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The Structure and Growth of the Credit Union Industry in the United states: Meeting Challenges of the Market
Abstract
. Credit Unions in the United States have grown significantly in recent years. This paper identifies and analyzes the unique characteristics of the credit union industry contributing to this growth. The consolidation of smaller institutions and product diversification among larger credit unions in the environment of financial deregulation in recent years has resulted in enhanced services for credit union members. The industry is expected to continue its growth in membership and assets relative to other depository intermediaries.
... Before the deregulation movement in the 1970s, there were clear lines between the types of depository institutions and the services they offered. Commercial banks primarily offered checkable deposits and made commercial loans; Savings and Loans offered fixed rate savings accounts and made residential mortgages; lastly, Credit unions mostly offered share accounts on which they paid dividends and made consumer installment loans (Kaushik and Lopez 1994). ...
... Sociological work on credit unions in the US has been sparse, surprising given the ways in which credit unions have closer institutional ties to their communities than similar institutions and how their services are more closely directed to consumers' daily needs than many banks (Bergengren 1937;Bundt, Chiesa and Keating 1989;Croteau 1949;Croteau 1956;Kaushik and Lopez 1994;Lune and Martinez 1999;Patin and McNiel 1991;Taylor 1971). Instead, this topic has been more consistently addressed by social economists. ...
This project seeks to assess whether there are meaningful differences between the stability of the Credit Union and Consumer Banking industries before the 1980s, and how both industries’ stability had been affected by subsequent political-economic changes. I also sought to assess if deregulation would make credit union behave at risk levels similar to banks. I initially observed that there was a strong inverse correlation between credit union size and failures, which I argue could be explained by regulatory change. This claim was strengthened by the observation that credit unions had benefitted from certain key forms of deregulation, they were still deregulated to a lesser extent than banks and had still decreased their failure rates. After the early 1980s, credit unions suffered far lower rates of outright failure than banks during subsequent economic downturns.
The project found that regulation works, but while credit unions can eventually come to resemble bank’ risk patterns, it has not happened yet. Time series analysis revealed that regulatory change had a greater effect on this than most other model variables, even if they were aggregated into categories of industry-level or economy-level variables. The most telling finding was that banks were able to leverage their market status and political power to deregulate in a way that primarily benefitted them and allowed them to maintain their market position. Conversely, they reduced the level of deregulation permitted to credit unions; credit unions did still gain substantial freedom compared to the postwar years, but still more often faced increases in regulation than banks did. This may have ended up benefitting credit unions the most, as a balanced approach to deregulation allowed them stable growth.
... This Act encapsulated much of Bergengren"s interpretation of what credit unions are, how they should be structured and how they operate in law. (Moody and Fite, 1984;Kaushik and Lopez, 1994). During the remainder of the 20th Century, the model continued its spread and now extends to most of the Anglo-Saxon world and beyond (Fonteyne and Hardy, 2011). ...
... Europe to North America. The first financial cooperative ( (Moody and Fite, 1984;Kaushik and Lopez, 1994). During the remainder of the 20th Century, the model continued its spread and now extends to most of the Anglo-Saxon world and beyond (Fonteyne and Hardy, 2011). ...
Financial cooperatives play an important role in the financial systems of many countries. They act as a safe haven for deposits and are major sources of credit for households and small- and medium-sized firms. A not-for-profit orientation (in many cases) and a focus on maximising benefits to members have ensured the enduring popularity and sustainability of financial cooperatives. This is particularly evident since the global financial crisis when financial cooperatives continued to extend credit to members as many profit-orientated commercial banks restricted credit to households and firms. The overarching theme of the first part of this review is the structural and behavioural characteristics of financial cooperatives. In this part we consider, the origin and diffusion of financial cooperatives, network arrangements, the business model, relationship banking, balancing the interest of members, tax treatment and regulatory framework. The second part has performance and contribution to the real economy as the overarching theme. In this part we consider, efficiency and sustainability, mergers, acquisitions and failures, the benefits (and challenges) of FinTech and the contribution of financial cooperatives to the real economy including during times of crisis. The paper concludes with a summary of what we now know (and do not know) about financial cooperatives and provides suggestions as to where future research may usefully concentrate.
... These gradients are generally steeper for state than for federal credit unions, and for single bond than for multiple bond credit unions. Kaushik and Lopez (1994) suggest that state regulation is typically more liberal than federal regulation. State chartered credit unions may therefore have greater growth potential. ...
... In the estimations for state, federal, single and multiple common bond credit unions, the sizegrowth gradients are consistently positive and significant. These gradients are generally steeper for state than for federal credit unions, and for single bond than for multiple bond credit unions. Kaushik and Lopez (1994) suggest that state regulation is typically more liberal than federal regulation. State chartered credit unions may therefore have greater growth potential. Wolken and Navratil (1985) use a utility maximising framework to show that in the late-1970s, state chartering was more likely to be chosen by credit unions in states with more liber ...
