Study Finds CU-to-Bank Conversions Hurt Members

WHITEWATER, Wis. – A study of credit union-to-bank charter conversions conducted by two University of Wisconsin economists has concluded that while credit unions as institutions often find financial benefits as banks, their members do not share in those benefits. Economics professors Russ Kashian and Jeff Heinrich, of the University of Wisconsin, surveyed 175 financial institutions nationwide and found that traditional credit unions had more “customer friendly” rates on both loans and deposits than both traditional banks and recently converted credit unions. The study found credit unions consistently provided better rates for consumers compared with banks and recently converted credit unions. For a money market account, credit unions paid 1.19% interest compared with 1.01% for a converted credit union and 0.86% for a bank. On loan products, credit unions also saved consumers money. A new auto loan at a credit union had a 5.17% interest rate compared with 5.83% at a converted credit union and 7.21% at a bank. The economists found the newly formed banks can solicit corporate loans and expand their client base, but found no evidence that those new revenue streams benefit the banks’ former credit union members, Kashian reported. “The results presented here suggest that both loans and savings accounts offered by credit unions offer favored rates to the member for the products studied here and this result is robust across all sample specifications,” the report’s executive summary said. “This is especially notable in the area of former credit unions. This result is an addition to the credit union and bank literature.” Kashian said that the study was independent of any links to the credit union industry but admitted having been a manager of a credit union for a time before he became an economist. He also said that CUNA had supplied a small grant which he used to pay the graduate students who did the data entry for the study’s data. He declined to provide a full copy of the study to the press, saying he and his co-author were going to seek to have it published in a peer-reviewed journal. [email protected]