Credit Union and Bank Subprime Lending in the Great Recession

The Review of Corporate Finance Studies

59 Pages Posted: 23 Dec 2019 Last revised: 19 Apr 2022

See all articles by Jordan van Rijn

Jordan van Rijn

University of Wisconsin - Madison - Agricultural and Applied Economics; Center for Financial Security

Kangli Li

Federal Home Loan Mortgage Corporation (FHLMC); University of Wisconsin-Madison; Credit Union National Association

Date Written: January 19, 2022

Abstract

Firm structure affects incentives and performance. We document significant differences in subprime lending between banks and credit unions prior to and during the Great Recession. During this period, the share of subprime mortgages issued by banks increased 7.2 percentage points more than credit unions. Moreover, banks were more likely to fail, had higher delinquency ratios, and had higher net charge-off ratios immediately following the crisis. Our empirical models control for important differences between credit unions and banks including firm characteristics, borrower characteristics and state-level economic conditions. We argue that the remaining difference captures the effects of credit unions' nonprofit and cooperative structure which induces them to internalize the utility of their customer-owners. Our findings explain why credit unions often appear more risk averse relative to commercial banks, which has important implications for researchers, policymakers, and regulators.

Keywords: Financial institutions, credit unions, cooperatives, risk management, financial crisis

JEL Classification: G01, G21, G23

Suggested Citation

van Rijn, Jordan and Li, Kangli, Credit Union and Bank Subprime Lending in the Great Recession (January 19, 2022). The Review of Corporate Finance Studies, Available at SSRN: https://ssrn.com/abstract=3506873 or http://dx.doi.org/10.2139/ssrn.3506873

Jordan Van Rijn (Contact Author)

University of Wisconsin - Madison - Agricultural and Applied Economics ( email )

427 Lorch St.
Madison, WI 53706
United States

HOME PAGE: http://https://aae.wisc.edu/staff/vanrijn/

Center for Financial Security ( email )

Madison, WI
United States

HOME PAGE: http://https://cfs.wisc.edu/2018/09/26/jordan-van-rijn/

Kangli Li

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States

University of Wisconsin-Madison ( email )

426 Lorch Ct
Madison, WI 53705
United States

Credit Union National Association ( email )

5710 Mineral Point Rd
Madison, WI 53705
United States

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