Mr. Chairman, Senator Sarbanes, Members of the Committee.
I appreciate this opportunity to present the Treasury's views on two topics
involving credit unions. First, the safety and soundness reforms recommended in the
Treasury's recent Congressionally mandated report on credit unions. Second, the
common bond of credit union membership, including the implications of the decision
rendered by the Supreme Court last month.
As not-for-profit depository institutions, credit unions add something special to our
financial system. They give their members an alternative, cooperative structure for
depositing savings and obtaining credit and other financial services. The credit union
ideal is one of mutual self-help.
By a statute proposed by Senator Bennett and ultimately enacted in September
1996, Congress required the Treasury to study and report on a series of issues involving
credit unions (a list that did not, incidentally, include the common bond requirement). In
preparing our report, we consulted widely with the National Credit Union Administration
(NCUA), the four federal banking agencies, the major credit union, bank, and thrift trade
associations, consumer groups, and credit union officials. We made on-site visits, and we
sought and received public comments. As specifically required by Congress, we
assembled an interagency team of experienced federal bank and thrift examiners to assist
us in our evaluation of the ten largest corporate credit unions. We published our report
A. The Treasury's Legislative Recommendations to Strengthen the
Safety and Soundness of the Credit Union System
Our report found that credit unions and their deposit insurance fund appear to be in
strong financial condition. We did make several recommendations for Congressional
action to strengthen the long-term safety and soundness of the credit union system.
1. Capital Requirements and Prompt Corrective Action
Strong capital requirements and prompt corrective action are foundations of
modern safety and soundness supervision of federally insured depository institutions.
Capital requirements help ensure that such institutions have a sufficient buffer to absorb
unforseen losses without in turn imposing losses on depositors or the deposit insurance
fund.(1) Prompt corrective action is a capital-based approach to supervision aiming to
resolve capital deficiencies before they grow into large problems. As a federally insured
depository institution's capital declines below required levels, an increasingly more
stringent set of safeguards applies. The goal is to minimize (and, if possible, avoid)
losses to the deposit insurance fund. Prompt corrective action has applied to all FDIC-insured depository institutions since 1992, and the results have been good.
Although credit unions hold over $300 billion in federally insured deposits, they
are not currently subject to capital requirements in the sense of needing to have a given
ratio of capital to assets in order to be in good standing. Credit unions must set aside as
regular reserves (a form of retained earnings) a small percentage of their gross income
until their regular reserves reach a level approximating 4 percent of total assets. But this
is not a capital requirement; credit unions need not reach or maintain that level. The rule
in question is perhaps best described as an earnings-retention requirement.
Nor are credit unions subject to a system of prompt corrective action. The NCUA
has informal policies analogous to some aspects of such a system, but has no regulations
or even formal guidelines for taking corrective action regarding a troubled credit union.
We recommend that Congress require federally insured credit unions to have 6
percent net worth to total assets in order to be in good standing.(2) We also recommend
that credit unions set aside, as retained earnings, a small percentage of their gross income
if they have less than 7 percent net worth.
Credit unions' balance sheets indicate that credit unions themselves recognize the
wisdom of maintaining such capital levels. Of the federally insured credit unions
operating at the end of 1996, 96 percent had more than 6 percent net worth, and those
credit unions held 98 percent of total credit union assets. Moreover, 93 percent of credit
unions had more than 7 percent net worth, and those credit unions held 93 percent of total
credit union assets.
We also recommend that Congress establish a system of prompt corrective action
for credit unions. This system would be a streamlined version of that currently applicable
to all FDIC-insured institutions, and would be specifically tailored to credit unions as not-for-profit, member-owned cooperatives. It would thus, for example, not include
provisions keyed to the existence of capital stock, since credit unions have no capital
Such a system of prompt corrective action would protect the National Credit Union
Share Insurance Fund and the taxpayers who stand behind it; it would also benefit credit
unions and the credit union system. It would reinforce the commitment of credit unions
and the NCUA to resolve net worth deficiencies promptly, before they become more
serious. It would promote fair, consistent treatment of similarly situated credit unions. It
should reduce the number and cost of future credit union failures. In so doing, it should
conserve the resources of the Share Insurance Fund, make the Fund even more resilient,
and make more money available for lending to credit union members. And it would
respect and complement the cooperative character of credit unions.
