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Wages and risk-taking in occupational credit unions: theory and evidence

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  • William R. Emmons
  • Frank A. Schmid

Abstract

Most occupational credit unions serve (in part) as a means for corporate sponsors to deliver tax-favored benefits to their employees. Credit union managers administer this transfer of benefits, but their performance is difficult to measure, particularly in larger credit unions. In this article, William R. Emmons and Frank A. Schmid develop a model of efficiency wages and optimal risk-taking and then provide empirical evidence from a large sample of occupational credit unions. Higher wage expenses are found in larger credit unions. In addition, the authors find a negative relationship between credit union size and risk-taking. They also find that local deposit-market concentration is a significant factor in explaining wage costs and risk-taking in occupational credit unions.

Suggested Citation

  • William R. Emmons & Frank A. Schmid, 1999. "Wages and risk-taking in occupational credit unions: theory and evidence," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 13-32.
    • Handle: RePEc:fip:fedlrv:y:1999:i:mar:p:13-32:n:2
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    References listed on IDEAS

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    3. Akella, Srinivas R. & Greenbaum, Stuart I., 1988. "Savings and loan ownership structure and expense-preference," Journal of Banking & Finance, Elsevier, vol. 12(3), pages 419-437, September.
    4. Mester, Loretta J., 1991. "Agency costs among savings and loans," Journal of Financial Intermediation, Elsevier, vol. 1(3), pages 257-278, June.
    5. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-390, June.
    6. Fried, Harold O. & Knox Lovell, C. A. & Eeckaut, Philippe Vanden, 1993. "Evaluating the performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 251-265, April.
    7. Abhijit V. Banerjee & Timothy Besley & Timothy W. Guinnane, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 491-515.
    8. William R. Emmons & Willi Mueller, 1997. "Conflict of interest between borrowers and lenders in credit co- operatives: the case of German co-operative banks," Working Papers 1997-009, Federal Reserve Bank of St. Louis.
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    Cited by:

    1. Silvio Goglio & Yiorgos Alexopoulos, 2009. "Financial Deregulation and Economic Distress: Is There a Future for Financial Co-operatives?," Euricse Working Papers 09001, Euricse (European Research Institute on Cooperative and Social Enterprises).
    2. William R. Emmons & Frank A. Schmid, 1999. "Credit unions and the common bond," Review, Federal Reserve Bank of St. Louis, vol. 81(Sep), pages 41-64.
    3. William R. Emmons & Frank A. Schmid, 2000. "Bank competition and concentration: do credit unions matter?," Review, Federal Reserve Bank of St. Louis, vol. 82(May), pages 29-42.
    4. Leggett, Keith J. & Strand, Robert W., 2002. "Membership growth, multiple membership groups and agency control at credit unions," Review of Financial Economics, Elsevier, vol. 11(1), pages 37-46.
    5. Alexopoulos, Yiorgos & Goglio, Silvio, 2011. "Financial Cooperatives: Problems and Challenges in the Post-Crisis Era," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 39(1), pages 1-14.
    6. William R. Emmons & Frank A. Schmid, 2000. "Banks vs. credit unions; dynamic competition in local markets," Working Papers 2000-006, Federal Reserve Bank of St. Louis.
    7. Wheelock, David C. & Wilson, Paul W., 2013. "The evolution of cost-productivity and efficiency among US credit unions," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 75-88.
    8. Silvio Goglio & Yiorgos Alexopoulos, 2014. "Editorial: Cooperative Banks at a Turning Point?," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 1-8, June.

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    Keywords

    Credit unions; Wages;

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