A Brief History of Credit Unions

The history of banking stretches all the way back to farmers in Mesopotamia who used grain banks to store their yields. The development of currency and international trade spurred further advancements in the banking sector, but it wasn’t until the mid-1800s that the idea of credit unions emerged.

Since that time, credit unions have played an increasingly important role in the overarching financial system and the management of cash for individual businesses. Understanding the origins and historical evolution of credit unions helps today’s cash managers inform risk management and investment decisions.

1800s: The Credit Union Concept Arises in Germany and Japan

Modern credit unions can trace their origins to two separate countries where economists independently created cooperative banking institutions. In both cases, famine and poor agricultural output necessitated the creation of membership organizations to help common people survive the hardship.

Japanese economist Sontoku Ninomiya created a system where groups of people could lend to one another without interest for a period of 100 days. If the loan was not repaid, the members would share the loss. This system helped farmers stay afloat between seasons and when output was not as high as anticipated, all while avoiding the high interest rates charged by traditional financial institutions at the time.

Separately, two German economists created membership financial organizations following crop failures in the 1840s that weakened the economy. Franz Hermann Schulze-Delitzsch established the first “people’s bank” in 1850 to help struggling trade workers achieve financial stability through community lending. Friederich Wilhelm Raiffeisen then spread the model throughout Germany to help farmers escape predatory lending.

These early examples showcase the concept that makes credit unions unique – a membership approach where a group of ordinary people share the risk and profit of banking activities. In both Japan and Germany, the cooperative financial models were developed to aid common folks during tough times, but the concept was soon expanded to benefit broader groups of people across many countries.

1901 – 1909: Credit Unions Cross the Atlantic

A Canadian journalist named Alphonse Desjardins brought the concept of credit unions to North America with La Caisse Populaire de Levis (The People’s Bank of Levis) in 1901. Illustrating the humble beginnings of the movement, the very first deposit was just 10 cents.

In 1908, Desjardins took his expertise south and helped open the first U.S. credit union, St. Mary’s Cooperative Credit Association in Manchester, New Hampshire. Locals could purchase membership in the credit union for just $5, and those funds were lent to members to build homes, create businesses, and meet personal needs. Impressively, this credit union still operates today.

The following year, Massachusetts Bank Commissioner Pierre Jay and wealthy merchant Edward A. Filene collaborated to create a framework for credit unions, which culminated in the Massachusetts Credit Union Act. This was the first general statute for credit unions in the U.S., and Filene is widely recognized as the “Father of U.S. Credit Unions” for his early support of cooperative financial institutions.

1920s: Rapid Expansion and the “Extension Bureau”

Filene hired Roy F. Bergengren, a Massachusetts attorney, to scale the movement in 1921. Together, they formed the Credit Union National Extension Bureau.

The purpose of the bureau was ambitious – to create a national network and pass state laws allowing the creation of more credit unions. Their mission was ultimately successful, and 38 states and the District of Columbia had enacted credit union laws by 1935. This early legislation laid the foundation for the modern credit union system.

1929 – 1934: The Great Depression Spawns Federal Regulation

During the Great Depression, about 9,000 banks failed. However, the newly established credit unions were more resilient during this time, and none failed during the economic collapse.

Amid many other regulations aiming to strengthen the financial and economic systems in the U.S., President Roosevelt signed the Federal Credit Union Act into law in 1934. It allowed credit unions to be chartered at the federal level, not just by states.

A few months later, the Morris Sheppard Federal Credit Union in Texarkana, Texas became the first federally chartered credit union. This credit union still operates today, highlighting the enduring nature of the cooperative financial institution movement.

1942 – 1953: Shifting Federal Oversight

The Federal Credit Union Act created the possibility of federally chartered credit unions, but the supervision of these institutions shifted several times over the following decades. Supervision was originally done through an organization called the Federal Credit Union Division, which operated under the Farm Credit Administration beginning in 1934. Then, that division was transferred to the Federal Deposit Insurance Corporation [FDIC] in 1942.

Just four years later, the Federal Credit Union Division was renamed the Bureau of Federal Credit Unions and moved to the Federal Security Agency. The bureau moved again in 1953 and was overseen by the new Department of Health, Education, and Welfare.

Throughout this time, credit unions operated without federal deposit insurance. Banks, on the other hand, were federally insured by the FDIC. Fortunately, this discrepancy was soon solved.

1970 – 1979: Modern Safety and the NCUA

Congress created the National Credit Union Administration [NCUA] in 1970, and it still operates today as an independent agency of the federal government. Along with the new agency, the National Credit Union Share Insurance Fund was created, which provides insurance for deposits that is backed by the full faith and credit of the U.S. government.

Later in the decade, Congress introduced another round of changes to credit union safety. Legislators created the Central Liquidity Facility in 1979, which operates similarly to the Federal Reserve’s Discount Window as a lender of last resort. Deposit insurance was also raised that year to $100,000 – matching the FDIC coverage limit at the time.

Today: Robust Deposit Protection and Credit Union Footprint

The history of credit unions is ongoing, as the appeal of the cooperative structure has endured in the U.S. for over a century. Since St. Mary’s Cooperative Credit Association opened in 1908, credit unions have spread across the country and now number 4,287, compared to 4,336 banks.

Those thousands of credit unions manage over $2.7 trillion in total deposits and $1.72 trillion in total loans outstanding, with a 2025 net income of $18.8 billion. The growth of credit unions has not altered the basic membership structure, where profits are returned to the member owners rather than paid to shareholders as is the case with banks.

Regulatory changes over the years have put banks and credit unions on equal footing for business cash managers seeking safety. Both types of financial institutions have access to a lender of last resort if they run low on cash, both are overseen by independent federal agencies, and both have insurance funds backed by the full faith and credit of the U.S. government.

With equal deposit protection of $250,000 at each insured institution, companies are free to choose a financial partner that offers the best yields, service, and technology. Those firms with cash reserves above the insurance limit have another option that allows them to take advantage of the benefits of both credit unions and banks – modern deposit management solutions.

Gain Access to Extended Deposit Protection with ADM

At American Deposit Management, we offer modern cash solutions that allow businesses to access protection and competitive rates of return from banks and credit unions across the country. Our patent-pending technology spreads millions in business cash across our network, providing access to extended protection for sums far above the FDIC or NCUA limit.

Because our network contains both credit unions and banks, our customers can take advantage of competitive interest rates from both types of financial institutions. In fact, our solutions provide average returns that are 7x higher than the national average money market account.

Contact a member of our team today to learn more about our deposit management solutions and get started.

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