Credit Union Development in Louisiana.

Transcription

1 Louisiana State University LSU Digital Commons LSU Historical Dissertations and Theses Graduate School 1967 Credit Union Development in Louisiana. Edgar Wallace Wood Louisiana State University and Agricultural & Mechanical College Follow this and additional works at: Recommended Citation Wood, Edgar Wallace, "Credit Union Development in Louisiana." (1967). LSU Historical Dissertations and Theses This Dissertation is brought to you for free and open access by the Graduate School at LSU Digital Commons. It has been accepted for inclusion in LSU Historical Dissertations and Theses by an authorized administrator of LSU Digital Commons. For more information, please contact

2 This dlmwrtatton h u been m icrofilm ed exactly aa received 67-17,355 WOOD, Edgar Wallace, CREDIT UNION DEVELOPMENT IN LOUISIANA. Louisiana State University and Agricultural and Mechanical College, Ph.D., 1967 Economics, finance University Microfilms, Inc., Ann Arbor, M ichigan

3 CREDIT UNION DEVELOPMENT IN LOUISIANA A D issertation Submitted to the Graduate Faculty of the Louisiana State U niversity and A gricultural and Mechanical College in p a rtia l fu lfillm e n t of the requirements for the degree of Doctor of Philosophy in The Department of Economics by Edgar Wallace Wood M.S,t Louisiana State U niversity, 1960 August, 1967

4 ACKNOWLEDGMENT The author wishes to express his appreciation to Dr. Thomas R. Beard for taking over the d irecto rsh ip of th is d isse rta tio n a f te r Dr. Leon M, Schur, under whose d irectio n the project was begun, le f t the service of the U niversity. Dr. Beard's advice and guidance added much to the contents of th is d isse rta tio n and made i t s completion possible. The w rite r is also indebted to Dr. P. F. Boyer for h is suggestions and to Drs. J, P. Payne, S, W. Preston, and W. D, Ross for th e ir encouragement and h elp fu l comments. The author is fu rth e r indebted to Mr. Clement S. Ruf of the Louisiana Banking Department, Mr. Buford B. Lankford o f the Bureau of Federal Credit Unions, and Mr. Edgar L. Fontaine of the Louisiana Credit Union League and th e ir associates who provided much of the information contained in the d isse rta tio n and who convinced the author th at the study would be worthwhile. To the Casey Computer Center of Baylor U niversity, the author owes his thanks fo r many of the d etailed c alcu latio n s necessary to complete th is d is s e rta tio n. F in a lly, the author wishes to express his appreciation to h is wife who spent many hours copying h is to r ic a l s t a t i s t i c s and assiste d with other d e ta ils in the preparation of th is m anuscript. ii

5 TABLE OF CONTENTS CHAPTER PAGE INTRODUCTION... 1 Scope and L im itations... 2 D efinition of Terms The Louisiana C redit Union League... 5 Order of P resen tatio n Data Sources and Method of A nalysis I. CREDIT UNIONS IN THE UNITED STATES Credit Union L e g is la tio n... 1*+ The Development of Credit Unions in the United S ta te s C redit Unions in the Consumer Installm ent Loan and Personal Savings Markets Summary I I. THE GROWTH AND DEVELOPMENT OF CREDIT UNIONS IN LOUISIANA.. 31 The P attern of Louisiana Credit Union Development Geographic Concentration of Credit Unions in Louisiana,, 46 C redit Unions in the Financial Markets of Louisiana C redit Union Development in Louisiana Compared with Credit Union Development in the United S tates, I I I. CHARACTERISTICS OF LOUISIANA CREDIT UNIONS The Legal Framework, S ize, Age and Operating C h a ra c te ristic s i i i

6 CHAPTER PAGE IV. THE CREDIT UNION AS A FINANCIAL INSTITUTION IN LOUISIANA: ITS ROLE, PROBLEMS, AND PKOPSECTS FOR FUTURE GROWTH The Role of Finance and Financial Interm ediation The Credit Union as a Financial Intermediary Some Problems A ffecting the Intermediary Function o f the Credit Union The Tax-Exempt Status of Credit Unions Some Problems, Prospects and Im plications for Tuture Growth of Credit Unions in Louisiana V. SUMMARY AND CONCLUSIONS The C redit Union as an Economic E n t i t y Suggestions fo r Improving the Framework of Credit Unions. 143 Some Extensions SELECTED BIBLIOGRAPHY APPENDIX A iv

7 LIST OF TABLES Table T itle Page I. Percentage D istribution of Number and Amount of Loans Made During 1961, and Average Loan, by P rin cipal Purpose,,., 27 II, Savings of Individuals in Selected Media I I I. IV. Average Annual Rate o f Growth of C redit Unions in Louisiana, Selected Series and Years, Average Assets of Credit Unions Operating in Louisiana, December 31, Selected Years, V. Average Annual Growth Rate in Mean Asset Size of Louisiana Credit Unions, Selected Years, VI, VII. V III, IX. Mean Annual Growth Rate of Consumer Installm ent Loans Outstanding by Selected Financial In s titu tio n s in Louisiana, Selected Years, Consumer Installm ent Loans Outstanding by Selected Lenders in Louisiana, December 31, Selected Data on Personal Savings Held by Selected Financial In stitu tio n s in Louisiana, Selected Data on Personal Savings Held by Selected Financial In stitu tio n s in the United S ta te s, , 63 X, Installm ent Loans Outstanding, Market Shares and Growth Rates for Selected Financial In stitu tio n s in the United S ta te s, December 31, Selected y e ars, XI. XII. XIII. Installm ent Loans Outstanding, Market Shares and Growth Rates for Selected Financial In stitu tio n s in Louisiana, December 31, Selected Years, Modifications of the Maximum Legal Size and Terms of Loans by State and Federal Credit Unions in Louisiana Through Average Number of Members and Amount of A ssets, Shares Outstanding and Loans Outstanding of State and Federal Credit Unions in Louisiana, December 31, v

8 Table XIV. XV. XVI. XVII. XVIII. XIX. XX. XXI. XXII. XXIII. T itle D istribution by Asset Size of State and Federal C redit Unions Operating in Louisiana, December 31, Age D istribution of State and Federal Credit Unions Operating in Louisiana on December 31, Average Shares Per Member of Credit Unions Four Years Old or Older Operating in Louisiana, December 31, Dividend Rates Paid During 1962 by Credit Unions in Louisiana Four Years Old or O ld e r D istribution by Asset Size and Dividend Rate Paid by State and Federal Credit Unions Operating in Louisiana During Loans Outstanding as a Per Cent of Share C apital of Credit Unions Operating in Louisiana, December 31, D istribution, by Asset Size, of Loans Outstanding as a Per Cent of Share C apital for Credit Unions Operating in Louisiana, December 31, D istribution by Loan to Share Ratio of Dividend Rates Paid During 1962 by Credit Unions Operating in Louisiana on December 31, Selected Data on Operations of C redit Unions in the United S tates December 31, Number, Membership, T otal A ssets, Loans Outstanding and Paid-in Share Capital of Credit Unions Operating in the United S ta te s, December 31, XXIV. Percentage Change in the Number, Membership, Total A ssets, Loans Outstanding and Paid-in Share C apital of C redit Unions in the United S ta te s, ** XXV. Consumer Installm ent Credit Outstanding in the United S ta te s, XXVI, Consumer Installm ent Credit Outstanding in the United S ta te s, (Percentage D istrib u tio n s) XXVII. Number, Membership, Total A ssets, Loans Outstanding and Paid-in Share Capital of Federal Credit Unions Operating in Louisiana, December 31, 193*» vi

9 Table XXVIII. XXIX. XXX. XXXI, XXXII. T itle Number, Membership, Total A ssets, Loans Outstanding and Paid-in Share C apital of S tate Credit Unions Operating in Louisiana, December 31, , Number, Membership, Total A ssets, Loans Outstanding and Paid-in Share C apital of a l l C redit Unions Operating in Louisiana, December 31, 193* Percentage Change in Total A ssets, Loans Outstanding and Paid-in Share C apital of a l l Credit Unions Operating in Louisiana, Selected Data on Operations of S tate and Federal Credit Unions in Louisiana, by P arish, December 31, Selected Data on Operations of Credit Unions in Louisiana, by P arish, December 31, v ii

10 LIST OF FIGURES Figure T itle Page 1 Nap Showing Year Credit Union L egislation Passed and Number of Credit Unions in Each S ta te, December 31t Nap Showing Percentage of Each S ta te 's Population Holding C redit Union Hembership, December 31, Nap Showing Per Capita C redit Union Assets in Each S ta te, December 31, Number of S tate and Federally Chartered Credit Unions in Louisiana, December 31, Hap Showing Percentage of Each P a rish 's Population Holding Credit Union Hembership, December 31, Nap Showing Per Capita C redit Union Assets in Each P arish, December 31, v i i i

