Do credit unions have distinct objectives? Evidence from executive compensation structures

Credit unions compete directly with commercial banks in markets for consumer financial services yet receive an exemption from federal corporate income tax. Commercial banks claim that credit unions are no different than banks and that the credit union tax exemption represents an unfair competitive advantage. Credit unions counter that while they offer similar products and services, they differ from commercial banks in terms of structure and mission, given their not-for-profit, cooperative status. In this paper, we test for substantive differences in the objective functions of commercial banks and nonprofit credit unions by comparing CEO compensation structures. Drawing on the relevant principal–agent literature, we provide several arguments to support the hypotheses that credit union boards of directors establish lower-powered incentive contracts with their CEOs relative to similarly sized commercial banks, and offer lower total compensation. We find that credit union CEOs receive approximately 250% less performance-based compensation relative to CEOs of similarly sized community banks. Bank CEOs also earn approximately 15% to 20% more total compensation on average. The results are generally robust to controlling for CEO- and board-level characteristics, local economic conditions, and institution-level indicators of size, growth, complexity, liquidity and risk. The findings suggest important differences in incentive structures and objectives between banks and credit unions.     

CUSTOMER‐OWNED BANKING IN AUSTRALIA: FROM CREDIT UNION TO MUTUAL BANK

Since the 1990s financial sector regulation in Australia has treated credit unions and building societies the same as banks under the designated title of authorized depository institutions. This allows credit unions to choose between different organizational structures: cooperative; convert to customer‐owned banks or to demutualize. This article utilizes semi‐structured interviews to analyse the key motivations for organizational change. It examines a number of credit unions and their conversion experience to customer‐owned banks. It finds that adaptation of the credit union model was necessary to change customer perceptions, ensure future growth in the customer base and assets, and facilitate access to capital raisings with the credit rating of a bank. Despite this change customer‐owned banks retain the core principals of mutuality.     

民国时期县银行的变迁、缺陷及启示

民国时期的县银行在抗战爆发前及抗战期间有过辅助县域经济发展的作用,但县银行也存在资本薄弱、信用不稳固、营业区域狭小、业务难发展、未能专注于服务三农、监管难度大、经营风险及脆弱性高等问题,其经营实绩不尽人意。审视民国县银行由盛转衰的史迹及其弊端,总结其原因,有助于中国政府重组现阶段的县域金融中介体系,发展农村金融、支持和均衡县域经济发展。     

An Examination of Borrower Orientation and Scale Effects in UK Credit Unions

At present there are 597 credit unions operating within the UK with their growth, be it defined in term of new credit union establishment, asset growth or membership growth, placing them as the fasting growing financial grouping in the UK over this last decade.
The fundamental motivation of a credit union is to provide financial services to its membership, in particular a depository for savings and an access to consumer credit. As a practical problem there are, however, a number of reasons why credit unions may achieve a less than perfect balance in the treatment of borrowers and savers. For example, maintaining low loan rates may reduce the credit union's ability to offer high dividend rates while the maintenance of high dividend rates may require higher loan rates. Consequently, the competing pull of these two objectives may result in the emergence of conflict between those credit union members who on the one hand are net savers and those that are net borrowers. If such conflict does emerge it is then likely to place in jeopardy other aspects of a credit union's function most notably their role as financial counsellors and promoters of thrift within low income communities.
The approach taken in this study is to derive an index of member group imbalance and then to employ this index to determine whether member group imbalance has an adverse impact upon the generation of total benefits by individual credit unions. The analysis demonstrates that there is a strong pro-borrower bias in the operation of UK credit unions with this pro-borrower bias driven by the regulatory environment within which they operate.     

CREDIT UNION MEMBER GROUP DOMINATION UNDER HIGH INTEREST RATE ENVIRONMENTS

Theoretical models for credit unions advocate that such organizations should pursue a neutral orientation in order to accommodate the conflicting interests of borrower members, who seek lower interest rates, and saver members, who look for higher returns on their savings. However, there is a lack of empirical support for such neutrality in high interest rate environments. This is because under such conditions, credit unions could accomplish their social mission by providing microcredit at a lower interest rate to local communities, thus becoming more borrower‐dominated. This paper investigates the member group domination of credit unions in Brazil, a country known for its high interest rates, and finds that the majority of credit unions (78.34%) are borrower‐dominated. This behavior becomes more pronounced when local interest rates rise, contradicting the predictions of neutrality‐seeking models. A percentage increase in the interest rate, increases about 5 times the likelihood of a CU becoming extreme borrower‐dominated. Besides interest rates, age, lower size, capital and lower efficiency of the credit unions are the main determinants of borrower domination.     

Credit Unions and the Supply of Insurance to Low Income Households

Abstract ** :  Credit unions are typically viewed as financial intermediaries that differ from commercial banks only in terms of their institutional structure. This ignores their historical development as mutual self‐help societies. The distinctive feature of a credit union is taken in this paper to be the provision of insurance – membership gives access to credit in the event of a negative income shock. Banks do not provide such loans because of the low credit worthiness of such borrowers. The application of the model to those credit unions designated as low‐income in the US allows them to be broken up into distinct types .     

