Credit unions vs. commercial banks, who takes more risk?

Christine Naaman, Michel Magnan, Ahmad Hammami and Yao Li

Research in International Business and Finance, 2021, vol. 55, issue C

Abstract: A unique feature of the financial services industry is that both shareholder-owned banks and member-owned credit unions coexist and compete against each other. In this study, we investigate two research questions. First, we compare risk-taking by banks and credit unions, with an additional consideration as to how regulatory oversight (state or federal) relates to such risk-taking. Second, we examine how competition affects the difference in risk-taking between these two types of financial institutions. To answer both questions, we rely on a matched sample (by loan type, size, and county) of commercial banks and credit unions, covering the period between 2010 and 2017. We use three empirical proxies for risk-taking, the Z-score, measuring an institution’s insolvency risk, as well as the ratios of non-performing loans to total loans and loan charge-offs to total loans, measuring the credit risk. Our results suggest that banks tend to engage in more risk-taking than credit unions; however, state regulatory oversight reduces the risk-taking gap, especially in terms of the Z-score. We further find that competition induces different risk-taking behaviors in banks and credit unions. Our results are robust to several alternative specifications.

Keywords: Credit unions; Banks; Risk-taking; Competition; Stability (search for similar items in EconPapers)
JEL-codes: G20 G21 G23 G28 L33 M40 M41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:55:y:2021:i:c:s027553192030948x

DOI: 10.1016/j.ribaf.2020.101340

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