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
Date Written: January 19, 2022
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: Suggested Citation