... For instance, in the 1980s, credit unions were permitted to offer first mortgages and in the late 1990s, credit unions have been allowed to offer membership to multiple groups (Leggett and Strand, 2002; Tripp & Smith, 1993). Following the greater scope of credit unions, they have experienced strong growth (Goddard et al., 2002; Kaushik & Lopez, 1994). Even if families are not credit union members, they may be able to enjoy the benefits of this strong growth since the competition with credit unions seems to have lowered the costs of financial services at banks that directly compete with credit unions (Emmons & Schmid, 2000; Feinberg, 2001; Feinberg & Rahman, 2001). ...
... For instance, in the 1980s, credit unions were permitted to offer first mortgages and in the late 1990s, credit unions have been allowed to offer membership to multiple groups (Leggett and Strand, 2002; Tripp & Smith, 1993). Following the greater scope of credit unions, they have experienced strong growth (Goddard et al., 2002; Kaushik & Lopez, 1994). Even if families are not credit union members, they may be able to enjoy the benefits of this strong growth since the competition with credit unions seems to have lowered the costs of financial services at banks that directly compete with credit unions (Emmons & Schmid, 2000; Feinberg, 2001; Feinberg & Rahman, 2001 Ely & Robinson, 2001; White, 2002). ...
Over the past few decades, financial markets became increasingly deregulated and household debt expanded, sometimes rapidly. It is thus possible that greater deregulation led to improved credit access and lower cost of credit for typically underserved groups, such as minorities and low-income families, relative to their counterparts. Credit access is measured here by loan denials, discouraged applications. The cost of credit is measured by debt payments relative to debt. Differences in credit access and the cost of credit should have diminished over time, particularly after 2000, after large-scale deregulation had taken place. Differences by demographic groups over time are tested using multivariate tests based on data from the Federal Reserve's Survey Consumer Finances from 1989 to 2004. While some minority groups found increasing credit access after 2000, credit became increasingly more expensive relative to whites due to a less advantageous composition of debt or higher interest rate differentials. Importantly, growing differences in debt composition and interest rates contradict the expectation of credit market equalization after deregulation.
... For instance, in the 1980s, credit unions were permitted to offer first mortgages and in the late 1990s, credit unions have been allowed to offer membership to multiple groups (Leggett and Strand, 2002; Tripp and Smith, 1993). Following this expansion in scope, credit unions have experienced strong growth (Goddard, McKillop, and Wilson, 2002; Kaushik and Lopez, 1994). ...
... For instance, in the 1980s, credit unions were permitted to offer first mortgages and in the late 1990s, credit unions have been allowed to offer membership to multiple groups (Leggett and Strand, 2002; Tripp and Smith, 1993). Following this expansion in scope, credit unions have experienced strong growth (Goddard, McKillop, and Wilson, 2002; Kaushik and Lopez, 1994). Even if families are not credit union members, they may enjoy the benefits of this strong growth. ...
Households have experienced an expansion of financial opportunities over the past several decades. Expanded financial opportunities, such as the democratization of credit and new lending approaches, can yield benefits in terms of household economic security. However, the financial crisis that began in 2007 has powerfully illustrated that expanded financial opportunities can also pose dangers for households. By increasing the scope for investment in risky assets, people may end up with larger swings in wealth than they had anticipated. Households may borrow too much and then face obligations that are unsustainable given their resources. To explore these issues, I examine household data on wealth, assets, and liabilities going back 25 years and, in some cases, 45 years. I argue that changes in household finances in the decades leading up to the mid-1990s -- including the gradual rise in indebtedness -- likely increased household well-being, on balance, and contributed to a decline in aggregate economic volatility. However, changes in finances since the mid-1990s -- in particular, a much sharper rate of increase in household debt -- appear to have been destabilizing for many individual households and ultimately for the economy as a whole. I consider how the lessons learned in the current crisis might change household financial opportunities and choices going forward.
... Friedrich Wilhelm Raiffeisen emphasizedChristian principles as motivation for creating of the first rural credit union. His cooperative model quickly spread to neighboring countries such as Austria, Belgium, Switzerland, and the Netherlands, with notable cooperatives created by Luigi Luzzatti in Italy(MacPherson, 1979;Aschhoff, 1982;Moody & Fite, 1984;Kaushik & Lopez, 1994;Walter, 2006;Mook et al., 2015;McKillop et al., 2020).One noteworthy aspect of the early credit unions is the intentional restriction of their operations to a small number of individuals and a limited geographic area. For example, in the credit union model pioneered by Raiffeisen, which evolved into the Raiffeisenbank federation in 1913, a significant majority of members (i.e., 80%) were situated in localities with 3,000 inhabitants or fewer. ...