2. Other Capital-Related Reforms
a. Risk-Based Capital Requirement for Complex Credit Unions
We recommend that Congress direct the NCUA to develop an appropriate risk-based capital requirement for complex credit unions. This risk-based requirement would
supplement the simple 6 percent net worth requirement and could take account of risks --
such as interest-rate risk or contingent liabilities -- that may be appreciable only at a small
subset of credit unions.
b. Treatment of Certain Equity Investments in Corporate Credit
Corporate credit unions are specialized financial institutions that provide services
to, and are cooperatively owned by, their member credit unions. They serve their
members primarily by lending or otherwise investing their member credit unions' excess
funds. They also provide services comparable to those offered by bankers' banks or to
the correspondent services that large commercial banks traditionally provided to smaller
banks. U.S. Central Credit Union is a corporate credit union serving 38 of the 40 other
corporate credit unions.
The three-tier cooperative structure of the credit union system -- regular credit
unions, corporate credit unions, and U.S. Central -- creates an interdependence risk
among the various levels. Specifically, a credit union's deposits at its corporate credit
union, and its equity investment in that institution, are assets on its books. At the same
time, the credit union's corporate credit union carries these funds on its balance sheet as
deposits (largely uninsured) and capital, respectively. If a corporate credit union were to
fail, its member credit unions could face losses on their deposits or equity investments,
which would reduce their own capital. This interdependence means that each level of the
credit union system must have sufficient capital for the risks undertaken so as not to pose
a risk of losses cascading to the level below it.
Accordingly, we recommend that federally insured credit unions deduct from their
net worth (for purposes of regulatory capital requirements and prompt corrective action)
paid-in capital issued by a corporate credit union and some portion of member capital
accounts at a corporate credit union. Paid-in capital is the lowest priority instrument
issued by a corporate credit union. If the corporate credit union were to fail, holders of
paid-in capital would have to stand in line behind all creditors, all depositors, and all
other equity holders; they would receive nothing unless all these other claimants received
payment in full. Membership capital is the second lowest priority instrument issued by a
corporate credit union. Holders would stand in line behind all creditors, all depositors,
and all equity holders other than holders of paid-in capital.
3. Reforms Related to the National Credit Union Share Insurance Fund
We propose a series of reforms relating to the National Credit Union Share
First, we recommend requiring more timely and accurate calculation of the Fund's
equity ratio -- i.e., the ratio of the Fund's reserves to the total amount of the deposits that
the Fund insures -- the standard measure of the Fund's health. We are concerned that the
NCUA's method of measuring the equity ratio generally overstates the reserves actually
available. The NCUA calculates the equity ratio monthly by dividing the Fund's reserve
balance for the month by the previous year-end total of insured deposits. Thus each year-end equity ratio is calculated using a denominator that may be up to 12 months old, which
tends to inflate the ratio. For example, at year-end 1996, the Share Insurance Fund had
$3.4 billion in reserves and insured $275.5 billion in deposits, which implied an equity
ratio of 1.24 percent. However, the NCUA calculated the Fund's year-end 1996 equity
ratio as 1.3 percent by dividing the year-end 1996 total Fund reserves by the year-end
1995 total insured deposits.
Because the NCUA must, under current law, distribute dividends to member credit
unions whenever the Share Insurance Fund's equity ratio exceeds 1.3 percent, the
NCUA's procedure has led it to pay dividends when the Fund's equity ratio, properly
measured, was actually less than 1.3 percent. Paying dividends under such circumstances
dissipates the Fund's reserves without good reason. We accordingly recommend that
Congress require the NCUA to correct this non-contemporaneous measurement of the
Second, we recommend not permitting distributions to dissipate the Fund's
reserves when the Fund's ratio of high-quality, liquid net reserves to the total deposits
that the Fund insures (the available-assets ratio) falls below 1 percent. The equity ratio,
unlike the available assets ratio, does not reflect the actual composition of the Share
Insurance Fund's assets. When credit unions come under stress (e.g., during an economic
recession), illiquid assets acquired from failed or troubled institutions will tend to
increase at the expense of liquid assets -- leaving the Fund less able to provide cash
assistance to other ailing credit unions. We recommend that Congress require the Share
Insurance Fund to maintain an available assets ratio of 1.0 percent of insured deposits.
Should the available assets ratio fall below this level, the NCUA would not be permitted
to pay dividends even if the Fund's equity ratio were to exceed 1.3 percent.
