Credit Unions as Liquidity Creators

30 Pages Posted: 26 Sep 2011 Last revised: 7 Jan 2012

See all articles by Elisabeta Pana

Elisabeta Pana

Central Connecticut State University

Tarun K. Mukherjee

University of New Orleans


This paper examines the level and the main determinants of liquidity created by credit unions. The contribution of credit unions to the aggregate liquidity created by the financial system has increased over time from $206 billion in 2000 to $318 billion in 2008. We document a negative relationship between the level of capital and liquidity created by credit unions across all size classes. Liquidity creation is positively related to the level of deposit insurance for medium credit unions and for credit unions with no special credit and borrowing agreements and negatively related to deposit insurance for a sample of large credit unions and for credit unions with special credit and borrowing agreements. The evidence suggests that credit unions’ decision to substitute insured funds with funds obtained through special credit and borrowing agreements alters the traditional role played by deposit insurance on liquidity creation.

Keywords: Liquidity creation; Capital structure; Deposit insurance

JEL Classification: G21, G28, and G32

Suggested Citation

Pana, Elisabeta and Mukherjee, Tarun K., Credit Unions as Liquidity Creators. Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: or

Elisabeta Pana (Contact Author)

Central Connecticut State University ( email )

1615 Stanley Street
New Britain, CT 06050
United States

Tarun K. Mukherjee

University of New Orleans ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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