Title

The Impact of Firm Objectives on Lending: Banks and Credit Unions in the Great Recession

Publication Date

8-24-2018

Abstract

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.

Document Type

Article

Keywords

Banks, Credit unions, Firm objectives, Cooperatives, Credit supply in recessions

Disciplines

Finance

DOI

10.2139/ssrn.3231614

Source

SMU Cox: Finance (Topic)

Language

English

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