Third, we recommend requiring federally insured credit unions with more than $50
million in total assets to adjust their 1 percent deposit in the Fund semi-annually (instead
of just annually). Such institutions account for just 12 percent of all credit unions but
hold 76 percent of total credit union deposits. Semi-annual adjustments by such credit
unions will help ensure that the 1 percent deposit keeps pace with their deposit growth.
Fourth, in place of the current rule that fixes any insurance premium at 1/12 of
1 percent of insured shares, we recommend giving the NCUA some discretion to adjust
the premium rate according to the Fund's financial needs.
Fifth, we recommend imposing a premium if the Fund's equity ratio falls below
1.2 percent, in keeping with the NCUA's longstanding practice.
Sixth, we recommend giving the NCUA discretion to let interest on the Fund's
reserves increase the Fund's equity ratio to 1.5 percent. The Federal Credit Union Act
currently imposes a rigid 1.3 percent ceiling on the Fund's reserve ratio. The change
proposed here would permit the Fund to accumulate additional investment earnings in
good times that would increase its resiliency during economic downturns. This flexibility
would likewise better enable the NCUA to protect the Fund -- as well as protect credit
unions' 1 percent deposit -- from possible future losses. The NCUA would, of course,
remain free to distribute as dividends any reserves above 1.3 percent (and any interest
earned on those reserves). It could also use part of the earnings to increase the reserve
ratio and distribute the rest.
B. Other Pertinent Recommendations
1. Retaining the NCUA's Role in Administering the Share Insurance
Congress required us to evaluate the potential costs and benefits of having some
entity other than the NCUA administer the Share Insurance Fund. Some potential may
exist for conflict between the NCUA's mission as a charterer or regulator of credit unions
and the NCUA's responsibilities for the Share Insurance Fund. However, in our view,
any such potential conflict is best handled by applying a system of prompt corrective
action. Such a system would impose an important and highly constructive discipline on
the NCUA's supervisory and insurance functions. This discipline should, to a significant
degree, offset any potential for conflicts of mission. Accordingly, we recommend against
moving the Share Insurance Fund out of the NCUA.
2. Continuing to Permit Credit Unions to Treat Their 1 Percent Deposit
in the Share Insurance Fund as an Asset
Congress also required us to evaluate whether the 1 percent deposit that federally
insured credit unions have made into the Share Insurance Fund should continue to be
treated as an asset on credit unions' books or whether credit unions should, instead,
expense that deposit. Let me first take a moment to explain how the 1 percent deposit
works, and more generally, how the Share Insurance Fund is financed.
Under current law, each federally insured credit union must maintain on deposit in
the Share Insurance Fund an amount equal to 1 percent of the credit union's insured
deposits. Thus, for example, if the credit union has $50 million in insured deposits, it
must keep $500,000 on deposit in the Fund. The credit union's deposit in the Fund
counts as an asset on the credit union's books. It also counts as reserves of the Fund, and
is available to protect depositors at failed credit unions. Because this accounting
treatment involves some double-counting of the same money, some have called for credit
unions to write off the 1 percent deposit, so that it would no longer count as an asset on
We concluded that better ways of protecting the Fund are available. Three reforms
that I outlined earlier are particularly relevant here: the 6 percent capital standard; the
requirement that credit unions with less than 7 percent net worth set aside some of their
income as retained earnings; and a system of prompt corrective action. We believe that
these measures, coupled with existing safeguards, would fully offset any double counting
and assure adequate protection of the Fund. By contrast, requiring a writeoff of the
1 percent deposit would not provide nearly as much protection. Accordingly, we
recommend against requiring credit unions to write off their 1 percent deposit.
C. The Importance of Enacting These Safety and Soundness Reforms
Over the past two decades, most key legislation regarding the safety and soundness
of federally insured depository institutions has been enacted in time of crisis. The
Depository Institution Deregulation and Monetary Control Act of 1980, the International
Lending Supervision Act of 1983, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, and the FDIC Improvement Act of 1991 all fit this pattern.
Because Congress waited to act until it faced a crisis, the changes involved, although
ultimately beneficial, increased the short-term stress on many depository institutions.
A better approach is to enact needed safety and soundness safeguards while times
are good. Such safeguards will reduce the potential for a future crisis. And depository
institutions can make any necessary adjustments from a position of strength, with
appropriate transition periods.