11 LIST OF CHARTS C hart T itle Page 1 T otal A ssets, Paid-in Share C ap ital, and Loans Outstanding of All C redit Unions in the United S ta te s, December 31, Annual Percentage Change in the Number, Membership, and Total Assets of Credit Unions in the United S ta te s, Percentage Shares of Various In stitu tio n s in All I n s ta llment Credit Outstanding by Selected Financial In s titu tio n s in the United S ta te s, December 31, Number of State and Federal Credit Unions in Louisiana, December 31, T otal A ssets, Paid-in Share C ap ital, and Loans Outstanding o f All C redit Unions in Louisiana, December 31, T otal Assets of S tate and Federally Chartered C redit Unions in Louisiana, December 31, Per Cent of In s titu tio n a liz e d Personal Savings Held by Selected Financial In stitu tio n s in Louisiana, Decentoer 31, ix

12 ABSTRACT Credit unions are cooperative fin an c ia l in s titu tio n s designed to accumulate the savings of members and lend to members a t reasonable rates of in te re s t for provident and productive purposes. This d is s e rta tion traces the h is to ric a l development of c re d it unions in the United States and Louisiana through 1962, examines the economic role and nature of the c re d it union, enumerates the weaknesses in the stru c tu re o f the c re d it union system, and suggests m odifications which would strengthen the c re d it union framework and enhance i t s value to members and to so ciety. As a mutual asso ciatio n, the c re d it union serves as an intermediary between savers and borrowers w ithin a membership group composed of persons having some common bond of association other than c re d it union membership. The role of the c re d it union is to overcome the in fe rio rity of the individual household in finding an a ttra c tiv e o u tle t fo r i t s savings and a source of borrowed funds in the fin an cial m arkets, and to overcome the risk and inconvenience of d ire c t lending by savers to borrowers. The c re d it union has a ll of the problems of maintaining solvency and liq u id ity associated with other fin an c ia l in term ediaries, compounded by the close association of members who are a l l lik e ly to experience the same economic fortunes a t the same time. The problems of matching the flow cf savings with the demand for loans while m aintaining the liq u id ity and solvency of members' savings could be lessened by the establishm ent

13 of both a discount fa c ility for c re d it union assets and an adequate share insurance program on a n atio n al basis* Other areas examined include the tax-exempt sta tu s of c re d it unions and the equity of present procedures of estab lish in g equity reserve accounts. The d isse rta tio n contains much s t a t i s t i c a l data which is of importance from both the h is to r ic a l and a n aly tic al standpoints. Several areas are suggested fo r fu rth er study including the possible use of the c re d it union as a device for increasing the degree of competition in small and ru ra l communities, the sources of funds to c re d it unions other than members' savings, the uses of funds other than loans to members, and the uses made of funds borrowed from c re d it unions. B etter records on scaledowns of share accounts and liq u id atio n s need to be maintained and made available to resea rch e rs, and the general q u ality of reporting the re su lts of operations needs to be improved.

14 INTRODUCTION On December 31, 1962, almost 200,000 people held membership In 413 Louisiana c re d it unions. These in s titu tio n s, which began th e ir development 38 years e a r lie r with the issue of the f i r s t ch arter in December, 1924, had, by y e a r's end, 1962, command of a sse ts in excess of $92 m illion. During the fifte e n y e a rs, , c re d it unions were the fa s te s t growing of L ouisiana's fin a n c ia l in s titu tio n s operating in the personal savings and consumer installm ent loan markets. The purpose of th is th e sis is to tra c e the development of c re d it unions in Louisiana} to exp lain, in economic term s, the role of the c re d it union as a fin an c ia l in s titu tio n ; and to project the p ro b ab ility and consequences of fu rth er development of c re d it unions in Louisiana* Analysis of the process of development of these fin an c ia l in s titu tio n s is important for several reasons. F ir s t, i t should give those concerned with the day-to-day operations of the in s titu tio n s a perspective of what they are doing in terms o f the o v erall economy. Second, economic analysis should give the regulatory a u th o ritie s a more complete view of the role of c re d it unions and provide them with information necessary for future decision making. T hird, a presentation of the c h a ra c te ristic s and economic role of c re d it unions should give the public fu rth e r understanding of the a lte rn a tiv e s open to individuals seeking o u tle ts fo r personal savings and sources of borrowed funds.

15 2 F in ally, the economist should gain a fu rth e r understanding of the operations of the fin an c ia l system through a b e tte r understanding of one of the parts of the system. This th e s is, then, seeks to f i l l a void^ in the lite ra tu r e by providing a reference work fo r a ll those in te re ste d in the operations of c re d it unions in Louisiana, I. SCOPE AND LIMITATIONS The present study deals with the development o f c re d it unions as a group in Louisiana, The purpose is to analyze th is development from the standpoint of c re d it unions as fin a n c ia l in s titu tio n s and the position of th is type of in s titu tio n in the fin a n c ia l system and economy of Louisiana. This aggregative analysis which groups together a l l c re d it unions fo r study y ield s much inform ation as to th e ir economic impact and sig n ifican ce. This th e s is stu d ies not only the absolute growth pattern of L ouisiana's c re d it unions, but also analyzes the re la tiv e growch rates of c re d it unions and other fin a n c ia l in s titu tio n s operating in the same markets and compares the re la tiv e growth and operating c h a ra c te ristic s of various types of c re d it unions. The analysis is lim ited to aggregates and does not deal with the operations of any sp e c ific c re d it unions, with managerial problems or accounting p ractices as such, or with the s iz e, term s, and use of loans although each of these areas would be worthy of in v estig atio n. ^The only previous attempt a t a system atic analysis of Louisiana c re d it union a c tiv ity appears in an unpublished manuscript in the f ile s of the Louisiana Credit Union League: Horace G, P o rte r, "History of C redit Unions in Louisiana," unpublished (term paper) manuscript prepared at Louisiana S tate U niversity, Baton Rouge, Louisiana, May 21, 1937.

16 This th e sis is not sp e c ific a lly designed as a h is to ry, but i t does contain h is to ric a l s t a t i s t i c a l data to provide a lo g ic al framework for study of the h isto ry of Louisiana c re d it unions. The problems d ealt with here are the problems of the c re d it union movement as a whole rath e r than of individual c re d it unions, although the two cannot always be divorced* I I. DEFINITION OF TERMS C redit Union. A c re d it union is a cooperative fin an c ia l association through which members pool th e ir savings and from which they may borrow for provident and productive purposes. The actu al pooling of savings is accomplished through the sale to members of low denomination shares of stock. While dividends are paid out of earnings on the basis of the member's investment in sh a re s, c re d it unions re ta in the ty p ic a l cooperative procedure in electio n s with each member lim ited to one vote regardless of share holdings. Loans are extended through action of a c re d it committee of members elected to o ffice by the general membership. The a ffa irs of the c re d it union are run e n tire ly by i t s members and, with the exception of the tre a su re r and c le ric a l s t a f f, o ffice rs in the organization serve without pay. Federal and S tate Credit Unions. A c re d it union may be chartered and regulated under e ith e r s ta te o r federal law. In Louisiana, c re d it unions are regulated by the State Banking Department under Act **0 % of 192h as amended or by the Bureau of Federal Credit Unions of the United S tates Department of H ealth, Education, and Welfare under Chapter I t of T itle 12 of the United States Code. While the federal and s ta te

17 4 s ta tu te s d iffe r somewhat in d e ta il as to sp e c ific powers and lim itatio n s of in s titu tio n s under th e ir respective ju r is d ic tio n, the laws are e sse n tia lly p a ra lle l in th a t they have a common purpose, and the in s titu tio n s re su ltin g from the acts are sim ila r in c h a ra c te ristic s 2 and function* The c re d it union ch arter issued under e ith e r s ta te or federal law se ts forth the powers and re s p o n sib ilitie s of the association and e stab lish es i t as a corporate e n tity with the power to e n te r in to c o n tra c ts, sue and be sued, purchase, hold and s e l l property necessary to i t s operations, and to receive the savings of and lend to q u a lifie d members with certain lim itations* A c re d it union may also deposit money in banks and other approved depositories and may borrow from any source an amount up to 50 per cent of i t s unimpaired c a p ita l and su rp lu s, as w ell as carry out other tran sactio n s necessary to the operations of the business. Regulation by the ch artering agency includes both the periodic filin g of reports of operations and unannounced supervisory examinations. Throughout th is th e s is, the words "federal" and " sta te " w ill be. used to designate the p a rtic u la r authority under which the c re d it unions under study are chartered and regulated* C redit Union Type. The cooperative natjure of c re d it unions and th e ir sp ecial treatm ent under the law imposes a unique degree of ^A more d etailed comparison of the leg a l and operating c h a ra c te ristic s of federal and s ta te c re d it unions in Louisiana is contained in Chapter I I I. Supervisory examination would id eally occur at le a s t once annually; however, due to a shortage of s t a f f, the Bureau of Federal C redit Unions examines a l l c red it unions under i t s ju ris d ic tio n only once every fifte e n months on the average.

