Credit unions are member-owned, non-profit financial cooperatives that operate under different structures than traditional commercial banks. While they are distinct entities, they are not immune to the risk of failure. A failure typically occurs when a credit union becomes insolvent, meaning its liabilities exceed its assets, often due to poor management, economic downturns, or excessive risk-taking in loan portfolios.

To mitigate these risks, the National Credit Union Administration (NCUA) oversees the industry in the United States. The NCUA manages the National Credit Union Share Insurance Fund (NCUSIF), which provides federal backing for member deposits. Similar to the FDIC insurance provided to bank customers, this fund protects individual accounts up to $250,000 per depositor, per insured credit union. In the event of a failure, the NCUA typically facilitates a merger with a healthier institution or pays out the insured deposits to members.

While the risk of a total loss for the average depositor is extremely low due to these federal safeguards, the experience of a failure can still cause significant disruption. Members may face temporary freezes on account access or changes in interest rates and service terms following a merger. Unlike shareholders in a bank, credit union members are technically owners, but they do not lose their deposits in a failure unless their balance exceeds the insured limit. The primary difference between a credit union failure and a bank failure remains the cooperative structure, which influences how the institution is liquidated or absorbed during a crisis.