Congress has such an opportunity to act now. Credit unions are flourishing. On
average, their net worth exceeds 11 percent of total assets. And the Share Insurance Fund
is fully capitalized. The changes we propose involve little cost or burden to credit unions
today, yet they could pay enormous dividends in more difficult times.
Although most credit unions remain relatively small institutions with simple
product offerings, a growing number are large and have extensive product offerings.
These credit unions commonly compete head-on with other depository institutions. As
credit unions increase in size and complexity -- competing directly with banks and thrifts
and taking on similar financial risks -- policymakers need to ensure that comparable
safeguards apply to credit unions' risk-taking. The safeguards applicable today fall short
of being comparable. Moreover, if the ultimate outcome of the current debate over the
common bond is to provide greater flexibility, allowing the continued emergence of
larger, less closely knit credit unions, the safety and soundness enhancement traditionally
provided by a tight common bond diminishes, and the incentives for growth and added
risk-taking may increase.
We risk being unprepared for future problems if we do not act now to update
applicable safety and soundness safeguards in light of a changing industry. It was just
this lack of preparation that compounded taxpayer losses during the thrift crisis -- as the
thrift industry changed, safeguards did not keep up with those changes.
Let me now turn to the requirement that members of a credit union share a
In discussing this requirement, I will: describe what we at the Treasury believe to
be the distinguishing characteristics of credit unions -- the features that set them apart
from banks and thrifts; summarize the common bond requirement for federal credit
unions; identify the key market dynamics that have prompted credit unions to pursue
liberalization of the common bond requirement; set forth six principles that the Treasury
believes should guide policy relating to the common bond requirement; and provide some
general comments on what Congress may wish to consider in this area.
A. The Common Bond Requirement as a Distinguishing Characteristic
of Credit Unions
Credit unions have several characteristics that, taken together, distinguish them
from banks and thrifts.
First, credit unions are member-owned cooperatives. They do not issue capital
stock, and instead derive their capital from accumulated retained earnings.
Second, credit unions generally rely on unpaid, volunteer boards of directors
elected by, and drawn from, each credit union's membership.
Third, credit unions do not operate for profit.
Fourth, credit unions have a public purpose. As declared in the Federal Credit
Union Act, this purpose involves "mak[ing] more available to people of small means
credit for provident purposes." Of course, other depository institutions also operate under
statutes that delineate public purposes, so the distinction here involves the emphasis on
providing services affordable to people of modest means.
Fifth, credit unions generally have limitations on their membership -- limitations
based on some affinity among members. These limitations are known as the common
bond requirement. Thus, unlike other depository institutions, a credit union generally
cannot serve just anyone from the general public.
We see the common bond requirement as a distinguishing characteristic of credit
unions -- one that helps set credit unions apart from other depository institutions. In our
view, the common bond requirement is not merely a convenient organizing principle.
The affinity among a credit unions' members, as reflected in a common bond, reinforces
credit unions' other defining characteristics.
B. The Different Types of Common Bonds
The Federal Credit Union Act of 1934 limits "federal credit union membership . . .
to groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community, or rural district." Thus, the Act recognizes three types
of credit unions: those based on a common bond of occupation or association and those
based on a well-defined geographic community. Most credit unions have traditionally
had occupational or associational common bonds, although community credit unions have
become more common in recent years.
In an occupational common bond, a credit union's members share a common
employer. The NCUA has required that occupational fields of membership include a
In an associational common bond, a credit union's members come from some
recognized association. The NCUA's policy is to charter associational credit unions at
the lowest organizational level that is economically feasible. The policy permits a charter
for a widely dispersed membership only where such a charter is clearly demonstrated to
be in the best interests of the associations's members and credit unions.
The Federal Credit Union Act restricts a community credit union to "a well-defined neighborhood, community, or rural district." The NCUA has interpreted this to
mean a single, geographically well-defined area where residents interact. Generally, the
NCUA recognizes four types of affinity on which to base a community credit union:
affinity based on living, worshiping, studying, or working in the community.
C. Market Dynamics
Let us briefly consider the market forces that encourage credit unions to expand
beyond their original membership group. We have identified four types of forces. They
involve technology, demographics, safety and soundness, and management.
