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Credit unions and the common bond

  • William R. Emmons
  • Frank A. Schmid

A distinguishing feature of credit unions is the legal requirement that members share a common bond. This organizing principle recently became the focus of national attention when the Supreme Court and the U.S. Congress took opposite sides in a controversy regarding the number of common bonds (fields of membership) that could coexist within a single credit union. In this article, Emmons and Schmid develop and simulate a model of credit-union formation and consolidation to examine the effects of common-bond restrictions on the performance of credit unions. The performance measures are participation rates among potential members and the operating costs of credit unions. Using a semiparametric econometric model and a large dataset drawn from federally chartered occupational credit unions in 1996, they find that, for a given number of potential members, credit unions with multiple-group charters have higher participation rates. They also find that, for a given number of members, operating costs of multiple-group credit unions are higher. Average operating costs at large credit unions, however, decrease as the number of members increases. Emmons and Schmid also find that local deposit-market concentration is related to participation rates and operating costs of credit unions.

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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (1999)
Issue (Month): Sep ()
Pages: 41-64

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Handle: RePEc:fip:fedlrv:y:1999:i:sep:p:41-64:n:v.81no.5
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  1. 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.
  2. Kane, Edward J. & Hendershott, Robert, 1996. "The federal deposit insurance fund that didn't put a bite on U.S. taxpayers," Journal of Banking & Finance, Elsevier, vol. 20(8), pages 1305-1327, September.
  3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  4. Cleveland, William S. & Devlin, Susan J. & Grosse, Eric, 1988. "Regression by local fitting : Methods, properties, and computational algorithms," Journal of Econometrics, Elsevier, vol. 37(1), pages 87-114, January.
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