Money & Finance › Banks & credit › Commercial banks: taking deposits, making loans
Community banks and credit unions
First US credit union 1908· Institution or agency
Fact, law or dataA rule, statute, definition or measured number.
Community banks and credit unions are small, local lenders; credit unions are nonprofit cooperatives owned by their depositors, called members.
See it on the Money & Finance map →How it works
Community banks are commercial banks, usually under $10 billion in assets, that lend mainly in their own region; they make a large share of small-business, farm and commercial real estate loans. Credit unions are member-owned, exempt from federal income tax and insured by the NCUA instead of the FDIC, also up to $250,000. The first US credit union, St. Mary's Bank, opened in Manchester, New Hampshire, in 1908. Each sector has roughly 4,000 to 4,500 institutions after decades of mergers.
Why it matters
They are the main lenders to local businesses and smaller commercial properties, and their concentrated real estate exposure makes them sensitive to property downturns.
Facts, rules and data
FDIC community banking studies and quarterly data; NCUA quarterly call reports. St. Mary's Bank still operates and records its founding with help from Quebec's Alphonse Desjardins.
Debates and risks
Whether small lenders can absorb rising technology and compliance costs, or will keep merging into larger ones, is an open question.
Connections (4)
▸Community banks and credit unions compete with larger Commercial banks: taking deposits, making loansFact, law or data
The connection
Both take deposits and make loans in the same towns. Credit unions, tax-exempt and member-owned, often pay a little more on savings and charge less on auto loans. Big banks have scale and technology; community banks win on local knowledge. Bankers call the credit-union tax exemption unfair now that credit unions buy community banks outright.
When and why
Nationwide; federal credit union charters date from the Federal Credit Union Act of 1934, and credit-union purchases of banks picked up from the late 2010s.
How we know
FDIC and NCUA quarterly data on rates, deposits and market share; dueling studies from bankers' and credit unions' trade groups.
Debates and risks
Whether the tax exemption still fits credit unions as large as Navy Federal, with well over $150 billion in assets, is debated in Congress.
▸Community banks and credit unions carry exposure, heaviest at community banks, to Commercial real estate stress (2023–)Mainstream view
The connection
Commercial real estate loans are a far bigger share of community-bank balance sheets than of the giant banks', often above regulators' 300%-of-capital warning level. A small lender with a few bad office loans has thin capital to absorb them. Credit unions are less exposed, since federal rules generally cap member business lending at 1.75 times their net worth.
When and why
Concern peaked after the 2023 regional-bank failures and New York Community Bancorp's January 2024 losses on office and rent-regulated apartment loans.
How solid is the link?
Bank call reports and the FDIC's Quarterly Banking Profile show CRE concentrations and rising past-due loans; 2006 interagency guidance set the 300% screen.
Debates and risks
Whether small-lender losses will be a slow bleed absorbed over years or cause failures, since many loans have been extended rather than written down.
▸Bank balance-sheet loans from community and regional banks are a mainstay of many Community banks and credit unionsFact, law or data
The connection
For community banks, mostly under $10 billion in assets, CRE is the biggest loan type, and at many it exceeds three times capital. Credit unions also lend on property, but the law caps member business loans at 1.75 times net worth, so CRE is a smaller part of most credit unions' books.
When and why
Community banks across the US; the credit-union cap comes from the Credit Union Membership Access Act of 1998, eased by an NCUA rule in 2016.
How we know
FDIC community banking studies and call reports, and NCUA rules and data on member business lending.
Debates and risks
Regulators debate whether community banks' CRE concentrations are dangerous or simply the business they know best.
▸Personal guarantees: full, limited and burn-off are standard at Community banks and credit unionsFact, law or data
The connection
Community banks and credit unions lend mostly to local owners whose own finances matter as much as the building, so they ask principals, often anyone owning 20% or more, to guarantee. NCUA dropped its mandatory guarantee rule for credit unions in 2016, but most still require one in practice.
When and why
US community banks and credit unions; SBA loans they make require guarantees from every 20% owner.
How we know
Lender loan policies, NCUA's 2016 member business lending rule, and SBA's SOP 50 10.
Debates and risks
Whether stronger borrowers can win limited or burn-off guarantees from small lenders depends on local competition, which varies by market.