Is There Help Indeed, if There is Help in Need? The case of credit unions during the global financial crisis

Credit unions (CUs) may respond to a financial shock differently than other types of banks because of their unique membership-based governance structure. We exploit the financial crisis of 2008/09 as a negative shock to Brazilian banks and analyze the lending behavior of CUs versus those of non-CUs and the subsequent effects on the commercial clients’ labor force. We find evidence that during the financial crisis, CUs tightened access to credit to their members to a lesser extent (insurance effect) than did other bank types. Moreover, compared to non-CUs during the crisis, CUs provided credit with longer maturities and required less collateral, albeit at higher interest rates. Notwithstanding, CUs did not display higher level of non-performing loans on their credit portfolios in comparison to other banks in the crisis period. However, CUs faced relatively higher future default frequencies. Notably, the labor market impact of the insurance effect of CUs is positive for very small firms in the form of an increase in employment and wages in the crisis period.