Are credit unions allowed to create money out of thin air like banks?
Banks cannot create money out of thin air. You may be confusing this with quantitative easing, which is when the Federal Reserve purchases financial assets from banks with electronically created money, hence increasing the level of funds in banks’ reserves. The aim of this is to increase the supply of money available for borrowing, which reduces borrowing costs and encourages banks to lend money when the effective interest rate is already at or close to zero. Credit unions are co-operative institutions controlled by their members, as opposed to banks, which operate through a conventional corporate structure. In the US, credit unions are tax-exempt but are subject to regulation under a state or federal charter. Federally chartered credit unions are subject to the jurisdiction of the National Credit Union Administration, while state chartered credit unions fall under the purview of the relevant state regulator. Systems relating to co-operative finance institutions are not the same around
To answer your question directly: yes credit unions can “create money” To clarify the “create money” part: an individual bank can lend out roughly 90% of the money deposited with it, it has to keep some on hand for when depositors come in and demand currency. It’s the banking system as a whole that “creates money out of thin air” when Customer B borrows Customer A’s deposits from Bank 1, uses them to buy a car or whatever, then the dealership makes a deposit at Bank 2, its funds get loaned out, and so on. The system works because Bank 1 still clears Customer A’s checks.
