Who Consumes the Credit Union Subsidies?

70 Pages Posted: 2 Aug 2019 Last revised: 9 Jun 2022

See all articles by Robert DeYoung

Robert DeYoung

University of Kansas School of Business

John Goddard

Bangor Business School

Donal G. McKillop

Queen's University Management School

John O. S. Wilson

University of St. Andrews

Date Written: May 10, 2022

Abstract

We estimate a structural profit model for 956 matched pairs of US credit unions and commercial banks, using the results to examine how the subsidies associated with credit unions’ income tax exemptions and non-profit status are allocated across various stakeholders. We find economically large profit inefficiencies at credit unions relative to banks—a little more than half of which is supported by their tax subsidy, but over 90 percent of which is passed through to credit union members as above-market deposit interest rates. Given extensive evidence collected elsewhere that credit union members tend to earn above-average incomes, our results indicate a serious misalignment between the legislation that establishes the credit union mission (a tax exemption in exchange for meeting the credit and savings needs of consumers, especially those of modest means) and the actual performance of credit unions under that legislation.

Keywords: Commercial banks, credit unions, profit inefficiency, tax exempt status

JEL Classification: G21, G28

Suggested Citation

DeYoung, Robert and Goddard, John and McKillop, Donal G. and Wilson, John O. S., Who Consumes the Credit Union Subsidies? (May 10, 2022). QMS Research Paper 2022/03, Available at SSRN: https://ssrn.com/abstract=3429208 or http://dx.doi.org/10.2139/ssrn.3429208

Robert DeYoung (Contact Author)

University of Kansas School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-1806 (Phone)

John Goddard

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Donal G. McKillop

Queen's University Management School ( email )

25 University Square
Belfast, Northern Ireland BT7 1NN
Northern Ireland

John O. S. Wilson

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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