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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.

Suggested Citation

  • Robert M. Feinberg & A.F.M. Ataur Rahman, 2006. "Are Credit Unions Just Small Banks? Determinants of Loan Rates in Local Consumer Lending Markets," Eastern Economic Journal, Eastern Economic Association, vol. 32(4), pages 647-659, Fall.
    • Handle: RePEc:eej:eeconj:v:32:y:2006:i:4:p:647-659
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    References listed on IDEAS

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    Cited by:

    1. Walke, Adam G. & Fullerton, Thomas M. & Tokle, Robert J., 2018. "Risk-based loan pricing consequences for credit unions," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 105-119.
    2. Goddard, John & McKillop, Donal G. & Wilson, John O.S., 2023. "Who consumes the credit union subsidies?," Journal of Financial Stability, Elsevier, vol. 69(C).
    3. Gregory E. Elliehausen & Simona Hannon & Thomas W. Miller, Jr., 2021. "A New Look at the Effects of the Interest Rate Ceiling in Arkansas," Finance and Economics Discussion Series 2021-045r1, Board of Governors of the Federal Reserve System (U.S.), revised 05 May 2023.
    4. Yamin Ahmad & Russell Kashian, 2010. "Modeling the time to an initial public offering: When does the fruit ripen?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(4), pages 391-414, October.
    5. Thomas M. Fullerton & Robert J. Tokle & Bryce Jones & Steven L. Fullerton, 2023. "Does Rocky Mountain Credit Union Competition still Affect Commercial Bank Interest Rates?," Journal of Regional Economics, Anser Press, vol. 2(1), pages 42-52, September.
    6. Jordan van Rijn & Shuwei Zeng & Paul Hellman, 2021. "Financial institution objectives and auto loan pricing: Evidence from the survey of consumer finances," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(3), pages 995-1039, September.

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