Correction: $1 = $1
What was wrong?
I said that Credit Unions were able to loan out $16 for every $1 in member deposits, because they have a 6% capitalization requirement. I confused Credit Union capitalization ratios with banking Cash Reserve Ratios, and didn’t find out until I spoke with a gentleman from the NCUA today.
Credit Union loans are backed by member shares, and the Credit Unions are required to keep a reserve in excess of this amount. This reserve is the capitalization requirement.
Banks do operate this way, and as I asserted in my talk, generate significant profit from loans they are able make loaning out more money then they have on deposit.
What does this mean?
It means that we have less “upside” (in the form of interest) to use than we originally hoped.
We will still create a non-profit, member owned, member driven, community financial institution. We will still empower our community, offer great financial services, and use our resources to change the world.
There are now 10 passionate people directly involved this project, and our understanding is constantly growing. We are beginning to find mentors in Credit Union community, and have started the chartering process with the NCUA.
Thanks again for your continued trust and support for our community!
Sincerely,
-Jesse Robbins
Want to get involved? Email us at organizers at blackrockfederal.com.
3 comments December 12th, 2006
My explanation of credit union capital reserve requirements was wrong, and I’m working on a detailed correction and explanation.