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The Effect of the Common Bond and Membership Expansion on Credit Union Risk
Author(s) -
Frame W. Scott,
Karels Gordon V.,
McClatchey Christine
Publication year - 2002
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/1540-6288.00031
Subject(s) - credit risk , loan , bond , hedge , economics , investment (military) , credit union , credit crunch , monetary economics , business , financial system , actuarial science , finance , biology , ecology , politics , political science , law
This paper empirically examines differences in credit union risk profiles based on membership type and membership expansion via select employee groups (SEGs). We find that (1) occupational credit unions have a greater exposure to concentration risk, which they hedge by holding greater proportions of capital, (2) the presence of SEGs is negatively related to credit union capital ratios and positively related to loan–to–share ratios, and (3) the number of SEGs and the proportion of loan delinquencies are positively related. We conclude that credit union membership expansion results in reduced concentration risk and expanded investment opportunities, but also dilutes the informational advantages associated with tight common bonds.