The Impact of Objectives on Firm Decisions: Bank and Credit Union Lending in the Great Recession
57 Pages Posted: 8 Nov 2018 Last revised: 18 Dec 2018
Date Written: November 8, 2018
Credit unions lent significantly more than profit-maximizing banks during the Great Recession. Loan growth rates were higher for the $1.3 trillion 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 non-profit objectives precluded the slow economic recovery of credit unions after the financial crisis.
Keywords: Banking, Financial institutions, Firm objectives, Household finance, Great Recession, Credit supply
JEL Classification: D22, G01, G21, L21, L33, P13
Suggested Citation: Suggested Citation