18 interdependence upon the membership with regard to funds en tru sted to the in stitu tio n * To afford adequate protection (and to ju s tif y sp ecial tax s ta tu s ), members.ip in a c re d it union is lim ited to persons (and associations of persons) having a common bond of asso ciatio n a risin g independently of the cred it union i t s e l f. Both s ta te and federal s ta tu te s define th is common bond in such a way th a t i t may a rise among persons employed by the same business firm or governmental u n it, among persons residing within a w ell-defined geographical area or community, and among persons holding membership in the same organization such as a church, service club, labor union, or trad e asso ciatio n. For the purposes of th is th e s is, these sources of common bond are defined as: occupational, re s id e n tia l, and a sso c iatio n a l c re d it union types. Although the preponderant type is occupational, an e ffo rt is made to determine the extent of differences among c re d it unions of the various types, 111, THE LOUISIANA CREDIT UNION LEAGUE In October, 193*+, Hr. Tom Doig of the newly e stab lish ed Credit Union National Association met with representatives of L ouisiana's 12 c re d it unions to organize the Louisiana Credit Union League. The purposes of the League were to provide an organization through which e x istin g c re d it unions could: (1) a s s is t in spreading the b e n e fits of c re d it union membership to others by actively promoting organization of new c re d it unions; (2) a s s is t in creatin g good rapport between c re d it unions and the regulatory agencies; (3) maintain and improve the leg al sta tu s of c re d it unions by advancing the in te re s ts of c re d it

19 unions in the le g isla tiv e bodies of the s ta te and federal governments; (4) a s s is t c re d it unions in solving operating problems and improving procedures; and (S) provide cohesion among c re d it unions and lia iso n with the C redit Union National A ssociation, In s h o rt, the purpose of the League was to a s s is t in furth ering the development of c re d it unions and th e ir operations in Louisiana, U ntil 1941, the League was operated by volunteers and financed by annual dues of one-half of one per cent of the to ta l assets of a f f ilia te d c re d it unions and by assistan ce from the C redit Union National A ssociation, In 1941, dues paid by a f f ilia te d c re d it unions were raised to five per cent of annual gross p r o f its, and a managing d ire c to r was employed to operate the League, By 1947, the League's budget was $6,500, and the s t a f f consisted of the managing d ire c to r and a se c re ta ry. S ixty-five of the s t a t e 's 125 c re d it unions were a f f ilia te d with the League, During the f is c a l year ending March 31, 1963, the Louisiana Credit Union League expended $105,450 and had on i t s s t a f f eleven fu ll-tim e employees and part-tim e leg al counsel. Five f ie ld serv ice d i s t r ic t representatives were responsible for working with c re d it unions d ire c tly, Duties of the field-men included organizing new groups, giving advice on operating procedures, arranging in te r- c re d it union loans, personnel placement, a ss is tin g with liq u id atio n s and in general serving as lia iso n between the League and member or p o te n tia l member c re d it unions. The remaining members of the s t a f f were responsible fo r public re la tio n s, lia iso n with regulatory agencies, lia iso n with the Credit Union National A ssociation, legal a ssista n c e.

20 insurance, counseling, preparation of reserach stu d ies and re p o rts, personnel supervision, and in general carrying out the activ e business of the League on a state-w ide basis* Numerous individuals have contributed to the development of the Louisiana Credit Union League and through i t to the development of c re d it unions in Louisiana and the Nation. While i t is not the purpose of th is th esis to trace the a c tiv itie s of those connected with the c re d it union movement in Louisiana, i t is f e lt th at the development of c re d it unions cannot be explained by economic facto rs alone because of a unique c h a ra c te ris tic of c re d it union management. Unlike other fin an c ia l and non-financial e n te rp ris e s, the basic decisions of policy and operations in a c re d it union are made by persons whose main a c tiv itie s are in non-credit union p o sitio n s. The fact th at c re d it unions are operated by and fo r the b e n efit of those w ithin the membership group distin g u ish es the c re d it union from the en terp rise which is founded by a p ro fit-see k in g entrepreneur who sees the demand fo r a service or commodity and moves to f u l f i l l th is demand. The p ro fit motive is not absent from the c re d it union, however. Indeed, without the p ro fit motive the c re d it union could a ttr a c t n e ith e r savers nor borrowers. I t does mean, however, th a t groups which would desire the services of a c re d it union might not organize one without the stim ulus of an outside organizer who could explain the b en efits and operations of a c re d it union, the procedure 14 The stim ulus fo r the cooperative development is explored fu rth er in Chapter II and the e ffe c ts of the lim ited fie ld of membership upon the operations and p o ten tial fo r growth are discussed in Chapter IV.

21 fo r organizing, and could a s s is t in g ettin g i t underway. As mentioned above, a large part of the function of the Louisiana C redit Union League has been in the areas of education, organization, and assistan ce to new 5 c re d it unions. The development of c re d it unions in Louisiana has been stimulated by a number of individuals who have worked to spread the b e n efits of c re d it union membership. I n i t i a l stim ulus to the development of c re d it unions in Louisiana was provided by Roy R. Bergengren of the C redit Union 6 N ational Extension Bureau. He v is ite d the s ta te in 1924, a s s is tin g in preparation of le g isla tio n which became Act 40 of 1924, This le g isla tio n provided for the chartering of c re d it unions and th e ir regulation under the S tate Banking Department, L ater, Bergengren, Thomas W, Doig, and Claude R, Orchard of the Credit Union N ational Extension Bureau provided the stim ulus for organization of the Louisiana League, The Louisiana c re d it union development was soon augmented by i t s own leadership as personified by the organizers of the League: I. C. Kemaghan, C, J. O'Dowd, C. R, Duvemay, H. C, E l l i s, Florence E. Dixon, and Harold Hoses. O'Dowd, E ll i s, and Kemaghan were the f i r s t three presidents of the League, guiding i t through the early formative ^Perhaps these functions, esp ecially those of education and organization, were much more important in the early stages of c re d it' union development than they are today, since most groups now probably have w ithin th e ir membership individuals who are fam iliar with the c re d it union id ea, i f not actually experienced with the operations of a c re d it union, ^The Credit Union National Extension Bureau (financed by Edward A, Filene) was replaced by the C redit Union N ational Association (financed and operated by member c re d it unions) in August, 1934,

22 years. One man stands out among a l l those who devoted time and e ffo rt to the development of L ouisiana's c re d it unions. This man was Harold Moses who entered the c re d it union business in June, 1934, as president of the newly formed Farm Credit Adm inistration C redit Union. Moses was one of the founders of the Louisiana C redit Union League and in 1935 became a member of the Board of D irectors and a N ational D irector of the C redit Union N ational A ssociation, positions which he held u n til h is death in July 12, A dditionally, Moses served as president of the League from 1938 to 1953 and in various capacities with League Central Credit Union, Credit Union N ational Association and CUNA Mutual Insurance Society during h is 25 years of c re d it union a c tiv ity. Another individual who has distinguished him self in terms of service to Louisiana c re d it unions since he helped organize the D. H. Holmes Federal Credit Union in September, 1934, is Henry J. Aime, Elected to the Board of D irectors of the Louisiana Credit Union League * in 1942, Aime has served in th a t capacity, as a lte rn a te n atio n al d ire c to r and as president of the League since Aime has served since 1934 as treasurer-m anager of his own c re d it union. On November 7, 1947, Edgar L. Fontaine became the managing d ire c to r of the Louisiana Credit Union League and continued the job of unifying the s t a t e 's c red it union leadership under the organization which had been sta rte d largely as a paper organization with few resources in 1934, Under Fontaine's lead ersh ip, the League took on the c h a ra c te ristic s of a professionally managed trade association with the purpose of spreading the a c tiv itie s of the industry and fo ste rin g and p ro tectin g i t s members.