Objective: This research aims to analyze the level of disclosure of sustainability information, which mitigates information asymmetry, of Brazilian and German credit unions. Theoretical Framework: The study draws upon literature concerning sustainability information disclosure, information asymmetry, governance, and the role of credit unions in promoting transparency and corporate social responsibility. Method: The study was conducted with a sample of the 30 largest credit unions in Brazil and Germany, totaling 60 credit unions. Sixty indicators across four categories of sustainability were employed, analyzed in the annual reports of the sampled cooperatives from the year 2021. Subsequently, Student's t-tests and Mann-Whitney U tests were utilized to compare the level of compliance between the cooperatives in Brazil and Germany. Results and Discussion: The results demonstrate a statistically significant difference in the disclosure of sustainability information between Brazilian and German credit unions, with the latter exhibiting higher disclosure in their annual reports. Furthermore, a statistically significant difference was observed in the disclosure of economic and environmental information between the two countries, while differences in the social and cultural pillars were not evidenced. Research Implications: The findings of this study hold significant implications for credit unions, emphasizing the need for increased transparency and disclosure of sustainability information, particularly in the Brazilian context. Originality/Value: This study contributes to the literature by providing insights into sustainability information disclosure in credit unions, particularly through a comparison of practices between Brazil and Germany. Additionally, it underscores the importance of transparency and corporate social responsibility in this sector.
... Friedrich Wilhelm Raiffeisen emphasized Christian principles as motivation for creating of the first rural credit union. His cooperative model quickly spread to neighboring countries such as Austria, Belgium, Switzerland, and the Netherlands, with notable cooperatives created by Luigi Luzzatti in Italy (MacPherson, 1979;Aschhoff, 1982;Moody & Fite, 1984;Kaushik & Lopez, 1994;Walter, 2006;Mook et al., 2015;McKillop et al., 2020). ...
... While this paper focuses on the crisis due to data limitations, aggregate industry data show that credit union lending was also less sensitive than bank 6 There is little empirical research on credit unions especially in the last few decades. Black and Dugger (1981) and Kaushik and Lopez (1994) provide a description of the growth of credit unions prior to the 1980's. Frame et al. (2002) look at the effect of regulations expanding membership of credit unions but do not compare activity with banks. ...
This dissertation is motivated by the 2008 financial crisis and consists of three chapters. In the first chapter, I show that the cooperative objective of credit unions enabled them to lend significantly more than profit-maximizing banks during the Great Recession. Loan growth rates were higher for the $1.3 trillion credit union industry by as much as 10 percentage points at the peak of the crisis. Using a newly constructed database containing balance sheet information and loan-level activity, I compare institutions that faced identical borrowers in the same local credit markets and control for crises exposures to show that the effect is supply-driven. Further, the lending difference was sustained by 15-20 percent lower profit margins. Loan pricing, informational advantages, taxes, or the regulatory environment do not explain the results. Rather, member-oriented objectives precluded the slow economic recovery of credit unions after the financial crisis. ^ In the second chapter, which is joint work with Yasser Boualam, we document that higher measures of liquidity risk on banks balance sheets are associated with lower expected stock returns. We first calculate a measure of liquidity risk which reflects how much of a bank's volatile liabilities are covered by its stock of liquid assets. We show that the standard factor models do not fully explain the cross section of bank stock returns. A portfolio that is long in low liquidity risk banks and short in high liquidity risk banks delivers a statistically significant alpha of 6 percent annually. This effect is not driven by bank characteristics such as size, profitability, leverage, or asset quality, but appears to be partly connected to the degree of bank complexity and potential valuation errors pre-crisis. ^ In the third chapter, I compare traditional banking and shadow banking based on the type of security that funds them: money funds the former while money-like liabilities fund the latter. I show the following key findings. First, using a parsimonioius two-sector model of non-balanced growth that captures structural changes within the financial sector, I measure the time series relative productivity of shadow banking to traditional banking. In the 1960's shadow banking sector productivity started at around 0.6 relative to traditional banking, which peaked to 1.2 starting in the 2000's. Second, growth in money-like liabilities lag growth in output, contrary to the well-known leading relationship between traditional monetary aggregates and output growth.
... Most recently, Stern, Swidler, and Hinkelmann (2009) verify econometrically that, after controlling for asset size and market-wide interest rates, credit unions' interest rates for individual deposit products (particularly for certificates of deposit) are key determinants of deposit growth rates. Further research on credit union asset growth includes, for instance, Kaushik and Lopez (1994), Leggett and Strand (2002), and Goddard, Wilson, and McKillop (2005). (2009) ...
This report evaluates which among 100+ factors could be reliably linked with asset growth across credit unions, and across asset sizes, during 1979-2016. Key factors include offering attractive interest rates, ROA, product breadth, and marketing. The report also explores the complex relationships among asset size, noninterest expenses per assets (costs), attractive interest rates, and growth. Finally, the report also reviews how the impacts of several factors vary across asset sizes (e.g., branching), others vary across business and interest rate cycles (noninterest expenses and attractive interest rates), and yet others have changed over time (ROA and members per assets).