CREDIT UNIONS AS CONDUITS FOR MICROFINANCE DELIVERY IN CAMEROON

While financial inclusion is the buzzword now, especially in development finance studies, research on the role of credit unions in the financial inclusion debate in the global South is sparse. This study helps to fill this gap by analyzing the role credit unions play in the delivery of financial services to the ‘unbankables’. We analyze the strategies used by credit unions to reach the unbankables. We show how credit unions have been able to attract new members and offer a variety of financial services through linkages with informal savings and credit clubs, and by using domestic remittance services to build relationships.     

The role of fractional-reserve banking in amplifying credit booms: Evidence from panel data

The Review of Austrian Economics - I use panel data on 20 countries to analyze the links between savings (defined as time deposits and savings accounts) and credit extended by banks. Credit growth...     

US Credit Unions: An Empirical Investigation of Size, Age and Growth

Abstract ** :  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 .     

The intraday liquidity management game

We use a game theoretical framework to analyze the intraday behavior of banks with respect to settlement of interbank claims in a real-time gross settlement setting. The game played by banks depends upon the intraday credit policy of the central bank and it encompasses two well-known game theoretical paradigms: the prisoner's dilemma and the stag hunt. The former arises in a collateralized credit regime where banks have an incentive to postpone payments when daylight liquidity is costly, an outcome that is socially inefficient. The latter arises in a priced credit regime where the postponement of payments can be socially efficient. Banks are risk neutral, but we show that most of the results are unaffected by risk aversion.     

Dual Financial Systems and Inequalities in Economic Development

This paper analyzes the emergence and the evolution of a modern banking system, in a developing economy where banks coexist with informal credit institutions. Banks have a superior ability in mobilizing savings while informal lenders enjoy a superior information on borrowers. More specifically, banks cannot observe perfectly the behavior of borrowers; therefore the latter need to provide collateral assets in order to obtain bank loans. Physical collateral is not needed to borrow in the informal credit market: informal lenders can rely on social networks to obtain information on borrowers' behavior and invoke social sanctions to enforce repayment. The sustained growth path is associated with the successful development of the banking system that gathers savings on a large scale. However, informal lenders and other traditional credit institutions are necessary in the first stage of development when collateral is scarce. In this economy, the development of modern financial intermediaries is closely associated with the accumulation of collateral assets by entrepreneurs. This implies that the initial level of development as well as the initial distribution of wealth will determine the joint evolution of the real side of the economy and the financial system. Under certain conditions, two long-run steady-state equilibria exist: in the first one the economy stops growing and the banking system never successfully develops; in the second one the economy reaches a sustained growth rate and the informal sector asymptotically vanishes. The impact of the following policies is discussed: financial repression, micro-credit institutions and redistribution of assets.     

SOME NEW EVIDENCE ON COMPETITION IN PAYDAY LENDING MARKETS

A critical question in the policy debate about payday lending is whether other financial institutions can plausibly provide attractive and lower‐priced substitutes for standard payday loans. I present several new pieces of evidence addressing the question, focusing on whether credit unions, which are often held as the strongest potential competitors to payday lenders, do (or might) viably compete in the payday loan market. National payday loan offerings by credit unions show that very few credit unions currently offer payday loans. Credit union industry reports suggest that those credit unions offering such loans seem unwilling or unable to undercut substantially the prevailing prices set by payday lenders. Those industry reports also reveal that lower‐priced credit union loans generally ration riskier borrowers out of the market by imposing greater restrictions on approval and repayment; risk‐adjusted prices for credit union payday loans may not be lower at all. Survey evidence suggests that most current payday borrowers prefer higher‐priced but less restrictive standard payday loans to lower‐priced but more restrictive alternatives offered by credit unions. The combined demand‐ and supply‐side evidence suggests that one should not expect credit unions (or by extension banks) to offer lower‐priced, higher‐quality alternatives for consumers who currently use payday loans. (JEL G2, L0, L5)     

DIFFERENCES IN PORTUGUESE CREDIT INSTITUTIONS' LENDING AND INVESTMENT BEHAVIOUR IN A TIME OF SLUMP

The purpose of this paper is to investigate the influence of the different property rights models of credit institutions (public, private, cooperative or mutual) in their credit policy and investment behaviour and in response to the current crisis and regulatory framework adjustments. Taking Portuguese credit institutions as the object, it concludes that overall banks’ business models are qualitatively identical and their lending and investment behaviours are similar, except for the saver profile of cooperative banks and the deeper focus on loans to customers to the detriment of financial investments of the mutual savings banks. Moreover, the reactions to the crisis were equivalent, except for the state‐owned banks, which presented the most favourable reaction, albeit not deep enough to be significant.     

