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Are Credit Unions Just Small Banks? Determinants of Loan Rates in Local Consumer Lending Markets

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  • Robert M. Feinberg

    ()
    (American University)

  • A.F.M. Ataur Rahman

    (North-South University)

Abstract

Only recently have studies of banking markets paid attention to the potential competitive discipline provided by credit unions on consumer loan rates. However, an unresolved issue is the extent to which credit unions are substitutable for banks. We analyze a combined sample of 100 banks and 187 credit union in 68 U.S. markets observed quarterly over the 1992-1998 period, to explain loan rates for two types of consumer loans. Our results suggest that, even after controlling for market shares and deposit sizes of institutions, credit unions charge their members significantly lower interest rates on loans than do banks. Furthermore, an examination of the pattern of responses to lagged interest rates yields an indication of greater inertia in rate-setting by credit unions than by banks.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume32/V32N4P647_659.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 32 (2006)
Issue (Month): 4 (Fall)
Pages: 647-659

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Handle: RePEc:eej:eeconj:v:32:y:2006:i:4:p:647-659

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Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
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  1. Dean F. Amel & Martha Starr-McCluer, 2001. "Market definition in banking: recent evidence," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-16, Board of Governors of the Federal Reserve System (U.S.).
  2. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1816, Harvard - Institute of Economic Research.
  3. Hannan, Timothy H. & Prager, Robin A., 2004. "The competitive implications of multimarket bank branching," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(8), pages 1889-1914, August.
  4. Navratil, Frank J, 1981. "An Aggregate Model of the Credit Union Industry," Journal of Finance, American Finance Association, American Finance Association, vol. 36(2), pages 539-49, May.
  5. Katerina Simons & Joanna Stavins, 1998. "Has antitrust policy in banking become obsolete?," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Mar, pages 13-26.
  6. Feinberg, Robert M, 1985. ""Sales-at-Risk": A Test of the Mutual Forebearance Theory of Conglomerate Behavior," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 58(2), pages 225-41, April.
  7. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  8. William R. Emmons & Frank A. Schmid, 2000. "Bank competition and concentration: do credit unions matter?," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue May, pages 29-42.
  9. Feinberg, Robert M. & Rahman, A. F. M. Ataur, 2001. "A causality test of the relationship between bank and credit union lending rates in local markets," Economics Letters, Elsevier, Elsevier, vol. 71(2), pages 271-275, May.
  10. Gilbert, R Alton, 1984. "Bank Market Structure and Competition: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 16(4), pages 617-44, November.
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Cited by:
  1. Yamin Ahmad & Russell Kashian, 2010. "Modeling the time to an initial public offering: When does the fruit ripen?," Journal of Economics and Finance, Springer, Springer, vol. 34(4), pages 391-414, October.

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