... The credit union industry in the US, since the 1977 change of legislation of the financial services industry, has been affected by a number of forces such as innovation, technology, deregulation and competition. Due to the complex interplay of these forces various types of financial intermediaries with similar functions have been created but, at the same time, a separate and distinct legal and regulatory structure remains (9). The credit union industry has been affected by all these changes as this deregulation was accompanied by the introduction of a less restrictive interpretation of the common bond requirement for membership, which created new opportunities for growth and merger (6). ...
Credit Unions are financial co-operatives owned and controlled by their members. Credit unions are very popular in the United States (US) where they operate both on state as well as on a national level. Since these organisations are, in the US, in direct competition with retail banks, short to mid-term extrapolations are essential in order to visualize the trends for access to credit in the future. In the present study we use published data for six key financial figures from ten states in the US. An Expert Forecasting Support System, selecting via a competition among classic extrapolative techniques, has been employed in order to prepare one-year as well as five-years ahead forecasts and confidence intervals for the times series under consideration.
... Valnek (1999) analysed the performance of mutual building societies and plc banks in the UK over 1983-1993, finding that plc banks incur higher costs in the form of loan-loss reserve provisions, which attributes to the fact that mutuality minimises agency conflicts between owners and depositors. Heffernan Association surveys (Kaushik and Lopez, 1994). Karels and McClatchey (1999) found that -due to their mutual co-ownership structure, which leads (2007) investigated the impact of co-operative banks on financial stability using data from 29 major advanced economies and emerging markets that are members of the OECD, and found that co-operative banks tend to be more stable than commercial banks, and that these results can be attributed to less volatile rates of return. ...
This article sets out a detailed and realistic strategy for achieving the diversity in financial services to which the UK Government's Coalition Agreement is committed. Diversity of ownership types and business models creates a corresponding diversity in forms of corporate governance; risk appetite and management; incentive structures; policies and practices; and behaviours and outcomes. It also offers wider choice for consumers through enhanced competition that derives in part from the juxtaposition of different business models. However, the UK financial services sector is dominated disproportionately by a single business model, namely the large, shareholder-owned plc. This domination of the shareholder ownership model – whose purpose is to maximise financial returns to the shareholders – proved a lethal combination with the financial deregulation, the creation of new financial instruments and the concomitant rising levels of debt over the past 20 years. In a situation of uncertainty and unpredictability, we cannot know which model will prove to be superior in all possible future circumstances, so we ought to be rather cautious before destroying any successful model. The global economy is a complex system, and an important point about complexity is that many complex systems are intrinsically unpredictable, even if we know everything else about them. Thus, the problem is not just that the economic future is uncertain, but that it is fundamentally unpredictable.
... According to Kaushik and Lopez this decline did not mean that credit unions were 'going out of business', but that 'the consolidation of the movement will be a positive force for sustaining credit unions'. 37 Fried et al., however, concluded that approximately half of the acquiring credit unions and a fifth of the acquired credit unions experienced a decline in the efficiency of service following merger. 38 Despite this uncertainty, there is little doubt that the amendment to the common bond by the NCUA was beneficial to the credit union industry. ...
The aim of this paper is to illustrate the importance of an effective financial regulatory agency towards the growth of credit unions. The paper concentrates on regulatory bodies in the USA and Great Britain. The author highlights three regulatory features that have assisted the growth of credit unions in the aforementioned jurisdictions. First, the interpretation of the common bond. Secondly, membership of a credit union compensation scheme. Finally, the rationalisation of credit unions.
... Kaushik and Lopez concluded that 'the consolidation of the movement will be a positive force for sustaining credit unions'. 54 This is a view supported by Fried et al, who argue that mergers were beneficial to credit unions. 55 Hence, it seems clear that the statutory amendment to the common bond assisted the development of credit unions in the USA because there was a reduction in the number of credit union failures, an increase in peoples' confidence in the movement, and a significant increase in membership. ...
Credit unions are financial co-operatives that conduct their business for their members. The principal purpose of a credit union is to receive deposits from and make loans to members. They do not serve the general public. Membership is restricted by a qualification that is referred to as a common bond or field of membership. The origins of credit unions are to be found at the heart of the Industrial Revolution, when Robert Owen established two famous co-operatives in Rochdale and New Lanark. The most prominent co-operative influenced by his ideas, the Rochdale Society of Equitable Pioneers, opened their famous co-operative shop on Toad Lane in 1844. This was an important step in the social and political change that was taking place throughout Europe and of which the people of Rochdale can justifiably claim to be leaders. By 1848, the Co-operative had 140 members and the society's membership increased to 390, by 1880 the national membership of consumer societies had reached over 500 000, and by the turn of the century it had reached 1.5 million. The members of the two co-operatives subscribed to shares and paid small amounts to raise sufficient funds in order to purchase goods below the market value and then resell them to the members at a savings. These co-operatives were the result of the `growing complexities of modern economic life for both farmers and workers'. Importantly, the Rochdale Society of Equitable Pioneers developed a number of principles that have assisted the development of credit unions. These principles were open membership, the democratic control of the organisation, a limited interest on share capital and the return on member's interests being in proportion to the member's patronage. These principles illustrate why credit unions are a unique financial co-operative. Under the guidance of the World Council of Credit Unions, the growth of credit unions has been remarkable. In 2007, there were 49 000 credit unions and 177 000 000 members in 96 countries. The aim of this article is twofold. First, it aims to illustrate how credit unions are able to grow in times of economic hardship - a situation that is demonstrated by examining the impact of the `Great Depression' in the United States of America (USA) and the `Credit Crunch' in the United Kingdom (UK). Second, the article highlights the importance of deposit protection schemes when credit unions face financial difficulties in the USA, UK and the Republic of Ireland (Ireland).