THE EMPLOYMENT STRUCTURE OF COOPERATIVE BANKS – A TEST OF INSTITUTIONAL HYPOTHESES

We study the claim that, because of their institutional design, current cooperative banks differ in their employment decisions compared to other conventional banks. The success of cooperative banks in the past was grounded on efficiency advantages generated through peer‐monitoring, social sanctions, and institutional trust. Institutional economic theory and anecdotal historical evidence suggest that these core institutional mechanisms also had an effect on the employment structure of early credit cooperatives. By examining the employment structure of current cooperative banks, we aim to provide insights to the question of how and to what extent original institutional mechanisms of credit cooperatives may still be functional. We use administrative establishment data from Germany and compare employment structures of banks by legal form. The results indicate that cooperative banks in comparison with otherwise similar private and savings banks are characterized by more stable employment, an older workforce, more extensive training activities, and a more homogeneous composition of employees.     

Securitization and regulatory arbitrage within the ABCT framework

This paper discusses the consequences of securitization and how it links to the Austrian Business Cycle Theory (ABCT). The argument that securitization is behind fiduciary credit expansion preceding the 2008 crisis is incomplete. Consolidated balance sheet analysis demonstrates that securitization per se actually sterilizes the inflationary effect of previous fiduciary credits by transforming them into credits backed by voluntary savings. This sterilization stage is subsequently followed by new fiduciary credits issuance as securitization creates excess reserves and excess capital for banks. However, when securitization is used as a tool to implement arbitrage strategies of the Basel prudential rules, it enables banks to create more fiduciary credit while time preference remains unchanged. This creates the conditions for business cycle amplification.     

商业银行信用卡交叉营销管理探索

随着国内银行信用卡业务竞争的进一步加剧,传统营销方式的效率已经不能满足业务发展的需要,各家银行都积极尝试零售业务的战略转型,探索新的营销运作模式。实施信用卡交叉营销,由于可以充分利用客户资源,降低营销成本,成为商业银行加快结构转型,提升核心竞争力的必然选择。但由于信用卡业务自身特点的限制,国内商业银行信用卡交叉营销还存在不少问题,需要从内部机制、客户、渠道、产品等多个方面入手加强交叉营销的管理。     

Paired difference analysis of size economies in UK credit unions

This study utilizes a paired difference approach to investigate for the existence of scale economies in UK credit unions. The analysis is conducted for both credit unions in aggregate as well as a number of sub-groups with the latter defined in terms of the trade organization to which credit unions are affiliated. This decomposition was viewed as particularly important in that the respective umbrella organizations have different growth strategies. The analysis revealed that significant efficiency gains are available through credit unions adopting a policy of asset growth. This finding held good irrespective of the umbrella organization to which credit unions belong although the analysis also revealed that the opportunity for efficiency gains was not so pronounced for the members of one of the trade organizations - the National Federation of Credit Unions. This finding was due to the NFCU's much more overt emphasis on self-help and community development, particularly in areas of economic disadvantage.     

路径依赖下民营金融发展的国际比较——以美国社区银行和日本农村合作金融的发展为例

社区银行是美国银行体系的重要组成部分;农村合作金融组织在日本开展得非常成功.它们都服务于经济体中的弱势群体,自身都不存在规模优势,但是由于其准确的市场定位和比较优势的充分发挥,以及一系列法律和制度配套体系的支撑,在大银行林立的高度竞争环境下,积累生存能力,扩大生存空间.学习、借鉴它们的成功经验,对于拓宽目前我国城市商业银行和农村信用社的改革思路具有指导意义.     

Labour unions and global bank loan market

This article attempts to collect a data set of labour unions in global 500 biggest banks and investigate whether labour unions of banks influence the designing of bank loan contracts. We use global syndicate loan market to examine this issue. For simplicity, banks with and without labour unions are referred to as ‘unionized banks’ and ‘nonunionized banks’, respectively. We find that unionized banks tend to loosen their lending standard in the bank loan contract: unionized banks are more likely to charge lower loan spread and favourable nonprice terms compared with nonunionized banks. Hence, our results support that unionized banks tend to lend more loans to reduce the negative effect of labour unions.     

Typologie des coopératives de crédit espagnoles par la méthode des groupes stratégiques. Une étude empirique

The objective is to apply the Strategic Groups approach to the sub-sector of credit cooperatives, organizations on which Strategic Groups analysis has not been applied yet although they are part of the banking sector. Therefore taking into account the theoretical arguments presented on SG, the authors apply them according to the following stages: identification of the group of banking organizations composing the object of the study (in this case, credit cooperatives) while analysing their main characteristics; choice of the subset of banking organizations forming the analysed sample; determination of key strategic variables to define credit cooperatives' strategies; and application of the research methodology using factorial Analysis in conjunction with Cluster Analysis, in order to identify the strategic groups forming the subset of credit cooperatives in Spain. Contrarily to what happened in other European countries where cooperative banks have an important place in the banking system, the strategic divergences between the different types of credit cooperatives hinder the integration of this sector in Spain. This strategic weakness calls for adoption of cooperation strategies by the different types of existing credit cooperatives.