Credit union loan rate determinants following the 2008 financial crisis

• Data are collected for interest rates charged on five different loan categories at more than 6,700 credit unions in the United States during the fourth quarter of 2009.
• Dependent variables include loan rates charged on new vehicle loans, used vehicle loans, first mortgages, unsecured credit card loans, and unsecured personal loans.
• Explanatory variables include credit union size, a net loan charge-offs to average loans ratio, the operating expenses/average asset ratio, the net worth ratio, a dummy variable for credit unions that engage in risk-based lending, state unemployment rates, a state credit union membership to state population ratio, a cost-of-funds to average assets ratio, and a fee revenue to total assets ratio.
• Generalized least squares and two stage least squares regression results largely corroborate prior empirical results for credit union loan rates indicating that credit union competition tends to suppress loan rates and that economies of scale exist at these financial intermediaries.
• In contrast to prior studies, however, credit unions with higher net worth ratios are found to charge higher interest rates on loans.

Previous studies show that a variety of institutional and market variables influence cross-sectional variation in the interest rates that credit unions charge on loans. This study examines the behavior of loan interest rates using nationwide credit union data for the fourth quarter of 2009 in the United States. Results from this sample of more than 6,700 individual credit unions corroborate earlier research indicating that credit union competition tends to suppress loan rates and that economies of scale exist at these financial intermediaries. In contrast to prior studies, however, credit unions with higher net worth ratios are found to charge higher interest rates on loans.