... The credit union movement in Canada today is characterized by some institutions designated as caisse populaire and others referred to as credit unions. It was from Canada that the credit cooperative ideal entered the US, with Desjardins helping organize a caisse populaire in Manchester, New Hampshire for a Franco-American parish (Moody and Fite, 1984; Kaushik and Lopez, 1994). During this time Desjardins met with Pierre Jay, the commissioner of Banks in Massachusetts, and Edward Filene, a Boston merchant, and the American credit union movement was created. ...
In 2009 there were over 49,330 credit unions across 98 countries with more than 184 million members and approximately $1,354 billion in assets. There is a great diversity within the credit union movement across these countries. This reflects the various economic, historic and cultural contexts within which credit unions operate. This paper traces the evolution of the credit union movement. It examines credit union objectives, and considers issues relating to efficiency, technology adoption, product diversification, merger, failure and demutualisation. The regulatory environment within which credit unions operate is also explored under the themes of interest rate regulation, common bond requirements, taxation, deposit insurance and capital regulation. The overview also considers demutualisation and the costs and benefits to credit unions of altering their organisational form.
... At the same time, although many recognise that there is considerable potential for the further development of the credit union movement in Britain and for broadening credit unions' social and geographical bases, there is also uncertainty as to what form this development will take. 4 This has created a space for arguments in favour of transforming the "old" credit union development model into a "new" more inclusive commercial model, perhaps along the lines of a US model, where credit unions operate more like mainstream financial institutions such as banks (see Kaushik and Lopez 1994). ...
In Great Britain, financial infrastructure withdrawal and community economic decline have focused attention on the capacity of locally “alternative” financial institutions to combat social and financial exclusion. This paper examines one such institution, the residential or “community” credit union, which provides a low-cost source of credit for members drawn from a common bond area usually based upon place of residence and/or work. Although community credit unions have traditionally been seen as providing individuals and communities with the opportunity to access credit and savings facilities in areas where there has been contraction in bank and building society provision (the financial “mainstream”), ongoing attempts exist to move away from the traditional role of community credit unions. This transition has set up three main challenges for the British credit union movement, discussed in this paper as follows: (1) a struggle over the attempt to redefine the “model” credit union within the national credit union movement; (2) the changing regulatory context for credit union development, including attempts to embrace credit unions within New Labour policies on social exclusion; and (3) a “local” challenge, including the incorporation of credit unions into community economic development initiatives. The paper considers how these challenges feed into wider understandings about the social relations, categorisation and autonomy of locally “alternative” financial institutions. We argue that future research on geographies of financial inclusion focusing on “alternative” institutions and their relationship to the financial mainstream needs to pay close critical attention to potential contradictions and tensions operating at different, yet intersecting spatial scales.
... Awareness and analysis of such services is now being fruitfully conducted within the new subbranch of economic geography that is financial exclusion (Leyshon and Thrift, 1996), analyses which 'focus upon embeddedness, and upon the inevitable mixing of social and economic relations'. However, aside from their potential within a geography of financial inclusion, most of the credit union literature to date has tended to concentrate upon their economic characteristics (for example Barham et al., 1996; Barron et al., 1994; Desai et al., 1996; Fried et al., 1993; Kaushik and Lopez, 1994; McKillop et al., 1995; Spencer, 1996), and have at best underestimated, and at worst completely ignored, the initial, locally and socially contested processes associated with credit union development at the study group stage (McArthur et al., 1993; Thomas and Balloch, 1992)4. They have concentrated instead on the development issues that have arisen once the credit unions have actually been registered'. ...
For a special edition of Geoforum on socio-spatial exclusion, credit unions unexpectedly have it all—a financial institution currently at the margins of both the economy and society generally, rigid demarcation of boundaries, exclusionary territories and tendencies, power relations, and most excitingly the possibility for a geography of financial inclusion. Whilst most analyses have effectively treated credit unions as unsocial, uncontested spaces of purely economic considerations, this paper enters into the interrelational, and social space of the credit union study group. In so doing, it illustrates two interesting paradoxes at the heart of credit union operations. Firstly, it suggests a number of potential exclusionary effects recent deregulatory legislation has on the demarcation of common bond boundaries. Secondly, it illustrates how common bond boundary construction initiates a purification of financial space, but argues that the act of boundary formation itself is ultimately exclusionary in nature. Awareness of such issues on the part of the credit union development community of Kingston Upon Hull is highlighted through recent changes in the city's overall credit union development strategy.
