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Membership structure, competition, and occupational credit union deposit rates

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  • William R. Emmons
  • Frank A. Schmid

Abstract

How do occupational credit unions set deposit rates? This article shows that the answer to this question will depend on (i) who actually makes business decisions in credit unions (who is in control), and (ii) whether local deposit market competition is important. It is not obvious who controls occupational credit unions. If the sponsor (the employer) is in control, then loans and deposits are priced to maximize the surplus received by all of the credit union’s current and potential members (those eligible to join). If members are in control, then a group of members with a majority can maximize its own surplus. The group in control may include members whose primary purpose for joining the credit union is to borrow money or, alternatively, to lend money (make deposits). If local deposit-market competition is the dominant influence, then internal characteristics of the credit union won’t matter at all. This study tests the sponsor-> control, the member-control, and the market-control hypotheses against each other using a large sample of occupational credit unions observed in 1997. Our results suggest that sponsors exercise effective control over occupational credit unions.

Suggested Citation

  • William R. Emmons & Frank A. Schmid, 2001. "Membership structure, competition, and occupational credit union deposit rates," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 41-50.
  • Handle: RePEc:fip:fedlrv:y:2001:i:jan:p:41-50:n:v.83no.1
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    References listed on IDEAS

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    1. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," NBER Working Papers 6421, National Bureau of Economic Research, Inc.
    2. William R. Emmons & Frank A. Schmid, 1999. "Credit unions and the common bond," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 41-64.
    3. Smith, Donald J, 1984. " A Theoretic Framework for the Analysis of Credit Union Decision Making," Journal of Finance, American Finance Association, vol. 39(4), pages 1155-1168, September.
    4. 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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