SECU: The Federal Government Lends A Hand To Assure Success

... a risky business?

Would like to strongly emphasize something which most of you have probably skated over too lightly. 

For the first 3 or so decades of its existence, SECU was an uninsured investment club limited to North Carolina state and public school employees. The "club" was limited to "investing" only in consumer loans and only to other members - nothing else. 

But here's the really important point. For the SECU member "investor", for the member "shareholder", nothing was guaranteed. SECU by statute was operated on a not-for-profit basis; if operations went well the shareholders received a "dividend" on their savings. If things went "badly" shareholders would see their savings balance reduced, creating a loss. During this period - and over its entire history - SECU never had a "bad" year, never operated at a loss. Costs were kept low, members volunteered their time to run the credit union and approve loans. Loan losses were rare.

In the 1930's banks were privately-owned and uninsured. During the Great Depression over 4,000 U.S. banks failed, causing tremendous losses for depositors. As a result, Congress created the Federal Deposit Insurance Corporation (FDIC) to insure depositors up to $2,500 (today it's $250k!) and to restore confidence in the banking system.

Some credit union leaders felt that deposit insurance for credit unions would be beneficial, many leaders did not. They feared federal government intrusion and overreach. In 1970, Congress created the National Credit Union Administration (NCUA) to provide deposit insurance for credit unions equivalent to the FDIC.

SECU did not sign on for NCUA insurance until 1984. As a member with deposit insurance, losing your life savings has been virtually eliminated, but have your "risks" as an SECU member-shareholder decreased?

Did you know that 3 of the largest 50 banks in the U.S. - Silicon Valley Bank, First Republic, Signature - failed in 2023? 

Yep, just last year,... weren't you paying attention?

 

SECU: Monitoring The Performance Of Your Credit Union - The Impact Of Federal Deposit Insurance.

    

The National Credit Union Administration

It apparently came as a surprise to many of you that SECU was created in 1937 as an employer sponsored benefit - like most other credit unions. A mutual investment/borrowing "club" to give North Carolina state and public school employees access to consumer credit. As we have seen, it really wasn't a true financial institution, definitely not a commercial bank. Credit unions were something different in the world of finance - different structure, different goals, different purpose.

SECU as an "employee investment/borrowing club" quickly evolved into a "family thing"; as it became difficult to justify forcing retirees or widows and children of members out of the membership. All members continued to have equal rights and the ideas of "once a  member, always a member" and family memberships set the stage for growth. 

Lending rates were low, decisions quick; savings rates were highly competitive. Dealing locally with folks who knew you and high quality ("we know you by name"!) service also fueled the fire. SECU treated you fairly and with respect - as an equal. You were, after all, among friends, family and coworkers. SECU "had your back" financially, that's why they were there. 

Remember that the only money SECU had to lend came from the savings dollars of other members! If something "went wrong" at SECU, losses were deducted from your savings balance. All members shared equally in operating and lending losses. Your savings (share) deposits were uninsured at SECU! As a member, you were directly at risk of loss. You stood the chance of losing your life savings! Members paid close attention to their credit union - with good reason

Then along came deposit insurance via the federal government... and things began to change...

  NCUA, the feds arrive... a change for the better?