... The CU industry in the US, since the 1977 change of legislation of the financial services industry, has been affected by a number of forces such as innovation, technology, deregulation and competition. Due to the complex interplay of these forces various types of financial intermediaries with similar functions have been created but, at the same time, a separate and distinct legal and regulatory structure remains (Kaushik and Lopez, 1994). The CU industry has been affected by all these changes as this deregulation was accompanied by the introduction of a less restrictive interpretation of the common bond requirement for membership, which created new opportunities for growth and merger (Goddard et al., 2002). ...
Credit Unions (CUs) are financial co-operatives owned and controlled by their members; in the United States they operate both on state as well as on a national level and are in direct competition with retail high-street banks. In this study we use published data for six key financial figures from ten states in the US and present short to mid-term extrapolations. An Expert Forecasting Support System, selecting via a competition among classic extrapolative techniques, has been employed in order to prepare one-year as well as five-years ahead forecasts. The results surface significant statistical evidence of: (a) merging across CUs, and (b) blooming of all key financial figures.
... For instance, in the 1980s, credit unions were permitted to offer first mortgages and in the late 1990s, credit unions have been allowed to offer membership to multiple groups (Leggett and Strand, 2002; Tripp & Smith, 1993). Following the greater scope of credit unions, they have experienced strong growth (Goddard et al., 2002; Kaushik & Lopez, 1994). Even if families are not credit union members, they may be able to enjoy the benefits of this strong growth since the competition with credit unions seems to have lowered the costs of financial services at banks that directly compete with credit unions (Emmons & Schmid, 2000; Feinberg, 2001; Feinberg & Rahman, 2001 Ely & Robinson, 2001; White, 2002). ...
Over the past few decades, financial markets have become increasingly deregulated and household debt has expanded, sometimes rapidly. It is possible that greater deregulation led to improved credit access--measured by loan denials, discouraged applications, and costs of credit-- for typically underserved groups, such as minorities and low-income families, relative to their counterparts. Data from the Federal Reserve’s Survey of Consumer Finances however, shows no clear trend towards equalization of credit access from 1989 to 2004. While there were some gains by specific groups by certain measures (for example, the gaps in loan denials and discouraged applications improved for Hispanics, relative to Whites), the results indicate that differences in credit access did not decrease on a broad basis during a period of large scale financial deregulation.
... The relaxing of the common bond requirement has, in the view of Kaushik and Lopez (1994), been a key element in the massive expansion of membership of credit unions in the US, which now reaches 25 percent of the population. It is even more important in the economy of Quebec, where the Desjardins Credit Union has about 60 percent of the population as members, is the biggest employer of labour second only to the state, and has just under 50 percent of mortgage holdings (WOCCU, 1994). ...
... They concluded that large banks grow more slowly than small banks thus highlighting that growth is not random but rather is related to bank size. 7 Kaushik et al. (1994), Barron et al. (1994), Reichert et al. (1994), Amburgey et al. (1993) and Barron (1992) have explored other aspects of credit union performance which tangentially has also considered credit union growth. In each case these studies have focused upon US credit unions. ...
This study examines credit union size-growth relationships within the context of Gibrat's law of proportionate effect. This relates to the hypothesis that the growth of each firm in each period is random. The analysis covers the period 1994 to 2000 and is undertaken separately for the United Kingdom (UK) and its regions, Northern Ireland, England & Wales and Scotland. Sample attrition is a characteristic of the data and to avoid the problem of survivorship bias the inverse of the Mill's ratio, obtained from a probit regression for surviving credit unions, is introduced into the estimating relationship. In terms of the empirical results, little evidence emerged to support the law of proportionate effect as a theoretical paradigm. Although not universal, three broad findings emerged. First, small credit unions on average grow faster than their larger counterparts, although there was also some evidence of non-linearity in this relationship. Secondly, growth persistence pertained with credit unions which experienced above average growth (below average growth) in one period, experiencing above average growth (below average growth) in the next. Thirdly, variability of growth was not independent of size with the cross-sectional variance of the error term inversely related to size suggesting that small credit unions have greater growth variability than larger ones. Copyright Blackwell Publishers Ltd, 2005.
This article argues that financial repression played a key role in the emergence of credit unions (CUs) in Costa Rica, along with other institutional factors. Credit unions took advantage of the opportunity to serve borrowers whose requests had been refused by banks. Given the sweeping reforms of the Costa Rican financial system aimed at reducing the scope of financial repression, this article poses the question of how those reforms impacted the competitiveness of CUs. Previous literature suggests that financial reform may lead to concentration in the financial sector, and not to the promotion of a more competitive environment. This article presents data showing that CUs in Costa Rica exhibited an enhanced ability to gain market share and also provides an explanation for the observed trend.