23 10 In the la s t an aly sis, however, while these leaders and others lik e them have provided leadership and guidance to L ouisiana's c re d it union development by contribution of time and a b ility, th is is only a p art of the explanation fo r c re d it union growth. The success of each c re d it union depends on the a b ility of the membership group to develop the kind of leadership and managerial s k i l ls necessary to a ttra c t individuals as savers and borrowers. A dditionally, c re d it unions need a favorable le g a l, economic, and fin a n c ia l framework in which to operate i f they are to develop and grow. This th e s is is an economic and s t a t i s t i c a l analysis of th is framework w ithin which c re d it unions have developed in Louisiana from th e ir inception in 1924 to December 31, IV. ORDER OF PRESENTATION Chapter I traces the development of c re d it unions in the United S tates and places them in perspective among o th er fin an c ia l in s titu tio n s operating in the consumer finance and personal savings markets. The growth and development of L ouisiana's c re d it unions is traced in Chapter I I, A fter trac in g the p attern of development of s ta te and federal c re d it unions in Louisiana, Chapter II shows the geographic concentration of c re d it union a c tiv ity, compares c re d it union development with th at of other savings and lending in s titu tio n s in Louisiana and compares Louisiana c re d it union development with th a t in the Nation. Chapter I I I presents a discussion of the le g a l framework of c re d it unions (including a comparison of the provisions of the s ta te and federal s ta tu te s ) and a fu rth er analysis of the operating c h a ra c te ristic s

24 of Louisiana c re d it unions as to th e ir s iz e, membership, dividend ra te s, 11 and loan to share ra tio s as of December 13, Extensive use is made of frequency d istrib u tio n s in comparing s ta te and federal c re d it union c h a ra c te ristic s and in comparing occupational, r e s id e n tia l, and asso ciatio n al c re d it unions. Beginning with a discussion of the role of finance and fin an c ia l interm ediation, Chapter IV examines the economic nature and role of the c re d it union, presents some of the problems inherent in the c re d it union as presently organized, examines th e ir tax-exempt s ta tu s, and attem pts to project both the d e s ira b ility of future growth of the c re d it union as a fin an cial interm ediary in Louisiana and the p ro b ab ility of continued growth in view of problems which face the movement. Chapter V consists of a b r ie f summary and presentation o f findings and conclusions, and Appendix A contains extensive s t a t i s t i c a l data relevant to the th e s is. V. DATA SOURCES AND METHOD OF ANALYSIS This w rite r received the complete cooperation of the Bureau of Federal C redit Unions, Louisiana S tate Banking Department, Louisiana Credit Union League, and Credit Union N ational Association in securing h is to r ic a l s t a t i s t i c s on c re d it union o p eratio n s, s t a t i s t i c a l data on 1962 operations of a l l **13 Louisiana c ie d it unions, and other relevant information necessary for the analysis contained herein. Extensive use of time se rie s and frequency d istrib u tio n s is made throughout the th esis in an attem pt to present as complete an analysis as possible w ithin the framework of aggregate a n aly sis.

25 Every attempt was made to secure w ritten documentation of fa c ts 12 and issues presented h erein. Inasmuch as l i t t l e has been w ritten concerning Louisiana's c re d it unions, however, most of the presentation in Chapters I, I I, and I I I re sts upon the s t a t i s t i c a l data and personal interview s with leaders in the c re d it union movement and personnel of the s ta te and federal regulatory agencies. The a n a ly tic a l presentations of Chapter IV are based on the general body of knowledge contained in the broad fie ld s of economics and finance and upon the sp e c ific sources c ite d in Chapter IV,

26 CHAPTER I CREDIT UNIONS IN THE UNITED STATES The origin of so c ia l and economic in s titu tio n s is often d i f f i cu lt to tra c e. This is true of the c re d it union as a fin a n c ia l i n s t i tu tio n. However w ithin the organized c re d it union movement the f i r s t c re d it union in North America is considered to be La Caisse Populaire de Levis organized in Quebec, Canada, on December 6, 1900, by Alphonse D esjardins.1 La Caisse Populaire Ste, Marie of Manchester, New Hamps h ir e, chartered by a sp ecial act of the New Hampshire L egislature in 1909, is considered to be the f i r s t c re d it union in the United S tates and 2 was also founded by D esjardins. The c re d it union movement spread rapidly throughout the United S tates and by December 31, 1962, almost IN m illion people held membership in 21,050 s ta te and federally chartered c re d it unions. The very in te re s tin g story of th is dynamic man who was the founder of the Credit Union Movement in North America and of his cooperative people's banks is spread throughout the c re d it union l i t e ra tu re. Examples are: Alphonse D esjardins, The Cooperative People's Bank (New York: The Russell Sage Foundation, 19IN) ; Roy F. Bergengren, Coopera tiv e Banking (New York: The Macmillan Company, 1923), pp and ; Roy F. Bergengren, C redit Union North Arnerica (New York: Southern P ublishers, In c., 19N0), pp ; George Boyle, The Poor Man's Prayer (New York: Harper and B rothers, 1951); Richard Y, G ile s, C redit fo r the M illions (New York: Harper and B rothers, 1951), pp * That D esjardins' work was not e n tire ly unique is suggested by evidence th at both of his " f ir s ts " were preceded by the employees of the Boston Globe who founded a cooperative c re d it so c ie ty, the Globe Savings and Loan A ssociation, in 1892, For on account of th is so ciety and other early e ffo rts see: Erdis W. Smith, "Federal C redit Unions: Origin and Development," Social Secu rity Bu l l e t i n, U.S. Department of H ealth, Education and Welfare"TNcvonber,* T955), pp. 3-9 and 27,

27 1*» Personal savings which had accumulated in c re d it union share accounts to ta le d almost $6,2 b illio n and loans outstanding to members were almost $5,5 b illio n. The rate of growth of the c re d it union as a savings medium and source of c re d it, whether measured in absolute or re la tiv e term s, was rapid with the exception of war and depression years. I t is the purpose of th is chapter to trac e the growth of c re d it unions in the United S tates from th e ir inception in 1909 to the end of 1962* I. CREDIT UNION LEGISLATION3 The c h a rte r of La Caisse Populaire Ste. Marie was granted by a sp ecial act of the New Hampshire L egislature, At th is time there were no laws in any of the sta te s enabling ch arters to be granted to persons d esirin g to organize c re d it unions. The f i r s t such law, passed by the Massachusetts L egislature in 1909, subsequently became the model for c re d it union le g isla tio n in the s ta te s and ultim ately fo r federal le g is la tio n. By y e a r's end 1921, eleven s ta te s had c re d it union laws on th e ir books and 72,310 people held membership in the n a tio n 's 190 active it c re d it unions. The e ffo rt to secure enabling le g isla tio n in a l l s ta te s was pushed throughout the 1920's and early 1930's with the re s u lt th at 39 sta te s had passed c re d it union le g isla tio n by the end of 19 33, There were 2,016 active c re d it unions with 301,119 members by th is tim e, 3 A thorough discussion of the e ffo rt to secure enabling leg is-- la tio n for c re d it unions throughout the nation Is found in : Roy R, Bergengren, Crusade (New York: Exposition P ress, 1952), i* Some early attempts at c re d it union le g is la tio n resu lted in unworkable laws, e_.g,, the Utah experience re la te d in Bergengren, Cooperative Banking, pp and 88-89,

28 In 1934, no additional s ta te s passed c re d it union le g isla tio n ) but an act was passed in the Congress providing for nationally chartered 15 c re d it unions in the s ta te s and te r r ito r ie s of the United S ta te s. The development of c re d it unions received impetus from the federal law because of the increased geographic area of operations and because of promotional and educational a c tiv itie s c arried out under the new law. The years in which s ta te c re d it union laws were passed and the to ta l number of c re d it unions in operation on December 31t 1962, in each s ta te are shown in Figure 1. I I. THE DEVELOPMENT OF CREDIT UNIONS IN THE UNITED STATES The early years of the c re d it union movement saw the c re d it union as a fin an c ia l in s titu tio n growing to f i l l a void in the fie ld of finance. This void consisted of the e n tire fie ld of consumer lending. P rio r to the development of the c re d it union, there was no in s titu tio n of finance generally recognized as e x istin g fo r the purpose of accumula tin g the sm all savings of the lower income groups and using fund3 so accumulated to extend loans to these same groups for emergency needs and consumer durable goods purchase. Commercial banks, not yet recognizing the p ro fit p o ten tial of consumer loans, largely lim ited th e ir lending a c tiv itie s to the c red it needs of a g ric u ltu re, commerce, and industry. Savings and loan associations and savings banks accumulated savings but channeled th e ir loans to areas other than consumer finance. Such loans as were available to consumers were obtainable usually at exorbitant rate s and on somewhat risky terms from loan sharks, r e ta il business establishm ents or pawn shops. The establishm ent of Provident Loan

29 mbrnmm* ttunfiwou (128) Year (Hunker of C r e d it Unions) * Ho S ta te Law FIGURE 1,, ^ Year Credit Union le g is la tio n Source: Table XXII. * P «* * k. V-* CJ>

