The Influence of Credit Unions on Bank CD Rate Payments

Historically, banks in the U.S. were the only depository institution that could offer checking deposits. They also tended to specialize in commercial lending, while thrifts (S&L's and mutual savings banks) tended to specialize in home mortgage lending and credit unions tended to specialize in consumer lending. Since 1980, the powers of these depository institutions have became more similar, due to legislation and regulatory changes. Consequently, credit unions have been increasingly in more direct competition with banks and thrifts.Because credit unions are cooperatives, if they can operate efficiently, they should have overall better interest rates than banks on both deposits and loans since they do not pay out dividends to stockholders. Credit union advocates and consumer groups have also argued that the credit union industry provides competition that also benefits banks customers. But, it has only been since December 2000 that any articles have shown in the peer-reviewed economic literature that indeed credit union competition with banks does in fact also benefit bank customers. This paper uses the regression estimates from two such studies to estimate the benefit in certificates-of-deposits (CDs) payments to bank customers that results from credit union competition. Of course, this implies that this benefit is a transfer from the bank stockholders to the bank customers.