RÉSUMÉ
L’article soutient que la répression financière avec d’autres facteurs institutionnels a joué un rôle clé dans l’émergence des coopératives financières (CF) au Costa Rica. Les CF ont profité de l’occasion pour servir les emprunteurs dont les demandes avaient été refusées par les banques. Compte tenu des réformes radicales du système financier costaricien, visant à réduire l’étendue de la répression financière, l’article pose la question de l’incidence de ces réformes sur la compétitivité des CF. La littérature précédente suggère que la réforme financière peut conduire à une concentration du secteur financier et non à la promotion d’un environnement plus compétitif. Notre article démontre que les CF du Costa Rica présentent une capacité à accroître leurs parts de marché. Nous fournissons une explication de la tendance observée.
The liberalization of product and price competition among depository intermediaries in the United States has tended to make them more similar since enactment of the Depository Institutions Deregulation and Monetary Control Act in 1980 (DIDMCA). Credit unions have developed into highly efficient organizations for meeting the basic financial needs of their members. Credit unions, although only one-twelfth their size, are at least as profitable as commercial banks and savings banks. The savings banking industry has maintained its competitive profitability as the industry has shrunk in the late 1980's and early 1990's. Credit union loan portfolios have grown more rapidly than either commercial banks' or savings institutions‘. Their net interest margins have been above the banks' in recent years. Growth in the equity capital accounts of credit unions has been consistently more than double that of commercial banks since 1985, giving them a substantial advantage with regard to overall “safety and soundness” compared with commercial and savings banks.
We examine the emergence and proliferation of payday lenders, fringe businesses that provide
small short-term, but high-cost loans. We link the organizational dynamics of these businesses
to two trends in consumer lending in the United States: the continuing consolidation of
mainstream financial institutions; and the expansion of such institutions in the provision
of financial services regarded as similar to payday loans. We explain the coexistence in
mature industries of large-scale organizations in the market center and smaller specialists
in the periphery by testing and extending the organizational model of resource partitioning.
Our focus is on two under-examined aspects of the model: the dynamic underlying the
partitioning process, and the conditions under which the market remains partitioned. The
empirical analysis covers payday lenders, banks, and credit unions operating in Wisconsin
between 1994 and 2008.
Credit Unions, with a hundred year history, and Community Development Credit Unions (CDCUs), with a 30–40 year history of serving the under-served, have only recently begun to be recognized by some of the media and the progressive community as “safe havens” and fair lenders. There is little independent, academic research, however, that investigates and evaluates the ways that credit unions are community-rooted and responsive to local needs, and/or their achievements in this area. This paper reports on preliminary qualitative research this author has conducted to help us understand how community development credit unions in Black communities in the U.S. provide affordable financial services, and especially help their clients/members to preserve assets. Major findings include: all CDCUs note that they charge lower rates for their products, and provide higher interest or dividends when possible; both which enable members/customers to save money and build assets. CDCUs work closely with their members to personalize services, to help them avoid loans they cannot afford, and to educate them enough to make sound financial decisions and preserve their assets. Many give some direct options to their members to avoid “payday loans” with check cashing and other predatory lenders. In addition, most CDCUs are deeply involved in their communities, and the bigger ones actually provide donations, encourage their employees to volunteer in the community and are generous employees (creating jobs with benefits and job ladder opportunities). Some are able to help finance affordable housing and contribute to other community economic development projects.
This paper analyzes responses to a recent survey of credit union managers who were asked to provide their views of ethical conflicts and practices within their industry. Results indicate that more than half of credit union managers (60%) have some ethical conflict with their individual customers, and (55%) said that there are ?a few? industry practices that they considered unethical. ?Misleading advertising? and ?honesty in internal communications among coworkers? are the situations that most often generate ethical conflicts. About one third of respondents felt that ethical standards in the credit union profession are lower today compared with those 10 years ago, while another third perceived they are higher. Finally, more than half of respondents (58%) said their institutions have formalized rules and standards. Conclusions and implications are outlined and future research needs are described.
The credit union industry has been consolidating for more than a quarter century, as well as broadening and diversifying its product and service offerings. In this period the operating performance and internal structure of the industry has been evolving in a number of ways. This study examines the changing chartering patterns of credit unions between state and federal. The number of credit unions, the number of members, and the assets held by credit unions in each of these categories have been growing at different rates. We examine these patterns of development and project the expected changes in structure through the year 2010.
