Except for general assistance, includes vendor payments for medical care and cases receiving only such payments1

1 / ( Aidtorpendentchildren .4id to Ald to the perma- Aid b prma Total 1 Old-age Recipients Aid to nently Ckneral Total the “,;;I’ assistance the blind and totally assistance blind Families disabled “O&f’ Total Children abled - Number of recipients Percentage change from previous month - - 1954

August _._._. -______._ -_ 2,573, I%2 584,715 1 5i7 953 101,456 $2 f$ 303,oo.l +o. 2 +1.2 2 yg g; r +J).; September-. -______..._ 2,Si8,207 588,083 1: 590: 4b9 101 i59 308, ow --- jg,, +1.1 October ____. .__-_._- _.._ 2,569,458 590,975 2: 121: ST9 1 599 i38 101’954 ;;;: g; 312, Ooo 4; $2 $1; Novemke... ___- _...__ -.- 2,565,342 gq p; 2,137,257 1’611’64i 102’ 193 322, Ooo _ December- .- _ _ _-_. _ __ ._. 2,5Gi, i6i 2 2 173 I ii2 1: 639: 947 102: 441 224: 391 331,000 --_ 6” +1.6 $:i i.8 1955 January .._._ _-_-_-.- 610.518 2,197,927 1,658,102 102,583 225,855 370, OMI ,-..--_ -3.2 +1.0 +.I i-.7 February .._...... _ 61 i, 692 2,227,501 1) MO. 549 102.804 227,490 380, OGI 1 +1.2 +.i 1;:: March ._._.. ._..... ---... 624,235 2,253,lil 1,699,626 229,894 381, OOI --- (9 +1.1 ::; +.4 April _.___._. ..____..___.. 626,182 2,261,283 1, TOG.161 g$ !g 232,346 357, oal +.3 +.3 ‘;::: -6.2 M34..-...... --_..-_...-- 625,430 2,260,962 1, iO5,832 103: 654 234,649 330, m --.l +.3 --i.7 June-. _.______...__ 820,349 2,239,477 1,691.733 103,908 236,840 310, om 1-1 (j,.l -. R +.2 $2 -5.9 July- ___._._. ___- .______-_ 611, 578 2,209,299 1,668,914 104,140 238,763 298,000 -1.4 +.2 -3.9 August _._._. ______._ GOi, 856 2,199,223 1,661,913 104,164 240,306 297,000 __. z:: -. 6 (9 -.2 - Amount of assistance Percentage change from previous month - - 1954

August .__... $221,015,000 $132 934 ii0 $)9 743 ii4 in, 6i5, 905 W,&38,tMl $15,886,0oo +o. 4 +o. 1 September. _ 222,969,Ooo 133’ 470’ 469 50’ 2%’ 374 5,704,473 11,805,299 lG,555,ooO -t.Y +.4 $2 Octobers ---. 222,765, MM 132: 371: OW 50: 775: 4i0 5,732,141 12,037,489 16.910, Ooo November... 224,463. IXIO 132,502,142 50,948,452 5, i46,741 12,110,814 17,776.W T:k T:! :“,::: December- _. 229,361, Ooo 133 , 103 * 9w) 52,083,G95 5,774,614 12,324,863 20,079, Wo +2.2 +.5 +12.9 1955

132,947,7i3 5, i95,836 12,280.061 20,949, ootl -.l +.5 +4.4 132,053,661 5,822,423 12,421, .%4 21,518, CC4 1:: +1.6 132 378 590 5,848,X2 12, W, 701 21.908, Ooo +1.0 7:: +l.i $f:i 132: 351: 618 5 8i3 069 12,sos,950 19,922,ooo --.8 +.4 -9.1 132,674,197 5: 898: 355 12,895,336 1 i, 947, @Xl -.6 2: -.l x$297,014 5,9H5,151 13,010,262 16,674,000 -.4 z;:,” 134 26i 389 5,906, 557 13,x$555 15,941,mw -.4 -1:; -4.4 133: 652: it% 5,88i, 94i 13,301,477 15, no, ooo --.4 2:; -.4 -1.6

* For definition of terms see the Bdletin, January 1953, p. 16. All data subject 3 Includes as recipients the children and 1 parent or other adult relative in to revision. families in which the requirements of at least 1 such adult were considered in 2 Total exceeds sum of columns because of inclusion of vendor payments for determining the amount of assistance. medical rare from general assistance funds and from special medical funds: datn 4 Decrease of less than 0.05 percent. or such expenditures partly estimated for some States. 5 Increase of less than 0.05 percent..

FEDERAL CREDIT UNIONS bers point with pride to their success. other 20 years these cooperative Why should this accomplishment be thrift and credit societies will have (Continued from page 9) judged by standards different from been more widely accepted, both by tion. If a Federal credit union at- those applied to mutual savings the public and by the other financial tains a large size by operating within banks or building and loan associa- institutions whose services they sup- its specified field of membership and tions, both of which made their mod- plement, as a well-founded and justi- engaging in only those activities per- est beginnings in this country more Aable part of the American way of mitted by law, its officers and mem- than 100 years ago? Perhaps in an- life.

Bulletin. November 1955 27