Microecon question: Why are banks still in business?

[Atreus21]

I know many of us here are inclined to hate banks. I just became a member at the credit union for the university where I work.

Upon further research (wikipedia), I read that credit unions are collectively owned by its members, and focus on individual thrift and all this great stuff.

What do banks offer that credit unions don't that keeps individuals going to banks? I saw that banks tend to have more assets, and therefore might possible be able to loan out greater sums of money, but one would think that'd be attractive to businesses and such, not individuals just using a checking and savings account.

What is it about banks that isn't rendered obsolete by what appears, in my simple observation, to be a vastly superior model in credit unions?

 

[KB]

One issue is that not everyone is eligible to join a credit union in their area. I was eligible to join my credit union because my parents were employed by a participating company. My mother works at a credit union and her credit union is pickier about bringing in new members than banks are. Banks also advertise much more than credit unions so I am certain some people join banks just because of their catchy jingles.

 

[rudder]

I think there was a time when credit unions did not have the same FDIC rules and your money was not insured.

 

[b0mbrman]

Banks have lots of money to lobby against CUs

[Edit] Otherwise, because credit unions are exempted from most state and federal taxes, the rates on savings are higher, rates on loans are lower, and fees for oopsies are lower.

 

[Schadenfroh]

What KB said is true, the only reason I am able to be a member of my credit union is the fact that my father worked for a participating corporation. My parents went exclusively credit union about ten years ago. When I first required an account, I joined their credit union with my father's sponsorship. I still use it exclusively for my banking needs and it is very handy since they are a member of a national organization of credit unions that allow one to use branches of other credit unions across the country that are in the same network.

Also, folks with more than the maximum insurable amount spread their wealth around. I have a relative that has accounts with several different banks. I doubt that he could get accounts with the same number of credit unions.

Finally, the banks in my home area seem a bit more competent than my credit union. Their hours tend to be better, lines shorter and (overall) better managed. I mainly stuck with my credit union to save money and I was willing to take a small hit in service quality. But, this is a generalization that likely does not hold in all areas.

 

[Ausm]

I like my CU no worries of my CC getting jacked up to 30% interest.

 

[Uhtrinity]

I've been a member of a CU since I was 2 or 3, same with my son,

Pros: Great personal service as in they know me by name, short lines, better rates on account returns, great rates on personal and vehicle loans.

Cons: No home mortages, only 2 locations.

 

[piasabird]

Credit unions have stricter rules on what they can invest in. Around the time that Reagan was in office there was a savings and loans crisis. After that time the rules were more strictly enforced. Banks have differrent classifications. For instance, Investment banks are the organizations that help to finance and set up IPO (Initial Public Offering of Stock) for new corporations.

 

[Atreus21]

I would assume since Credit Unions are not for profit, that they can keep more if not most of their assets on hand.

Doesn't it follow, then, that they wouldn't need to be insured by the FDIC?

 

[imported_gardener]

The eligibility restrictions on CUs have liberalized significantly of the past several years, Boeing Employee Credit Union (in my home state of Washington) is open to anyone who resides in Washington.

However, I bank at a local bank, because they provide great service. My wife was able to buy a house in Seattle back in 1986 through the same bank after the big banks refused to loan money in my South Seattle neighborhood thanks to illegal redlining. If we did not have such a good relationship with that bank I would bank at BECU.

The bailout of the "too big to fail" banks is nothing but a takeaway from smaller regional banks and credit unions. Imagine how much business they would have had if Citibank et al had been allowed to fail.

 

[Patranus]

If you want to join a credit union then join a credit union. If you want to join a private bank, join a private bank. If you want to join a public bank, join a public bank.

The market will weed out the bad banks and keep the strong banks.

See how choice and competition works?

 

[Woofmeister]

Originally posted by: Atreus21
I would assume since Credit Unions are not for profit, that they can keep more if not most of their assets on hand.

