Common Bond Type and Credit Union Behavior

Abstract

The era of deregulation in consumer financial services has focused atten? tion on the effects for commercial banks and, recently, the solvency of savings and loan associations. Often neglected in the financial press are credit unions: not-for-profit financial cooperatives which, in most cases, experienced more dramatic regulatory changes. A major reason for this apparent lack of interest in credit unions is not because of declining market share or hindered asset growth ? much the opposite is the case ? but rather because of the lack of a distinct proprietor. Credit unions, under the law, are nonstock private corporations providing general financial services to a distinct class of people subject to association by a bond/1 While credit unions today may provide a full menu of financial services similar to that of commercial banks, they remain different. This difference is due to the cooperative nature of the credit union as imbedded in the concept of a common bond. Notably, the concept of a financial cooperative is inherently more complex than that of other private stock-issuing intermediaries in that regulators and others must examine the behavior among the members of the cooperative as well as the relationship between the cooperative and the market as a whole. Regulators and pre? vious researchers have largely concentrated on the latter at the expense of the former. A central thesis of this paper is that regulators, by systematically ignoring the rich behavioral dynamics of the relationship among members in the financial cooperative, may pursue actions that will hamper the social utility