Financial Stability: Credit Unions vs Banks

Withstanding a Financial Firestorm: Credit Unions vs Banks

Here is a nice piece of work from the Filene Research Institute on a comparison of Banks and Credit Unions’ financial stability in the context of the financial crisis.  A number if interesting findings emerge

  1. There is quantifiable correlation between unemployment and bank lending: With every one percentage point rise in unemployment, bank lending growth declined 1.15 percentage points.
  2. Conversely, credit union lending does not correlate in a statistically significant way with the unemployment cycle. In other words, credit union lending seems to continue apace, even during downturns.

They argue these findings suggest: Credit unions are less sensitive to the business cycle than banks. Both certainly suffer when unemployment rises, but the trajectory and magnitude of delinquencies and charge-offs at banks— especially during the latest downturn—are much more pronounced. Because credit unions appear to be about 75% as sensitive to macroeconomic shocks as banks, regulators should consider imposing lower capital requirements to account for the lower risk.   More open charters do not seem to have made credit unions more risky. Despite gradual moves away from closed charters following the passage of the Membership Access Act, credit unions in general seem to have retained conservative portfolio strategies.  

Here is Bob Rogers, Research Director of the Filene Research Institue, summarising the findings:

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