Doesn't it follow, then, that they wouldn't need to be insured by the FDIC?

Credit unions exist to make loans to their members so they're not supposed invest more than a small amount of members funds in other investments. Also, loans made by any financial institution are considered "assets" while savings and checking account deposits (which are available on demand) are considered liabilities.

Finally, federal credit unions are chartered, supervised and insured by the National Credit Union Administration--the FDIC of credit unions.

 

[Special K]

Originally posted by: Patranus
The market will weed out the bad banks and keep the strong banks.

O RLY? I can think of a few that should have gone under last fall but didn't thanks to TARP and government intervention.

 

[NaughtyGeek]

Originally posted by: Patranus
If you want to join a credit union then join a credit union. If you want to join a private bank, join a private bank. If you want to join a public bank, join a public bank.

The market will weed out the bad banks and keep the strong banks.

See how choice and competition works?

That only holds true when you don't have the .gov getting involved. How many of those "great" big banks would be gone now if not for the recent .gov bailout?

 

[Woofmeister]

Originally posted by: Patranus
If you want to join a credit union then join a credit union. If you want to join a private bank, join a private bank. If you want to join a public bank, join a public bank.

The market will weed out the bad banks and keep the strong banks.

See how choice and competition works?

Choice and competition have little to do with it since the federal government stands behind so much of the banking activity in this country either directly or indirectly. Last time around, the government decided which banks failed and which survived. Ask Lehman Brothers.

 

[Patranus]

Originally posted by: Woofmeister

Originally posted by: Patranus
If you want to join a credit union then join a credit union. If you want to join a private bank, join a private bank. If you want to join a public bank, join a public bank.

The market will weed out the bad banks and keep the strong banks.

See how choice and competition works?

Choice and competition have little to do with it since the federal government stands behind so much of the banking activity in this country either directly or indirectly. Last time around, the government decided which banks failed and which survived. Ask Lehman Brothers.

And that is just one example of why government should get the fuck out of the 'free market'

 

[Perknose]

Originally posted by: Atreus21
What do banks offer that credit unions don't that keeps individuals going to banks?

Not one thing except more fees and shittier service. Banks many commercials are full of wildly happy people, however.

I saw that banks tend to have more assets, and therefore might possible be able to loan out greater sums of money...

Credit unions make tons of loans to their customers, and at favorable rates, too. They are also more likely to service the small guy, which their customers are!

What is it about banks that isn't rendered obsolete by what appears, in my simple observation, to be a vastly superior model in credit unions?

Nothing.

But, in the political language of our esteemed republic, Credit Unions = socialism. They are collectives, communities organized, which hand out needed small loans liberally -- ALL words made dirty and evil for us over the years by our right wing.

How fucking stupid is that?

 

[Perknose]

Originally posted by: Patranus
If you want to join a credit union then join a credit union.

The ignorance in your statement is massive. Membership in a credit union is restricted to the special affinity group of it's charter. Most Americans can't join any credit union at all because they don't belong to any of these restricted groups.

Next time you try to dispense your pompous but hilariously ignorant advice, Mr. Free Market, better educate yourself first as to just how unfree our market really is.

 

[Patranus]

Originally posted by: Perknose
But, in the political language of our esteemed republic, Credit Unions = socialism. They are collectives, communities organized, which hand out needed small loans liberally -- ALL words made dirty and evil for us over the years by our right wing.

How do you figure? Is the GOVERNMENT mandating this collective? Nope. Stop trying to bait the 'evil' Republicans, because you FAIL.

It is actually capitalist at its finest. A group of people see a hole in the market and take advantage of that hole.

 

[Perknose]

Originally posted by: Patranus

Originally posted by: Perknose
But, in the political language of our esteemed republic, Credit Unions = socialism. They are collectives, communities organized, which hand out needed small loans liberally -- ALL words made dirty and evil for us over the years by our right wing.

