Credit Union

Let it not be forgotten that a credit union is, above all else, an association of people, not dollars.

Alphonse Desjardins

Banks at the turn of the 20th century were for rich people. A.P. Giannini founded his Bank of Italy, later renamed Bank of America, in 1904 as a bank for everybody else. But it took Giannini a long time to build to scale and, in the interim, there was nothing else.


Banking customers at the time fell into two broad categories. There was a small group of those today we’d call the 1%. They were treated well but there were few of them. Then there was everybody else. They weren’t treated so well: there were sky-high fees, usurious interest rates, and bank tellers who were indifferent at best.

Digression: that sounds a lot like banking today for most people though that’s a different issue, or maybe an opportunity.

Desjardins was Canadian and familiar with the guild-based savings banks in Europe. Summarizing, a group with common interests would pool their savings to make loans to others in their pool who had common interests at reasonable rates. Thanks to underwriting based on personal knowledge and peer pressure defaults were extremely low and, when they happened, unquestionably unavoidable.

Building on the idea of group-based banking with reasonable fees and interest rates, Desjardins brought a similar idea to North America. First, he introduced it to his native Canada then to the larger US market. In essence, people who work in the same area, the same field, or maybe for the same employer create a bank-like entity with low fees and reasonable rates. Rather than a bank, which carried a brand stigma and regulatory issues, he labeled his innovation a credit union.

Banks vs. Credit Unions

One major difference from banks is that credit unions are owned by the depositors, the customers, rather than a third party or anonymous shareholders. Therefore, the goals of the credit union are aligned with the customers of the credit union. Theoretically, there is no demand to maximize shareholder value from credit unions because the customers to be abused are the shareholders.

Credit unions still exist today for the same purpose. As of 2018, the Navy Federal Credit Union has over $90 billion in deposits. The largest private company credit union, for Boeing employees, has about $18 billion in deposits and ranks as the fifth-largest in the US. Credit union exist around the world but are especially in English-speaking countries. To this day, banks routinely attack credit unions as opaque loosely regulated banks that should be shuttered.

Branch Banking

Branch banking allows ordinary people to utilize banks and theoretically makes banks safer since larger banks are less prone to catastrophic losses than smaller banks.

Amadeo Pietro “A.P.” Giannini started life as a fruit wholesaler. He built and sold a large business, decided he was too young to retire, then innovated an entirely new type of bank.


While in the fruit business he had routinely extended credit to farmers waiting for their crops to mature and decided to open a bank for ordinary people that could offer even small bridge loans, a new concept at the time. Giannini started the Bank of Italy when he was 34 years old, which was relatively well into middle-age for the time. He had no background in banking at all.

Giannini’s renamed Bank of America was a bank for ordinary people rather than the wealthy and elite. His bank was open longer hours and on weekends, recognizing that people were at work during normal banking hours. He also advertised both banking and loan availability, offending other bankers at the time who thought it gauche.

Giannini’s push to open ever-more branches, eventually spanning the entire US, was an innovation. At the time the belief was that a large number of small banks would prove safer, because if one was reckless customers would go elsewhere. Giannini argued the opposite, that large banks were safer because they could better absorb the risk of a bad decision. Further, because of their large size, they could take more risks and not worry that one bad deal would destroy the bank. In this regard, he arguably created the Too Big To Fail Bank.


Bank of Italy charged less interest than the small, independent banks. The Federal Reserve Prime Rate was 5%; small banks would charge 12%, Giannini would typically charge 7%. Giannini utilized leverage at a much higher rate than other banks.

In 1927, Giannini purchased 100 new banks giving him 276 branches in 199 localities and changed the name from Bank of Italy to Bank of America. Because banks were limited state-by-state at the time, he had to create a holding company for each state’s banks, the Transamerica Corporation.

Giannini died in 1949, aged 79, with an estate worth $489,278. By then, BOA was enormous, the large bank in the US. Many of his shareholders were worth much more. Historians say that Giannini had no interest in earning a large fortune for himself, only in building an enormous bank. When he died, BOA employees owned about 40 percent of the stock.