1. Technological Factors
Many credit unions -- to meet customer demand and compete with other
depository institutions -- now offer such technology-based services as ATMs and
computer and telephone banking. The information and communications technology
needed to provide such services involves substantial fixed costs. Adding more
membership groups makes such investments more economical by allowing a credit union
to spread these fixed costs over more members.
2. Demographic Factors
Demographic factors also contribute to credit unions' desire to add new
membership groups. For example:
3. Safety and Soundness Factors
A tight common bond requirement can have mixed effects on a credit union's
safety and soundness.
The affinity among members sharing a single, focused common bond helps limit
loan defaults. In a credit union with a single common bond, a member would be less
likely to default on a loan commitment because of the effect that the default would have
on friends, neighbors, or coworkers, and because of the shame associated with the default.
Because the credit union is a not-for-profit cooperative, it may also be more willing to
develop an acceptable workout plan than would an impersonal, profit-maximizing
On the other hand, the more that a credit union's membership shares a common
bond of employment or otherwise has similar exposure to plant closings or other
economic risks, the less diversified its exposure to credit risk. Diversifying the credit
union's membership base tends to make the credit union more resilient in the face of
problems experienced by any one local employer. Plant closings during the late 1970s
and early 1980s led to numerous credit union failures because an individual plant
typically sponsored a credit union and the credit union's membership consisted of the
plant's workers. Such failures played a key role in prompting the NCUA's 1982 policy
4. Managerial Factors
Managerial factors may create incentives for credit unions to grow by adding new
membership groups. A credit union board of directors seeking to attract high-quality,
professional managers may find it easier to do so if the credit union is large, or has
growth opportunities. Moreover, as credit unions are non-profit cooperatives, they do not
remunerate their managers based on profit or stock performance. Instead, management
compensation often reflects a credit union's size and product offerings. This may give
managers an incentive to increase the credit union's size, and adding new membership
groups would be an obvious method for doing so.
D. General Principles
Between the polar-opposite outcomes of having no common bond requirement and
requiring all members of a credit union to share a single, tightly defined common bond,
are an array of possible policies. We suggest that Congress consider possible policies in
light of the following principles:
1. Reaffirm Credit Unions' Role in Serving People of Modest Means
Credit unions have historically had a special role in serving people of modest
means. The Federal Credit Union Act reflects this public purpose: it is an "Act . . . to
make more available to people of small means credit for provident purposes."
We believe that federal policy towards credit unions should continue to promote
this objective. Credit unions have played, and should continue to play, an important role
in serving the underserved. Low-income credit unions have charters that specifically
reflect their mission of serving the underserved. But more broadly, credit unions help
make financial services more affordable for (and in some cases, geographically available
to) people of modest means.
2. Correct Perverse Incentives to Abandon Occupation- and Association-Based Federal Credit Union Charters
In response to a 1996 injunction against federal credit unions adding new
membership groups, hundreds of federal credit unions have moved to convert to state
charters or to community-based federal charters. Yet a stringent federal common bond
requirement serves no public purpose if it merely prompts credit unions to switch to state
charters with a looser common bond requirement (or none at all). Similarly, a stringent
occupational or associational common bond requirement serves no public purpose if it
simply prompts credit unions to switch to broad, geographically based charters (e.g.,
anyone who lives, works, or worships in Fairfax County, Virginia) with less real affinity
than their old occupation or association-based charters. Left unchanged, the Supreme
Court's ruling will tend to produce such perverse results.
The debate over the common bond requirement has thus far centered on federal
credit unions. Current federal law imposes no common bond requirement on state-chartered credit unions (although some states choose to tie their own requirements to
federal law). Yet state-chartered credit unions receive essentially the same benefits as
federal credit unions, including federal deposit insurance and exemption from federal
income taxation. We believe that public policy should avoid creating perverse incentives
to seek one type of credit union charter over another, particularly if the upshot is to
encourage credit unions to select charters that weaken the affinity among their members.
3. Preserve a Meaningful Common Bond as a Characteristic of Credit
As I mentioned earlier, we see the common bond requirement as a distinguishing
characteristic of credit unions, and one that reinforces credit unions' other characteristics.(3)
A sense of affinity among members encourages credit unions to serve all their members,
even those whose business may be unremunerative. For example, a hallmark of credit
unions has been their willingness to make small unsecured loans -- loans so small that
banks generally have little interest in the business. Yet the less members have a sense of
affinity with one another, the less willing they may be to maintain such "unprofitable"
services in the face of other opportunities. The more impersonal a credit union becomes
-- and the more its members see each other as strangers -- the less the credit union is
likely to distinguish itself from other depository institutions. A lack of meaningful
membership restrictions may make credit unions highly competitive and flexible, but may
also make them increasingly like banks operating under another name.
