LAW 724A Banking and Financial Institutions

1.Something new and exciting about credit unions is that they have been fought against by banks since their beginning. Banks find that the credit unions are taking advantage of their membership restrictions that apparently has given them an advantage over the community banks. Furthermore, unlike banks, credit unions are not necessitated to pay federal income taxes since they operate as non-profit organizations. But it does not mean that the institutions are run without any single charge. They do pay payroll taxes, property taxes, and their members are also necessitated to pay tax on the dividends received from the services of the credit union. Besides, this tax status is known to be brought about by the actual services the communities receive from the credit unions. Furthermore, most of the non-profit organizations do not pay federal income taxes but have their customers do it by providing them with services that have beneficial social influences. What’s new is that the members of the credit unions also enjoy a widespread access to funds especially through mobile banking, ATMs, and local branches as well. 

Hence, I found it interesting because even if the customers get to pay the taxes on their own, they still benefit a lot from the credit unions which operate solely for the good and betterment of their members and the surrounding communities. Besides, they are generally known to offer better customer service than the ones people get from the banks. Their owners insist on excellence in customer service all towards ensuring the well-being of its members. What’s more, they have the best superior rates and lower fees as part of their exemplary customer service especially when compared to commercial banks. It is also interesting to know that the ATMs belonging to the credit unions come from a nationwide network known as CO-OP that provides several ATMs for the credit union members countrywide for free. The credit union cards are not restricted for use only in the credit union ATMs. They can also be used in other ATMs but with a small service charge. The CO-OP Financial services have contributed to the spread of the national networks of the credit unions with the availability of kiosks in most of its branches and offices. The shared nature of the credit union organizations allows people to use the ATM at any location allowing the customers to get access to their money without necessarily being in the area where an individual’s particular credit union has a branch. Hence, it is right for the banks to feel threatened by the credit unions since they are expounding their networks faster than any other financial association.

2..In the U.S, commercial banks and savings associations co-exist side by side. They are similar in that they provide their customers with the basic banking services such as deposits, loans, check writing, and debit cards. Secondly, they are both regulated and supervised by a state banking authority. Commercial banks are insured by the FDIC which is a state investment authority and the savings associations are governed by a state banking authority, known as the Office of Thrift Supervision. Alternatively, however, there are some significant differences between them. Firstly, they have ownership differences. Commercial banks are for-profit businesses that are picked by stockholders and owned by a board of directors while savings associations can be owned by its borrowers and depositors or by a consortium of shareholders. Lastly, they also differ by the numbers in that commercial banks have no restrictions on the amount they can lend up since their core expertise is commercial and business loans. Alternatively, the savings associations are by law restricted to lend a maximum of 20 percent of their assets while only half of it can be put on small business loans since their core expertise is on home loans. 

Industrial banks vary from commercial banks since industrial banks primarily provide financial services to industrial or other productive activities while commercial banks primarily provide financial services to commercial activities. Secondly, industrial banks generally provide loans that are long-term intended for fixed capital needs while commercial banks generally provide short-term loans designed for working capital requirements. Lastly, industrial banks provide consultancy and underwriting promotional services to its customers while commercial banks provide general utility and agency services to its clients.  

Banks and credit unions differ in a variety of ways. First and foremost, they have a different business structure. The business structure for banks is the same as that of a company where they work to make profits whereas the credit unions are not-for-profit institutions. Commercial banks are controlled by stockholders and a board proving their purpose of making a profit for the shareholders. Banks receive payments in the form of interests from loans given to borrowers. Alternatively, credit unions work to serve its members. Unlike banks, credit unions are not shareholder controlled. Instead, they are partly owned by members who have a say in its operations. Secondly, the rates and fees of banks differ from those of credit unions with the banks having higher bank rates than those of the credit unions. The high bank rates are mostly because of the need to make profits. The bank rates include high-interest rates on credit cards and loans and lower deposit rates. Alternatively, the credit unions have lower interest rates especially on credit cards and loans and higher deposit rates. Thirdly, they have a different tax structure. Commercial banks are taxed at the level of the entity resulting in customers paying lower taxes than the ones paid in the credit unions. The credit unions are not taxed since they are not for-profit entities. They do not pay taxes since their customers do that for them. Additionally, banks and financial institutions differ in the products and services they offer. Banks offer a wide variety of products such as credit cards, savings accounts, mortgage loans, auto loans and much more. Credit unions, on the other hand, tend to offer only a few financial products such as the credit cards, savings accounts, and loans. Lastly, they have different deposit insurance with the bank deposit accounts being insured by FDIC and the federal credit unions being insured by the NCUA through the National Credit Union Insurance Fund.   

References

David P. Bernstein, Credit Unions Versus Banks: Preliminary Findings, SSRN Electronic Journal.

Donal McKillop & John O.S. Wilson, Credit Unions: A Theoretical and Empirical Overview, 20 Financial Markets, Institutions & Instruments 79-123 (2011).

Paul S. Sarbanes, Comparing credit unions with other depository institutions (1 ed. 2001).

Surendra K. Kaushik & Raymond H. Lopez, Profitability of Credit Unions, Commercial Banks and Savings Banks: A Comparative Analysis, 40 The American Economist 66-78 (1996).