30 17 S ocieties a lle v ia te d the problem where they were able to operate, but i t soon became apparent th a t the Provident Loan S ocieties with th e ir lim ited resources could only scratch the surface of the vast demand for consumer c re d it among the middle and lower income groups. I t was th is need for an in s titu tio n based on t h r i f t and consumer lending among the working class which led Desjardins to begin organizing c re d it unions patterned a fte r sim ila r so c ie tie s developed by Friedrich R aiffeisen and Herman Schulze-Delitzsch in Curope, S ta tis tic a l information about c re d it unions in th e ir f i r s t two decades is extremely sketchy. Such inform ation as was co llected was reported on a voluntary b asis by the individual c re d it unions and is almost useless in so far as a study of development is concerned. However, i t is safe to say th at in terms of number, c re d it unions were re la tiv e ly unimportant to the American economy during the f i r s t twenty years of th e ir existence. By 1929, there were s t i l l less than a thousand c re d it unions operating in the United S tates and th e ir membership numbered l i t t l e more than a quarter-m i H i on persons. From th is base, however, we are able to trac e the development of c re d it unions as they were woven in to the fab ric of the American economy to a tta in th e ir present sta tu s as a fin an c ia l in s titu tio n with over twenty-one thousand active unions and almost fourteen m illion members. Chart 1 traces the growth of c re d it union operations in the United S tates in terms of to ta l a s s e ts, paid-in share c a p ita l, and loans outstanding to members. To provide a p ictu re of the re la tiv e growth rate s of the s e r ie s, a sem i-logarithm ic scale which a llo ts equal v e rtic a l distance to equal percentage change is used in Chart 1. While a d e ta ile d

31 Millions of Dollars Semi-Logarithmic Scale 10,000 2,000 1, Total Assets _ Paid-in Shares Loans Outstanding 20 in m <7i CHART 1. Total Assets, Paid-in Share C apital, and Loans Outstanding of All Credit Unions in the United States, December 31, Source: Table XXIII, Appendix A. C m ON o NO ON

32 19 analysis of the reasons for the rapid development and high growth rate of c re d it unions w ill be reserved fo r a la te r chapter, i t is in te re s tin g to note some of the conclusions which can be drawn from the fin a n c ia l operatio n s of United S tates c re d it unions presented in Chart 1. F ir s t, during the y e ars, , c re d it union share c a p ita l was not s u ffic ie n t to cover outstanding loans, in d icatin g th at c re d it unions obtained loan funds at th is time e ith e r by s e llin g s e c u ritie s and running down bank balances or by borrowing from outside sources. Second, a period of rapid growth followed passage of the Federal C redit Union Act in Third, the war y ears, , saw the loan p o rtfo lio s of c re d it unions shrink while to ta l a sse ts grew only a t a very modest ra te. The war brought conditions of unstable working fo rce, high labor turnover, and high m obility which are not conducive to fo ste rin g a strong c re d it union movement. At the same time curtailm ent of consumer durables production p a rtia lly lim ited the need for c re d it union loans. Although data fo r VTare accounts is not available fo r two war y e a rs, in dications are th at growth here was quite retarded. The l a t t e r can be a ttrib u te d to the appeal to the public to purchase U.S. War Bonds as savings in s tru ments as w ell as to the high lev el of labor turnover. F in ally, Chart 1 shows the rapid sustained growth of a l l three se rie s in the post-war period with annual growth rates in the neighborhood of per cent. The exceptions to th is growth rate are the even more rapid growth of loans outstanding in the early post-war period ( ), as they underwent a "catchin^-up" process from wartime lows, and the s lig h tly less impressive growth rate of per cent which was experienced in 1960, 1961, and 1962,

33 P a ra lle lin g the growth in c re d it union fin an c ia l operations is the expansion in the to ta l number of in s titu tio n s operating and membership 20 in these in s titu tio n s. The annual percentage change in the number, membership and to ta l assets of a l l United S tates c re d it unions from 1932 to 1962 is shown in Chart 2. Both p o sitiv e and negative quadrants are used so th at a point p lo tted above the zero base lin e represents a p o sitive rate of change (o r growth) from the previous y e ar, while a point below the base lin e represents a negative ra te of change (o r declin e). Points are connected only to id en tify the se rie s and to present a visual image of growth trend over sev eral years. No information is available on the growth process w ithin any given year. The very impressive growth rates recorded during the **0 period can be a ttrib u te d to the impetus given the c re d it union movement by federal le g isla tio n and attendant emphasis on organization and educational programs and to the sm all base upon which the industry was building. The war years saw an actu al decline in the number of i n s titu tions and in membership, while to ta l assets continued to grow at a modest ra te. The sustained growth of the c re d it union movement in terms of number of in s titu tio n s and number of members p a ra lle ls th at of c re d it union fin a n c ia l operations in the post-war period. However, the technique of showing percentage change rath er than aggregates in Chart 2 serves to h ighlight the more modest rate of growth in the l a t t e r 1950's and early 1960's in contrast to the e a r lie r post-war period. Detailed analysis of the reasons for th is decline in growth rates w ill be reserved for a la te r chapter. By the end of 1962, every s ta te had c re d it unions operating w ithin i t s borders. Their numbers ranged from a low of 30 in Alaska to

34 Per Cent Change Membership Number of Credit Unions Total Assets /n -10 o m o v0 o> CHART 2. Annual Percentage Change in the NumberT Membership, and Total Assets of Credit Unions in the United States, Source: Table XXIV, Appendix A.

35 22 1,659 in C alifornia, The d istrib u tio n of unions throughout the United S tates is shown in Figure 1. Seven s ta te s (C a lifo rn ia, I l li n o i s, Michigan, New York, Ohio, Pennsylvania, and Texas) had over 1,000 c re d it unions each and accounted for 9,296 of the n a tio n s 21,050 unions. A b e tte r indication of the re la tiv e concentration of c re d it unions is the percentage of s ta te population holding c re d it union membership shown in Figure 2, Membership in c re d it unions ranged from 2.7 per cent in Arkansas to 18.0 per cent of the population in Hawaii, The United S tates average was 7,1 per cent and the D istric t of Columbia recorded 35.0 per cent of the population as c re d it union members.^ Per cap ita holdings of c re d it union assets in 1962 averaged $37,36 fo r the United S tates and ranged from $9,96 in Arkansas to $131,61 in Hawaii, In the D istric t of Columbia the per cap ita average was $155.6**, V ariations in shading in Figure 3 are used to in d icate d if f e r ences in per cap ita holdings of c re d it union a ssets among the s ta te s. G enerally, sta te s with high proportions of th e ir populations holding c re d it union membership had high per c ap ita asset holdings, and s ta te s with low membership ra tio s had low per c ap ita asset holdings. I I I. CREDIT UNIONS IN THE CONSUMER INSTALLMENT LOAN AND PERSONAL SAVINGS MARKETS C redit union growth is also re fle c te d in th e ir increase in re la tiv e importance in the fin a n c ia l markets in which they operate as t h r i f t and lending in s titu tio n s. Most c re d it union loans are of the ^Doubtless some persons holding membership in D istric t of Columbia domiciled c re d it unions were residents of neighboring s ta te s fo r demographic purposes.

36 KEY Per Cent of Population 2.6% to 5.0% 5.1% to 7.5% 7.6% to 10.0% 10.1% and over FIGURE 2 Map Showing Percentage of Each S ta te 's Population Holding Credit Union Meofcership, December 31, Source: Table XXII, Appendix A.

37 4357^^ ^ '- - v i C v ;. ' ' / g i I ^ Wa KtMtUCW Per Capita Assets $0.00 to $14.99 $15.00 to $29.99 $30.00 to $44.99 $45.00 to $59.99 $60.00 and over FIGURE 3 Map Showing Per Capita Credit Union Assets in Each State, December 31, Source: Table XXII, Appendix A. IO t?

38 6 consumer installm ent v ariety. 25 At the end of 1939, c re d it unions held $132 m illion of consumer installm ent loans which amounted to only four per cent of the consumer installm ent loans held by fin an c ia l in s titu tio n s. By the end of 1962, cred it unions had increased th e ir share of the market to about $5.0 b illio n, or 12 per cent of the consumer installm ent loans held by fin an c ia l in s titu tio n s and 10 per cent of a l l consumer i n s t a l l ment c re d it outstanding. Chart 3 traces the development of commercial banks, sales finance companies, consumer finance companies, c re d it unions, and other fin a n c ia l in s titu tio n s in terms of th e ir re la tiv e shares of the consumer installm ent c re d it market from 1939 to Credit union bylaws usually s ta te th a t loans w ill be made to members fo r "provident and productive purposes." Although no data is available on the uses of s ta te c re d it union loans, a study of federal c re d it union loan purposes conducted in 1961 should give some in d icatio n of the uses to which meirbers apply th e ir loans. I f homes and home improvements are considered to be durable goods, 30.8 per cent of the number of loans made and 52.3 per cent of the to ta l amount loaned by the 2,h9 7 federal c re d it unions studied were for the purchase of durables, while the remainder were used fo r items ranging from investments and insurance premiums to educational expenses and tax payments. Table I shows the percentage d istrib u tio n of the number and amount of loans made during 1961 and average loan size by p rin cip al purpose. On December 31, 1962, to ta l loans outstanding by c re d it unions in the United S tates were $5.5 b illio n ; almost $5.0 b illio n or 91 per cent were consumer installm ent loans. See Tables XXV and XXVI in Appendix A. 7 "Purposes for Which Loans Were Hade in 1961," Report of O perations, 1961 (Washington: Bureau of Federal C redit Unions, UTS. Department of H ealth, Education and W elfare, 1962), XXVII, pp ,

