Thrown Together: Credit Union and Commercial Bank Regulation and Competition in the Consumer Finance Industry, 1960-2015

This project seeks to assess whether there are meaningful differences between the stability of the Credit Union and Consumer Banking industries before the 1980s, and how both industries’ stability had been affected by subsequent political-economic changes. I also sought to assess if deregulation would make credit union behave at risk levels similar to banks. I initially observed that there was a strong inverse correlation between credit union size and failures, which I argue could be explained by regulatory change. This claim was strengthened by the observation that credit unions had benefitted from certain key forms of deregulation, they were still deregulated to a lesser extent than banks and had still decreased their failure rates. After the early 1980s, credit unions suffered far lower rates of outright failure than banks during subsequent economic downturns.The project found that regulation works, but while credit unions can eventually come to resemble bank’ risk patterns, it has not happened yet. Time series analysis revealed that regulatory change had a greater effect on this than most other model variables, even if they were aggregated into categories of industry-level or economy-level variables. The most telling finding was that banks were able to leverage their market status and political power to deregulate in a way that primarily benefitted them and allowed them to maintain their market position. Conversely, they reduced the level of deregulation permitted to credit unions; credit unions did still gain substantial freedom compared to the postwar years, but still more often faced increases in regulation than banks did. This may have ended up benefitting credit unions the most, as a balanced approach to deregulation allowed them stable growth.