Membership growth, multiple membership groups and agency control at credit unions

Keith J Leggett and Robert W Strand

Review of Financial Economics, 2002, vol. 11, issue 1, 37-46

Abstract: Starting in 1982, the federal credit union regulator allowed credit unions to add multiple membership groups. The policy was disallowed by the U.S. Supreme Court in 1998, but revalidated by the U.S. Congress later that year. Allowing credit unions to attach multiple membership groups has contributed significantly to rapid growth in the industry. As credit unions add unrelated groups and expand, the prospects for separation between ownership and control increases, creating potential agency control problems. This potential is compounded by the one member, one vote governance structure of credit unions. This research finds empirical evidence that agency problems grow as credit unions add membership groups and members. If a credit union takes on more than one membership group, and as membership increases, management is apparently able to channel residual earnings away from members (in the form of higher net interest margins) toward itself (higher salaries and operating expenses).

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:11:y:2002:i:1:p:37-46

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