Risk Management Techniques Employed Within the U.S. Credit Union Industry

Abstract

This paper reports the findings of a national survey regarding the financial management practices of United States credit unions. The US credit union industry is clearly in a period of transition. The study indicates that the way in which credit unions approach financial management may have a decided impact on how successful the industry adjusts to deregulated marketplaces. The research highlights the importance of managed growth through selective product diversification, identification of profitable market niches, and the use of modern risk management techniques.

The impact of differing operating environments on US Credit Union Performance, 1993–2001

“…16 See also Caudill et al (2001) for a study of the effect of charter status and ownership type on the efficiency of the thrift industry. 17 Similar conclusions to those of Reichert and Rubens (1994) emerge from the work of Srinivasan and King (1998) and Wolken and Navratil (1985). The latter examined the de novo chartering decisions of credit unions between 1978 and 1980 and found that the more liberal the state regulations the greater the probability that state chartering would be chosen.…”

“…16 This finding coupled with that for the 'type two' model, which highlighted that federal regulation is cost decreasing, implies that the hypothesized more liberal state regulatory environment, as identified by Reichert and Rubens (1994), does not necessarily have a beneficial impact upon cost efficiency. 17 In direct contrast to the work of Reichert and Rubens, Frame et al (2001), in an analysis of credit union risk, identified federal credit unions as more liquid, as holding more capital and as having lower income variability than their state counterparts.…”

“…These in turn vary from state to state. Reichert and Rubens (1994) argue that state regulations are typically more liberal than federal regulations. Consequently, state chartered credit unions, operating in a competitive environment, are expected to exploit any competitive advantage associated with their charter by assuming greater levels of risk as measured by higher loan-to-value ratios, more aggressive portfolio management techniques, and possibly higher capital-to-asset ratios to offset the greater risk.…”

The Law of Proportionate Effect: The Growth of the UK Credit Union Movement at National and Regional Level

“…They concluded that large banks grow more slowly than small banks thus highlighting that growth is not random but rather is related to bank size. 7 Kaushik et al, (1994), Barron (1995), Barron et al, (1994), Reichert et al, (1994) and Amburgey et al (1993) have explored other aspects of credit union performance which tangentially has also considered credit union growth. In each case these studies have focused upon US credit unions.…”

“…7 7 Kaushik et al, (1994), Barron (1995) Barron et al, (1994), Reichert et al, (1994) and Amburgey et al (1993) have explored other aspects of credit union performance which tangentially has also considered credit union growth. In each case these studies have focused upon US credit unions. …”