The effects of loan to asset ratio, investment to asset ratio, management composition and delinquency rate on income to asset ratio of low income credit unions (LICUs) were evaluated. Specific attention was given to risk income behaviours of LICUs. It was found that loan to asset ratio positively influenced the magnitude of income to asset ratio, while the investment to asset ratio had a negative effect on the income to asset ratio. LICUs that employed managers had higher incomes to asset ratios than those with volunteer managers serving in this capacity. The delinquency rate and income to asset ratio were positively related, but negatively related to delinquency rate squared indicating that when the delinquency rate increased at an increasing rate the income to asset ratio fell. LICUs portrayed three risk behavioural patterns, each associated with size or income of the organization: (1) small LICUs had high risk behaviour, (2) middle income LICUs were risk neutral, and (3) large LICUs accepted higher risks as income increased. Copyright 2001 by Taylor and Francis Group
This article questions the findings of several studies which have concluded that the Credit Unions Act 1979 was a factor limiting
the growth of credit unions in the United Kingdom (UK). The author’s conclusions are based upon an analysis of the amendments
to the Credit Unions Act 1979 introduced by the Financial Services Authority (FSA). As a result, the 1979 Act now reciprocates
the controversial, yet flexible United States (US) legislative framework. In particular, the article examines the interpretation
of the common bond, the provision of financial services and the regulation of credit unions. The article concludes that these
three statutory provisions have assisted the growth of credit unions in both countries and not limited their development.
However, the growth of credit unions has come, at the expense of their unique status and philosophy. It has made US credit
unions, in particular, indistinguishable from banks. This is a problem which may affect credit unions in the UK. The article
concludes that the Credit Unions Act 1979 did not limit their development, but acted as a galvanising factor for credit union
expansion.
An econometric analysis of the growth performance of US credit unions for the period 1992-2001 investigates empirical relationships between size, age and growth. Ceteris paribus larger credit unions grew faster than smaller unions. State credit unions grew faster than federal credit unions, and single bond credit unions grew faster than multiple bond credit unions. The size-growth gradients were generally steeper for state than for federal credit unions, and for single bond than for multiple bond credit unions. These patterns are attributed to variations in legislation and regulatory treatment. There is some evidence that younger credit unions tended to outgrow older ones. This seems consistent with a life cycle typology of credit union growth and development. There is also evidence of a positive persistence of growth effect. The cross-sectional variance of growth is inversely related to size, but is largely independent of age. Copyright CIRIEC, 2005.
What impacts would minimum capital requirements have on mutual institutions lacking the ability to raise equity capital? Can the response of credit unions to capital controls be explained by internal member bonding? The imposition of capital controls on credit unions by the Australian Financial Institutions Commission is studied as a Box-Tiao time series quasi-experiment. Time series intervention and trend analyses are performed on a sample of 150 credit unions over the period 1987 to 1997, together with cross-sectional regressions of the estimated responses. The results demonstrate that the capital controls had a significant impact on credit union behavior. Consistent with theoretical expectations, the response of individual credit unions is found to be a function of initial capital levels and internal member bonding. Copyright CIRIEC, 2005.
The purpose of this paper is to analyse the effect of deregulation and enhanced competition on the costs and performance of large credit unions. Using a sample of large credit unions over the period 1979 through to 1985, we find no evidence that credit unions' average costs have risen, nor do we find evidence that credit unions have suffered adverse changes in operating margins. Large credit unions not only compete with other depository institutions, but appear to have responded well in the newly competitive environment.
This paper presents a model of credit union loan and deposit rate setting when net income flows are uncertain and subj ect to taxation. Optimal rates are chosen to maximize the expected va lue of a performance measure based on a comparison of the credit unio n's rates to alternative rates, subject to a probabilistic constraint on the net change in capital reserves relative to a capital adequacy standard. Taxation will alter the end-of-period trade-off between th e change in capital reserves and the immediate distribution of surplu s, and would likely affect credit unions in a nonuniform manner and p erhaps be regressive in nature. Copyright 1988 by Ohio State University Press.
At year end 1979, there were 12,738 Federal and 4,769 state chartered federally insured credit unions in the United States. Their assets were 18.5 billion, respectively. The industry was the fastest growing of all financial intermediaries during the early to mid-1970s. Factors contributing to a growth rate of 18 percent from 1970 to 1978 were the absence of Regulation Q restrictions on CU dividend rates, tax exempt status of CUs, the advent of share insurance in 1970 and the impact of sponsor subsidies. However, during 1979, federal credit union savings grew by only 2.4%, which was more than 85% lower than in the preceding year and was the slowest annual growth rate on record. Indeed, since 1977, federal credit unions have gone from the fastest growing to the second slowest growing type of depository institution. The reason for the changes in credit unions will be discussed after this section which provides background information on the structure of the industry. That structure has, historically led to a reduction in risk. The basic components of that structure are common bond and sponsorship.' Common Bond Credit unions are unique financial depository institutions in that they are consumer cooperatives and are limited to serving the market for consumer credit and savings. Generally, these institutions cannot do business with the general public due to charter limitations based on serving a membership that is characterized by a common bond. The common bond is based on occupation, association or residence. The only exceptions are generally found under state law and apply to state chartered institutions. The common bond restriction on credit union membership is assumed to reduce the cost of gathering credit information, reducing bad debt losses and manifests * National Credit Union Administration. The views expressed herein are those of the authors and do not necessarily reflect those of the National Credit Union Administration. ' An extensive review of the history of credit unions and the institutional structure is found in
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