How do you figure? Is the GOVERNMENT mandating this collective? Nope. Stop trying to bait the 'evil' Republicans, because you FAIL.

It is actually capitalist at its finest. A group of people see a hole in the market and take advantage of that hole.

They why can't I or most Americans join a credit union, something you didn't even know?

Could it possibly be because of the entrenched special interests of the banks -- you know, to quote you, capitalism at its finest? :roll:

 

[Ausm]

A second form of market socialism has been termed "free market socialism" because it does not involve planners.[8][9] Pierre-Joseph Proudhon developed a theoretical system called mutualism, which attacks the legitimacy of existing property rights, subsidies, corporations, banking, and rent. Proudhon envisioned a decentralized market where people would enter the market with equal power, negating wage slavery.[10] Proponents believe that cooperatives, credit unions, and other forms of worker ownership will become viable without being subject to the state. Market socialism has also been used to describe some individualist anarchist works[11] which argue that free markets help workers and weaken capitalists.

http://en.wikipedia.org/wiki/Market_socialism

 

[CitizenKain]

Originally posted by: Patranus

Originally posted by: Woofmeister

Originally posted by: Patranus
If you want to join a credit union then join a credit union. If you want to join a private bank, join a private bank. If you want to join a public bank, join a public bank.

The market will weed out the bad banks and keep the strong banks.

See how choice and competition works?

Choice and competition have little to do with it since the federal government stands behind so much of the banking activity in this country either directly or indirectly. Last time around, the government decided which banks failed and which survived. Ask Lehman Brothers.

And that is just one example of why government should get the fuck out of the 'free market'

Yea, if all those people who had money in the banks lost their life savings, it would be awesome!

 

[Special K]

Originally posted by: CitizenKain

Originally posted by: Patranus

Originally posted by: Woofmeister

Originally posted by: Patranus
If you want to join a credit union then join a credit union. If you want to join a private bank, join a private bank. If you want to join a public bank, join a public bank.

The market will weed out the bad banks and keep the strong banks.

See how choice and competition works?

Choice and competition have little to do with it since the federal government stands behind so much of the banking activity in this country either directly or indirectly. Last time around, the government decided which banks failed and which survived. Ask Lehman Brothers.

And that is just one example of why government should get the fuck out of the 'free market'

Yea, if all those people who had money in the banks lost their life savings, it would be awesome!

FDIC paying out its insurance is different than directly captializing the bank and allowing it to remain in business. There have been nearly 100 bank failures this year. In every instance depositers were insured up to the current $250k limit, but the bank itself was allowed to fail. Granted the FDIC reserve is running low, but that is a topic for another thread.

 

[Pantoot]

Originally posted by: Perknose
They why can't I or most Americans join a credit union, something you didn't even know?

Could it possibly be because of the entrenched special interests of the banks -- you know, to quote you, capitalism at its finest? :roll:

Make a $20 donation to the NMFA and join penfed.org.

You and any American can join a credit union.

[edit: and pay 3.99% for a car loan]

 

[rudder]

Originally posted by: Perknose

Originally posted by: Atreus21
What do banks offer that credit unions don't that keeps individuals going to banks?

Not one thing except more fees and shittier service. Banks many commercials are full of wildly happy people, however.

I saw that banks tend to have more assets, and therefore might possible be able to loan out greater sums of money...

Credit unions make tons of loans to their customers, and at favorable rates, too. They are also more likely to service the small guy, which their customers are!

What is it about banks that isn't rendered obsolete by what appears, in my simple observation, to be a vastly superior model in credit unions?

Nothing.

But, in the political language of our esteemed republic, Credit Unions = socialism. They are collectives, communities organized, which hand out needed small loans liberally -- ALL words made dirty and evil for us over the years by our right wing.

How fucking stupid is that?

Different than Government socialism. With a credit union, I have a choice. No one is forcing me to deposit money into a system I may or may not use.

Nice try... but fail.