39 Per Cent A / \ ' \ Sales Finance Companies Commercial Banks 40 -J Consumer Finance Companies 10 / t ri i i i i o (VI O ' Credit Unions O co O ' O vr O' Other Institutions I T T o o in vo O ' O ' CHART 3. Percentage Shares of Various Institutions in All Installment Credit Outstanding by Selected Financial Institutions in the United States, December 31, , Source: Table XXVI, Appendix A. >o O'

40 27 TABLE I PERCENTAGE DISTRIBUTION OF NUMBER AND AMOUNT OF LOANS MADE DURING 1961, AND AVERAGE LOAN, BY PRINCIPAL PURPOSE [Based on data for 2,497 federal c re d it unions reporting] Percentage P rin cip al Purpose of Loan D istribution Average N umbe r Amount- oan Loans fo r A g ricu ltu re: C apital investment ( tr a c to r s, liv esto ck, e tc.) 0.4% 0.7% $ 804 Current production (seed, feed, e tc.) Automobiles: New 4.5* ,719 Used 8.2* Repairs and other Other: Furniture and household appliances 6.9* Homes 2.0* 5.0 1,128 Home improvements and maintenance 8.0* Other durable goods (b o ats, house t r a i l e r s, e tc.) 1.2* Other nondurables (clo th in g, e tc.) 2.1 0,9 180 Loans to pay Current liv in g expenses Educational expenses Holiday and recreation expenses (vacations, g i f t s, e tc.) ,1 226 Insurance premiums Medical, h o sp ita l, d e n ta l, and funeral expenses Taxes 3, Loans to Consolidate debts Make investm ents: In business ventures ,208 In sto c k, bonds, e tc Loans fo r a l l other purposes TOTALS: l00.0% 100.0% $ 447 ^Based on new money only: excludes amounts to refinance *Durables. old loans Source: "Purposes for Which Loans Were Made in 1961," Report of O perations, 1961 (Washington: Bureau of Federal Credit Unions, U.S. Department of H ealth, Education and W elfare, 1962), XXVII, pp

41 28 The average siz e of c re d it union loans extended during 1961 was $447 (when refinancing of old loans is excluded) and varied both with the siz e of the c re d it union and the purpose fo r which the loan was granted. Average loan size for the sm allest c re d it unions (a sse ts of under $5,000) was $123, while the la rg e st c re d it unions (asse ts of 8 $5,000,000 or more) had an average loan size of $557, New automobile purchase loans averaged $1,719 while loans to pay insurance premiums averaged only $164, Several factors operate to keep the average size of c re d it union loans re la tiv e ly sm all. Federal law lim its the maximum m aturity of c re d it union loans to five years and an individual loan may not exceed 10 per cent of the c re d it union's unimpaired c a p ita l and surplus. Coupled with the fact th at almost 25 per cent of the federal c re d it unions operating in 1961 had to ta l assets of under $25,000 and 75 per cent had a ssets of less than $100,000, these fac to rs explain an important r e s tra in t to c re d it union average loan s iz e. These lim ita tio n s tend to explain why home loans accounted for such a sm all proportion of t o ta l loans extended (2.0 per cent of the number and 5.0 per cent of the amount in 1961). P a ra lle lin g th e ir growth in the consumer installm ent loan market, c re d it unions have also increased th e ir share of personal savings held by fin an c ia l in s titu tio n s. Personal savings held in selected media in the United S tates from 1947 to 1962 is shown in Table I I. During th is period, c re d it unions increased th e ir holdings of personal savings by 12 1/2 times (from $500 m illion in 1945 to $6.3 b illio n in 1961) while savings and loan associations increased th e ir holdings by 8 tim es, aib id., p. 36.

42 29 TABLE II SAVINGS OF INDIVIDUALS IN SELECTED MEDIA (B illio n s of D ollars) Year Savings 6 Loan A ss'ns. Mutual Savings Banks Comm'l. Banks Credit Unions U. S. Savings Bonds P ostal Savings Tot al 1947 $ 9.8 $17.7 $34,7 $0.5 $46.2 $3.5 $ , ,0 122, , ,3 42, , , , , , , , PERCENTAGE DISTRIBUTION % 15,7% 30.9% 0.4% 41.2% 3.1% 100.0^ , , , , , , , , Source: Federal Home Loan Bank Board.

43 30 commercial banks and mutual savings banks by 2 1/2 tim es, U.S. savings bonds held about the same, and p ostal savings declined to 1/6 of 1947 holdings of personal savings. Thus, c re d it unions were the fa s te s t growing of these savings media in terms of personal savings held in the period and increased th e ir holdings from 0.4 per cent to 2.4 per cent of the personal savings held in these media, IV. SUMMARY Thus, by the end of 1962, c re d it unions were operating In every s ta te and one out of every fourteen Americans held membership in one of the 21,050 operating c re d it unions. The post-war period has seen c re d it unions growing at an impressive rate and, except fo r recent y e ars, a sustained high ra te. During th is period, c re d it unions have increased th e ir share of both the consumer installm ent loan and personal savings markets, becoming the th ird larg e st fin a n c ia l in s titu tio n in the i n s t a l l ment c re d it market. Although c re d it unions remain re la tiv e ly sm all among fin an c ia l in s titu tio n s (average assets equalled $345,224 on December 31, 1962), they have been the fa s te s t growing type of fin an c ia l in s titu tio n in both the installm ent loan and personal savings markets.

44 CHAPTER I I THE GROWTH AND DEVELOPMENT OF CREDIT UNIONS IN LOUISIANA In the summer of 192*4, R. J, Weinmann, a New Orleans atto rn ey, drafted and a ssiste d in guiding through the le g isla tu re a b i l l which was to become Act HO of 192*4, making Louisiana the eighteenth s ta te to adopt le g isla tio n providing fo r the organization of c re d it unions* In December of th at year, the s t a t e 's f i r s t c re d it union was organized among employees of the New Orleans Post O ffice, By December 31, 1962, th e Post Office Employees C redit Union had assets in excess of one m illion d o llars and i t s 1,865 members received dividends at the rate of 6,5 per cent on $813,200 in shares. While few c re d it unions can boast of the growth pattern demonstrated by th is in s titu tio n, the movement as a whole has shown a remarkable growth rate in Louisiana, in te rru p te d only during the war years of 19*42-19*43, On December 31, 1962, L ouisiana's 97 s ta te and 316 federal c re d it unions had a to ta l of 199,72U members (6,0 per cent of the Louisiana population) and controlled assets in excess of $92 m illion, L ouisiana's c re d it unions held four per cent of the in s titu tio n a liz e d personal savings and had outs tending 15,5 per cent of the consumer installm ent loans held by fin an cial in s titu tio n s in the s ta te. This chapter trac es the growth pattern of Louisiana c re d it unions and compares th is development with th at of other fin a n c ia l in s titu tio n s in the s ta te

45 32 and with cred it union growth in the nation as a whole. Special atten tio n is given in the analysis to development during the post World War II period, I, THE PATTERN OF LOUISIANA CREDIT UNION DEVELOPMENT During the f i r s t decade of existence in Louisiana, the c re d it union form of fin an c ia l in s titu tio n enjoyed but a modest rate of growth. By December 31, 1933, there were only th irte e n operating c re d it unions with assets of $18*+,000. The sm all amount of educational and organizatio n a l a c tiv ity th at was being carried out was done on a volunteer basis by individuals in te re ste d in the c re d it union form. The year 193*+ saw several events which stim ulated the rate of development of c re d it unions. F ir s t, the passage of federal le g isla tio n providing for establishm ent of a nation-wide system of federal c re d it unions increased the volume of pu b licity and organizational a c tiv ity and led to the ch artering of a number of new c re d it unions in Louisiana,^ Second, the g rea ter concentra tio n of e ffo rt exerted in the d irectio n s of education and organization by the newly formed Louisiana C redit Union League and the C redit Union National Association spread knowledge of the advantages of the c re d it union form. F in ally, improving economic conditions provided an environment conducive to the development of a fin a n c ia l in s titu tio n operating in the markets for personal savings and consumer loans. Following passage of federal c re d it union le g is la tio n, the number of c re d it unions operating in Louisiana increased rapidly 1Among these new c re d it unions was D. H, Holmes Federal Credit Union of New Orleans which received fed eral c re d it union c h a rte r number 3 on October 8, 19 34,

