Commercial Banks, Credit Unions, and Monetary Policy

The objective of this manuscript is to study the strategic interaction between different types of financial institutions and its implications for economic activity and monetary policy. While commercial banks and credit unions provide similar financial services, they have different ownership structure and therefore have different objectives. For instance, banks are often perceived as profit maximizers, while credit unions act like cooperative entities seeking value and aim to maximize the welfare of their depositors. Following the 2007-2008 financial crisis, credit unions gained more market share and their role in the process of financial intermediation became more pronounced. Such changes raise some important questions that I attempt to address in this manuscript. First, how does the strategic interaction between credit unions and commercial banks affect risk sharing, total welfare, and capital formation? Second, will the effects of monetary policy become stronger if credit unions gain more market share? Finally, what is the optimal size of each financial institution? In order to address these important questions, I study a dynamic general equilibrium model with an important role for money and where different types of financial intermediaries interact strategically in deposit and capital markets. Length: 22 pages