Friday, October 29, 2010

Did Politics Influence Which Credit Unions Received TARP Funds?

Did political influence play a role as to which community development credit unions received funds from the TARP Community Development Capital Initiative (CDCI)?

This is the conclusion of a paper published by Linus Wilson at the University of Louisiana at Lafayette.

Forty-eight community development credit unions received almost $70 million in funds through CDCI, although 189 credit unions could have participated in the program. The study does state that it does not know which credit unions applied for the program, so it compares credit unions that received the funding to those that were eligible to receive CDCI funds.

The key finding of the paper was "that credit unions eligible for TARP funds were three times more likely selected for those funds if they were headquartered in the district of member of the U.S. House Financial Services Committee even after controlling for other factors. This indicates that political influence may have driven the selection of credit unions."

The study also concludes that credit unions that received CDCI funds had significantly lower loan-to-deposit ratios relative to other eligible credit unions that did not receive TARP investments. The author found this result to be startling, as these institutions were picked "because they would provide much needed loans to the credit union’s underserved communities.”

Furthermore, the study found mixed evidence as to whether regulators and Treasury selected stronger community development credit unions to receive these funds. The selected credit unions had significantly lower tangible net worth ratios; but also, had lower provisions for loans losses and fewer non-performing assets.


  1. Let's see, a study that concludes political influence played a role in which community development credit unions received TARP CDCI funds, even though the study states that it does not know which credit unions actually applied for those funds. The lack of that information alone negates any validity to this study's conclusion. Perhaps it wasn't so much "political influence" that determined who received the funds, but rather which credit unions actually applied for those funds.

  2. That is why I made the point that the study did not look at who actually applied. However, I would not say that it negates the validity of the study. But it does raise questions and should require additional analysis. Perhaps, GAO will look at information regarding who applied by regulatory agency.

  3. As always, I enjoy your posts and do appreciate you pointing out the flaw with this study. However, I never said it negates the validity of the study, merely its conclusion. Obviously, the information within this study warrants further analysis, taking into consideration those who applied. With that said, until that analysis is performed and additional information made available, the conclusion that political influence played a role in which credit unions received TARP CDCI funds, is still nothing more than speculation.



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