46 throughout the l a tte r part of the 1930's and u n til 1942, reaching a peak of 166 by December 31 of th at year. Of th is number, 55 were operating under s ta te supervision while 111 were federally chartered. The to ta l number of cred it unions in operation declined during the remaining war y ears, , with federal cred it unions being affected somewhat more severely. The number of chartered federal c re d it unions declined continuously during the 194S-1947 period from 111 in 1942 to 71 in 1947, The number of sta te credit unions actually continued to increase during 1943 and declined but slig h tly in before beginning to expand again in The number of chartered c re d it unions in Louisiana, , is shown in Chart 4. Perhaps a b e tte r picture of the volume of Louisiana c re d it union a c tiv ity during th is period can be gained by observation of fin an cial data. Chart 5 shows the volume of to ta l a sse ts, loans outstanding, and paid-in share c a p ita l of a l l Louisiana c re d it unions as of December 31 for the years Using the ra tio or semi- logarithm ic scale which highlights rates of change rath er than amounts of change, Chart 5 shows clearly the high rate of growth experienced by c red it union a ctiv ity during the l a t t e r 1930's, Using these fin an cial measures of c red it union a c tiv ity, i t can be seen th at a c tiv ity reached a peak in 1941, sta b iliz e d or declined but slig h tly during , and began to rise again in , but at a much more modest rate than in the pre-war period. An exception to th is pattern was the volume of loans outstanding which declined sharply during , remained a t low levels during ,and rose sharply in a catching-up process during , This pattern of development in Louisiana closely

47 Number of Credit Unions STATE 0 c ON c 'O ON c lo ON o NO ON CHART 4. Nunber of State and Federal Credit Unions in Louisiana, Decenber 31, Source: Tables XXVII, XXVIII, and XXIX, Appendix A.

48 Thousands o f D o lla rs, Serai-Logarithm ic S cale 100,000 50,000 25,000 10,000 5,000 2,500-1, Total Assets Paid-in Shares Loans Outstanding 100 o m as in co Os o -das CHART 5. Total Assets, Paid-in Share Capital, and Loans Outstanding of All Credit Unions in Louisiana, December 31, , Source: Table XXIX, Appendix A.

49 36 p a ra lle ls th at of the United States as a whole, as described above in Chapter I. These financial measures confirm the divergent e ffe c ts of the war on s ta te and federal cred it unions which was shc-wn by the data on number of in stitu tio n s holding charters, Using to ta l assets for the comparison, reference to Chart 6 shows the rela tiv e impact of the pre-war stimulus to a ctiv ity and the wartime and post-war developments as they affected s ta te and federal credit unions. Although expanding a c tiv ity less rapidly than federal credit unions during the pre-war period, state-ch artered cred it unions experienced merely a decline in the rate of growth during the war years of 19* while federal c re d it unions had absolute declines in th e ir volume of assets during , This greater impact on federal credit unions can be explained at le a st in part by the higher number of new in stitu tio n s formed during the la te 1930's, which meant th at there were more young in s titu tio n s holding federal charters at the outset of the war. These c re d it unions were less able to withstand the shock of an increase in labor turnover and a decline in loan volume which the war e ffo rt brought, Yet other reasons for th is divergence in trends might be found i f i t were possible to make detailed comparisons of the operating c h a ra c te ristic s of the individual s ta te and federal in stitu tio n s involved; however, such an examination is n eith er within the scope of the present inquiry nor is i t possible on the basis of presently available information. The return to peacetime economic and financial conditions following the close of World War II brought a number of factors favorable to the revival of in te re st in c red it unions. Unparalleled p ro sperity, the resu lt of a continuation of the in d u stria liz a tio n of the Louisiana

50 Thousands o f D o lla rs, Sem i-logarithm ic Scale 75,000 50,000 25,000-15,000-10,000 - Federal 5,000 - State 2,500-1, u"> m Ol o <r o\ o 1/1 CHART 6. Total Assets of State and Federally Chartered Credit Unions in Louisiana, Decenfcer 31, Source: Tables XXVII and XXVIII, Appendix A.

51 38 econony begun during the la te 1930's and stim ulated by the war e f f o r t, provided a h ealth fu l environment fo r the establishm ent of new c re d it unions and the expansion of older u n its. Decline of the p a tr io tic appeal of U.S. savings bonds for the savings d o lla r of individuals made newly saved funds available to the c re d it union, and a high lev el demand fo r consumer loans of a ll kinds made i t possible fo r the c re d it union to o ffe r safety and a su b sta n tia lly higher return to savers than other in s titu tio n s at th at time. Referring again to Chart 4, one notices th at the number of c re d it unions in Louisiana began to increase again at a fa irly rapid rate during the la te 1940's and continued to increase with but s lig h t in te rru p tio n throughout the 1950*s and early 1960*s. The s trik in g feature of th is tremendous growth in the number of in s titu tio n s is the fa ilu re of sta te -c h a rte re d in s titu tio n s to keep pace in terms of numbers with federal c re d it unions. Dividing the post-war period in to th ree p a rts fo r the purpose of a n a ly sis, one sees th at while sta te -c h a rte re d c re d it unions increased in number from 66 in 1947 to 105 in 1952, an average annual growth rate of 9.7 per cen t, th e ir numbers actu ally declined on balance th e re a fte r, leaving only 97 on December 31, 1962, or a net growth rate per year fo r the e n tire period of only 2,6 per cent. At the same tim e, the number of fed erally chartered unions increased at an average annual rate of 10.5 per cent during the e n tire periodj consequently, there were 316 federal c re d it unions by December 31, 1962, compared with only 71 on th a t date in The aggregate number of c re d it unions grew at an average yearly rate of 7.3 per cent from 1947 to 1962, growing at 11,5, 7,9, and 2,8 per cent

52 39 per year in the , , and periods, respectively. These data are shown in Table H I. The p attern of expansion in the number of c re d it unions during the early post-war period, , can be explained by a number of fa c to rs. The wartime l u l l in formation of new u n its plus the highly favorable economic conditions of the early post-war period gave impetus to the organization of new c re d it unions at a rapid ra te. A dditionally, th is was the time at which the Louisiana Credit Union League came under fu ll-tim e profession al management and began a well-managed program of p u b licity and organization designed to bring the b e n efits of c re d it union service to a large proportion of the Louisiana population. F in a lly,. both 2 the Bureau of Federal C redit Unions and the Louisiana Banking Department were granting charters with l i t t l e re s tra in t to almost any group making application which appeared to be homogeneous and could o ffe r a membership p o te n tia l in excess of about 50 persons. Thus, the combination of ease in securing a c h a rte r, favorable economic conditions, and organizational a c tiv ity can be credited with the rapid m u ltip licatio n of c re d it unions during the period. The divergent trend between the establishm ent of new s ta te and new fed eral c re d it unions a fte r 1952 can be a ttrib u te d largely to a change in a ttitu d e on the part of State Banking Department o ff ic ia ls toward the free granting of ch arters. On the b asis of a reap p raisal of past ch arterin g and experience with undersized, undermanaged, and 2 Much of the information about s ta te ch arterin g p ractices was drawn from an interview with Mr. Clement S. Ruf, Deputy Supervisor, S tate Banking Department, and Mr, Eads P, Thomas, Credit Union Examiner, S tate Banking Department, a t New Orleans, Louisiana, on January 28, 1963,

53 < 0 TABLE I I I AVERAGE ANNUAL RATE OF GROWTH OF CREDIT UNIONS IN LOUISIANA, SELECTED SERIES AND YEARS, Series Average annual rate of change (per cent per year) Number of Credit Unions State Federal All Lo;<ns Outstanding State Federal All , Total Assets State 20, F ederal 22, All Share C apital State Federal All Source: Tables XXVII, XXVIII, XXIX, Appendix A

54 nonhomogeneous groups, the Department took a "go slow" a ttitu d e toward the issue of fu rth er charters with the re s u lt th at i t became re la tiv e ly m more d if f ic u lt to obtain s ta te than federal ch arters. Other conditions remaining favorable, the number of new federal c re d it unions continued to increase at a rapid pace during the period. The period saw sev eral developments which combined to slow the rate of expansion of the number of c re d it unions. While the "go slow" policy of the s ta te a u th o ritie s remained in e f f e c t, 3 the rate of organization of new federal c re d it unions began to decline as the Louisiana economy expanded less rapidly and the number of unorganized but p o te n tia l member groups declined. Less favorable fin a n c ia l conditions tended to slow c re d it union development a lso, as commercial banks and other lenders made ever g reater e ffo rts to tap the lu c ra tiv e consumer cred it market and as the competition fo r savings pushed the rates offered by other media in to competitive range of the dividend rates being paid by c re d it unions. Louisiana c re d it union a c tiv ity as indicated by the volume of loans outstanding, share c a p ita l, and t o ta l a ssets (Chart 5) grew even more rapidly during the period than reference to the number of in s titu tio n s alone shows. Perhaps the most outstanding development in the early post-war a c tiv ity was the extremely rapid expansion of loans during as the demand for consumer loans recovered from wartime lows. Even though th is "catching-up" process ended by the close 3 Only one new ch arter was issued between January 1, 1959, and December 31, 1962, and th is c re d it union was in the process of liq u id a tio n by the l a t t e r date*

