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Competition, Deregulation and the Fortunes of Credit Unions

This report examines the competitive effect of commercial and savings banks, savings and loan associations, and money-market mutual funds on the credit union movement.

Executive Summary

The second report by the research team of David Barron, Elizabeth West, and Michael Hannan investigates the development of credit unions over time by focusing on organizational processes that shaped and continue to influence the evolution of credit unions. They use the theoretical perspective of organizational ecology to further our understanding of the factors that affect the founding and failure rates of credit unions and the various forms that credit unions take. 

What is this research about?

The research team looks at evidence of competition between credit unions and other financial institutions, changes in the last twenty to thirty years that have eroded traditional boundaries between the various depository institutions, and the effects of competition from 1960 to 1990 at a system-level.

They also build a model of the system of depository institutions to investigate credit unions’ competitive interactions with other types of deposit institutions and the extent to which competition has intensified in the era of deregulation.

What are the credit union implications? 

Although competition, by definition, has negative consequences for individual organization—increasing their risk of failure and stunting their growth—the restructuring of the financial-services industry might benefit from the credit union movement as a whole. System-level instability could increase the opportunities for credit unions to grow by increasing their market share at the expense of other financial-service institutions. On the other hand, the same systemic changes could be increasing the risks faced by individual credit unions. In other words, financial-service industry restructuring might represent an occasion for credit unions to expand their niche in terms of the size of their aggregate asset holdings or this benefit might accrue to just a few individual organizations.

This report is sponsored by the National Science Foundation and the Stanford Graduate School of Business.