Bank Decapitalization and Credit Union Capitalization

This article looks at the theory and empirical findings ofexcessive compensation on the recent financial implosion across institutional forms inbanking. Compensation levels have gone up dramatically over the last 30 years asderegulation and concentration have grown. Some banks and quite a few credit unionsavoided closure by prudent portfolio selection and keeping reserves up by maintainingcompensation levels closer to the median level. Empirical findings here are based on aunique panel data set on U.S. commercial banks, thrifts, and credit unions from 1994through 2010 (more than 300,000 observations) that provide evidence that the firms withthe highest net worth typically are smaller institutions, are credit unions, havesmaller insider loans as a percentage of assets, and have lower average pay levels. Thefavorable results here for credit unions, financial cooperatives, should help guidepolicy when deciding which type of financial institutions should beencouraged