The Impact of Firm Objectives on Lending: Banks and Credit Unions in the Great Recession
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.
Banks, Credit unions, Firm objectives, Cooperatives, Credit supply in recessions
SMU Cox: Finance (Topic)