Study Finds CUs Gaining Market Share

A recent study by the Federal Reserve Bank of Philadelphia found that credit unions are growing faster than small banks and have gained market share relative to small banks.

The report also noted that small banks and thrifts have lost market share to large banks.

Despite their expansion, credit unions only hold about 7.1 percent of the assets held by all depository institutions.

One of the research questions explored by the study is whether credit unions and small banks compete for the same customers.

The Philly Fed found that small banks and credit unions compete for similar borrowers in the residential lending market.

According to the study, "the mortgages for purchasing one- to four-family homes that credit unions and small banks make are similar across all income tracts."

But the study noted that credit unions may have more stringent real estate lending standards. According to data, "credit unions reject a larger proportion of their home loan applicants, and the difference in rejection rates is greatest in low- and middle-income tracts." In addition, the study found that credit unions had a lower charge-off rate on home mortgage loans.

For example, the following chart looks at rejection rates for mortgages in low-and moderate-income census tracts by credit unions and small banks.

The study also notes that since 1990, credit unions have doubled their market share of consumer loans. However, small banks have only a small share of consumer loan market, losing market share to both large banks and credit unions.

The study states that credit unions tend to offer more flexible terms on their auto loans. "Car buyers who finance their purchases through a credit union generally have lower credit scores, longer loan maturities, and lower monthly payments compared with those who take out a car loan from a small or medium-size bank." The offering more flexible terms on car loans may arise from the ability of credit unions to cross-collateralize these loans with borrowers deposits.

The report argues for more study of the credit union industry, especially as the industry moves from its traditional markets.

Read the study.