55 42 of the 1940's, c re d it union a c tiv ity continued at a rapid pace throughout the e n tire period* Using t o ta l assets as a measure of growth in fin an c ia l stre n g th, reference to Table I I I shows an average growth rate fo r a l l Louisiana c re d it unions of 21,6 per cent a year over the period. For the three sub-periods, , , and , the annual growth rate was 27,9, 23,9, and 13,5 per c en t, resp ectiv ely. An in te re s tin g feature here is the very close comparative performance of the s ta te and federal units (See Chart 6) in co ntrast to the divergent growth trend in numbers of c re d it unions. Both s ta te and federal c re d it unions showed more rapid growth when viewed from the standpoint of fin an c ia l measures than when the number of in s titu tio n s alone was considered} as a r e s u lt, the average size of both s ta te and federal c re d it unions increased over the period. (See Table IV). The pattern of development in fin a n c ia l a c tiv ity from World War II through 1962 can be explained largely by the same facto rs which account for the pattern of expansion of the number of new in s titu tio n s. The average growth rate of 27,9 per cent in both to ta l assets and share (savings) c a p ita l and 34,4 per cent in loans outstanding from 1947 to 1952 can be a ttrib u te d to the highly favorable economic and fin an c ia l conditions of the period, to promotional a c t iv i t ie s, and to a catching-up process from the subnormal war period. Continued expansion of the three se rie s in the neighborhood of 24,0 per cent per year during , can be a ttrib u te d to the same fa c to rs, with the possible exception of the catching-up process. And the su b sta n tia l but less spectacular growth in the demand for c re d it union services with greater competition being

56 43 TABLE IV AVERAGE ASSETS OF CREDIT UNIONS OPERATING IN LOUISIANA, DECEMBER 31, SELECTED YEARS, Year State Federal All 1962 $232,953 $220,486 $223, , , , ,127 84,766 64, , ,508 34, ,183 18,411 17,010 Source; Tables XXVII, XXVIII, XXIX, Appendix A.

57 *4*4 faced by c re d it unions in the markets for consumer loans and personal savings. I t is more d if f ic u lt to explain the performance of s ta te c re d it unions re la tiv e to th e ir fed erally chartered counterparts in view of the divergent trends in the number of u n its. Using mean t o ta l assets per c re d it union as a measure of s iz e, reference to Table V shows th at the average annual growth rate in siz e of sta te -c h a rte re d c re d it unions co n sisten tly exceeded th at of federal c re d it unions during the 19* period and in the subdivisions of th is period. This mathematical fact steins d ire c tly from the slower rate of expansion in numbers of units in conjunction with a comparable rate of growth in command over to ta l assets shown by s ta te c re d it unions. The g reater re la tiv e growth rate in average siz e of s ta te c re d it unions may be explained at le a st in part by reference to the growth pattern of c re d it unions as they develop over tim e. The siz e of a c re d it union tends to increase with age, at le a st to a point. Several factors account for the tendency of c re d it union siz e to expand with the age of the in s titu tio n : ( 1 ) c re d it unions lik e other business firms rarely begin operations at th e ir maximum p o te n tia l levels} thus there is a growth phase within the lif e cycle of the in s titu tio n ; ( 2 ) as the size of the membership group, incomes, and c re d it demands change, so does the p o te n tia l volume of a c tiv ity which can be expected; and ( 3 ) there is a strong presumption th at c re d it unions were f i r s t begun among groups with the g rea test p o te n tia l level of usage, with the consequence th at older in s titu tio n s had a larg e r growth p o te n tia l than more recently organized groups. The comparatively slow rate of formation during the

58 45 TABLE V AVERAGE ANNUAL GROWTH RATE IN MEAN ASSET SIZE OF LOUISIANA CREDIT UNIONS, SELECTED YEARS, Years S tate fed eral All , Source: Tables XXVII, XXVIII, XXIX, Appendix A.

59 46 post-war period, the more sta b le wartime experience and the e a r lie r enactment of s ta te le g isla tio n combine to explain the g rea ter average age of s ta te c re d it unions. Further analysis of the developmental p attern of s ta te and federally chartered c re d it unions w ill be l e f t to Chapter I I I which contains more d e ta ile d study o f the operating charact e r i s t i c s of the two forms and a comparison of the le g a l framework under which each operates. I I. GEOGRAPHIC CONCENTRATION OF CREDIT UNIONS IN LOUISIANA The movement which began in December, 1924, in New Orleans with the organization of the P ostal Credit Union had become state-w ide with 413 in s titu tio n s operating in 39 of L ouisiana's 64 parishes by y e a r's end S t i l l, as Figure 4 rev e als, the bulk of c re d it union operations are confined to the population centers of the s ta te. Three p a rish es, Caddo, East Baton Rouge, and O rleans, had 33 per cent of the Louisiana population and 60 per cent of the s t a t e 's c re d it unions. Seven p arish es, the above plus C alcasieu, L afayette, Ouachita, and Rapides, had 47 per cent of the population and 87 per cent of the c re d it unions in the s ta te. Figure 5 shows, by v ariatio n s in shading, the porportion of each p a ris h 's population which held c re d it union membership on December 31, Five parishes counted in excess of ten per cent of th e ir populatio n s as c re d it union members. The s ta te average was s ix per cent. Among those parishes with c re d it unions, the percentage o f population holding membership varied from o n e-fifth of one per cent in Franklin to 13,0 per cent in East Baton Rouge, Although Bossier parish had only two

60 /wthtw FIGURE A Number of State and Federally Chartered Credit Unions In Louisiana, December 31, Source: - 0- KEY Table XXX, Appendix A **TCM»TOCHCI All Federal State ' N» r» r f c l i c * * * *. m m t lanom y - o - - o j t r r c n o M m v i i W r*tci ll«t lit c ' w n a M n lm T M

61 Hfkjil FIGURE 5 Map Showing Percentage of Each P arish's Population Holding Credit Union Membership December 31, Source: Table XXX, Appendix A. KEY Per Cent of Population o.oz 0.1Z to 2.5Z 2.6Z to 5.0Z 5.1Z to 10.0Z 10.1Z and over HP If ssj«ir 1 JAWI no*.»l c a>

62 49 c re d it unions, one of these was the s t a te s larg est with almost 6,600 members and assets of nearly $2.9 m illion, thus accounting for the high membership ra tio shown in Figure 5. The d istrib u tio n of average per capita c re d it union assets among the various parishes is shown by variatio n in shading in Figure 6. Per c ap ita asset holding averaged $27.71 for the s ta te as a whole, varying from one cent in Franklin parish to $77.91 in S t. Charles parish. This analysis reveals th at while c re d it unions m ultiplied su b sta n tia lly in numbers, membership and command over a sse ts during th e ir f i r s t 38 years in Louisiana, there are yet vast areas which are v irtu a lly untouched by the movement. Most s trik in g perhaps is the fact th a t there are no c re d it unions operating in 18 of the 28 parishes lying north of the 31st p a ra lle l (defined approximately as the southern boundaries of Vernon, Rapides, Avoyelles, and Concordia p a rish es). The lack of development in the ru ra l areas and prospects for the future w ill be taken up again in Chapter IV. I I I. CREDIT UNIONS IN THE FINANCIAL MARKETS OF LOUISIANA As fin an c ia l in s titu tio n s, c re d it unions accumulate the savings of members fo r the purpose of extending c re d it to q u a lifie d members for provident purposes. Thus, c re d it unions' a c tiv itie s a ffe c t both the 14 personal savings and consumer loan markets, 14 Although d etailed information on the use of c re d it union loans in Louisiana is not presently av aila b le, i t is known th a t a very large proportion of c re d it union loans are of the consumer installm ent v ariety. The c re d it union laws of Louisiana sp e c ific a lly permit the extention of loans secured by rea l estate} however, discussion with s ta te o ff ic ia ls in d ic ate s th a t th is authority has not been used extensively. To the

63 i c l a w w i h * o* ***«i»**»a««* ** * * * * 4*» IncolnX FIGURE 6 Map Shoving Per Capita Credit Union Assets in Each P arish, December 31, Source: Table XXXI, Appendix A. 1 Per Capita Assets None $0.01 to $5.00 $5.01 to $20.00 $ to $40.00 $40.01 and over I * * hi k *Ol*TC come W t s 1 f t u c i «u ] t* * T I u V wi m.!rt i i e i & u ( milrna 4 IM tton jcvil\v.v' m nvitlr ;'#v. \ a/. V*.v.v L»r C in o