One cannot be certain in advance what effect weakening the common bond would
have on credit unions' distinctive character. However, reducing the affinity among credit
union members might well put strain on credit unions' cooperative, not-for profit
orientation, including their willingness to pay special attention to members of lesser
means (who may be relatively costly to serve).
4. Assure Safety and Soundness
Since credit unions serve an important role for many Americans, especially those
of modest means -- and since federal deposit insurance protects the $300 billion in credit
union deposits -- public policy should help assure the safety and soundness of credit
unions. As credit unions grow larger and more impersonal, formal safeguards and
effective supervision become all the more important.
5. Take Account of Market Dynamics
Most of the market dynamics described earlier justify giving credit unions
reasonable flexibility to move beyond a single common bond. To recapitulate:
economies of scale in providing technology-based services, downsizing, the large number
of workers at firms too small to support their own credit union, and the safety and
soundness benefits of diversification lend weight to permitting credit unions to expand
beyond a single membership group. Yet other market factors -- such as the credit risk-reducing influence of a sense of affinity, and the dubious managerial incentives for
growth -- suggest limits on the economic case for attenuating the common bond
requirement. Flexibility on the common bond requirement should be tempered by the
other principles I have outlined.
6. Protect Existing Credit Union Members and Membership Groups
Since 1982, the NCUA has permitted credit unions to add unrelated membership
groups to existing credit unions. Both the NCUA and the credit unions involved operated
in good faith. Although the Supreme Court has found such actions to have gone beyond
the bounds of the Federal Credit Union Act, we believe that disenfranchising existing
credit union members or membership groups would not serve the public interest.
E. Next Steps
Congress has time this year to consider carefully the proper course of future policy
in this area. Whatever policy change Congress makes regarding the common bond issue
will affect credit unions for many years to come, and will also affect the dynamic between
credit unions and other financial institutions.
The Treasury looks forward to working with the Committee to develop legislation
dealing with the common bond requirement. To begin, we would like to suggest that
such legislation should: grandfather all existing credit union members and membership
groups added before the Supreme Court ruling, and permit such membership groups to
add new members; include the safety and soundness reforms outlined in the Treasury
report; and preserve a meaningful common bond requirement while providing reasonable
flexibility for credit unions to include additional groups within their membership.
In closing, let me summarize our four main conclusions and recommendations.
A deliberate, thoughtful approach is needed. We should keep in mind that our
actions will affect credit unions, their members, and others for years to come.
Safety and soundness reforms should be part of any credit union legislation. In
particular, a system of prompt corrective action, which has been so successful in bank and
thrift supervision, should be enacted for credit unions.
Credit unions should be permitted to grow, and consumer access to credit unions
should be enhanced in a manner consistent with the principles outlined here.
To-date, the common bond debate has largely been framed as an all-or-nothing
contest in which one side wins at the expense of the other. An appropriate balancing of
legitimate but competing interests requires careful deliberation and something other than
a winner-take-all outcome.
We look forward to working with the Committee on these issues. I would be
pleased to answer questions.
1. Requiring depository institutions to have adequate capital also helps counteract the moral hazard of deposit insurance (i.e., the tendency of deposit insurance to permit or encourage insured depository institutions to take excessive risks -- risks that they would not take in a free market). Capital is like the deductible on an insurance policy: the higher the deductible, the greater the incentive to avoid loss. Adequate capital gives a depository institution's owners incentives compatible with the interests of the insurance fund because the fund absorbs losses only after the institution has exhausted its capital and thus eliminated the economic value of the owners' investment.
2. This statutory requirement would not apply to new credit unions that had not existed for a given number of years or reached a specified asset size.
3. The common bond is widely recognized as a characteristic of credit unions. The International Credit
Union Operating Principles of the World Council of Credit Unions (an affiliate of the Credit Union National
Association), declare that "membership in a credit union is voluntary and open to all within the accepted
common bond of association." These operating principles "are founded in the philosophy of cooperation and
its central values of equality, equity and mutual self-help." This suggests that the World Council sees a
connection between credit unions' values and an operating environment in which credit union members share a common bond.
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