Abstract
This paper examines market discipline of Australian credit unions, and the impacts of the global financial crisis and the 2008 deposit guarantee scheme. The prior literature has focused on the market discipline of banks rather than credit unions. Using a unique sample of 204 Australian credit unions, we find market discipline of credit unions prior to 2008. During the global financial crisis, market discipline weakened, which is inconsistent with the wake-up call effect documented in the prior literature. Following the introduction of the 2008 guarantee, depositors were no longer reacting to credit union risk-taking, so no market discipline was observed after the guarantee. Even after the guarantee coverage was reduced to AUD 250,000 depositors were still not sensitive to credit union risk-taking.
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