Social Preference and Group Identity in the Financial Cooperative
University of Zurich, Department of Economics, Working Paper No. 332, August 2019
42 Pages Posted: 21 Sep 2019
Date Written: August 28, 2019
We model the financial cooperative as an optimal institution sharing liquidity risks among agents with social preference and group identity. Stronger social concerns imply objectively better (worse) conditions for borrowers (depositors). Testing the model, we find that, indeed, deposit and loan rates offered by U.S. credit unions between 1995 and 2014 co-moved with (i) the number of members, and (ii) the common bond. Our theory explains how cooperatives coexist with banks, and why they have tended to be more resilient. However, the analysis also suggests that financial inclusion and advantages in resilience might quickly evaporate as membership requirements get diluted.
Keywords: social preferences, group identity, liquidity insurance, cooperative banking, credit union, common bond, bank competition, resilience
JEL Classification: G21, D91, L31, G28
Suggested Citation: Suggested Citation