Question

How do the sources and uses of funds differ between commercial banks and credit unions? How do these differences relate to the relative size of the balance sheets amongst depository institutions?

Answer 1

Credit unions:
Main Source of funds: They accept deposits from their members, reserves & surplus.

Use of funds: They give loan to their members.

Balance sheet size: Relatively small.

1. They are not for profit. That is they are service driven.
2. They are owned by the members.
3. They are not taxable.
4. Board of directors are on a volunteer basis.
5. Interest rates are higher than banks in most cases.
6. Fees are lower than banks.
7. They are less accessible compared to banks.
8. Higher risk element involved because it's not managed generally by as professional people like banks, related party risks, less strict regulation compared to banks.

Commercial Banks:
Main Source of funds: They accept deposits from the general public in the form of deposits, borrowing from other banks, reserves & surplus, Federal reserves.

Use of funds: They give loan to the general public, companies & other banks, Investment securities, Repurchase agreements etc.

Balance sheet size: Relatively Big.

1. They are for profit. That is they are Profit-driven.
2. They are owned by shareholders. Shareholders can be public or private or both.
3. They are taxed.
4. There is compensation paid to the board of directors.
5. Interest rates are lower than the credit union in most cases.
6. Fees are higher than credit unions.
7. They are less accessible compared to banks.
8. Low-risk element involved because it's managed by professional, less related party risks, more strict regulation compared to credit unions.