Going forward financially: credit unions as an alternative to commercial banks

The global financial meltdown brought to light a number of weaknesses in the U.S. financial system. Not all financial institution types will be taking large sums of taxpayer money to address their crippling decisions. Credit unions in the U.S. represent a type of financial cooperative that will probably not take any taxpayer money directly due to their structure and prudential oversight. Commercial banks, especially the megabanks, are likely to see even more bailouts in the future unless structural weaknesses are addressed in the clarifications as part of the enforcement of the Dodd-Frank Act. Using a unique panel data set on U.S. commercial banks, thrifts and credit unions from 1994 through 2010 (over 300,000 observations) performance metrics on a number of dimensions point to strengths and weaknesses of the various financial institutional forms. Credit unions also have had far fewer adjustable rate mortgages and mortgage backed securities as a percent of their portfolio. Robust estimators to correct for potential endogeneity are used to analyze the ROA differentials between different institutional forms and portfolios. When controlling for size, region and portfolios credit unions are estimated to have a better ROA. Institutions of under a billion dollars, 96 percent of the sample, show credit unions having higher efficiency in that they control 30 percent more assets per dollar spent on salaries than commercial banks.