WASHINGTON—While credit unions provided loans to consumers when banks pulled back during the financial crisis, a new paper suggests credit unions did not perform as well when it came to home equity lending—but also says members themselves may have played role.
A paper published in Applied Economics Letters concluded that credit unions did not provide consumers with liquidity during the recent financial crisis, according to analysis by Keith Leggett, the former senior vice president and senior economist at the ABA.
The paper, “Credit Unions during the Crisis: Did They Provide Liquidity?,” examined whether credit unions provided liquidity to individuals in the form of home equity line of credit during financial crisis of 2008 in areas experiencing decline in home prices, Leggett explained.
“The study justified using HELOCs as a measure of consumer liquidity, because HELOCs can be used for any purpose. The paper did not examine credit card loans, which can be used for the same purpose; because credit unions are fringe players in the credit card marketplace,” said Leggett in his analysis.
The authors, Pankaj Maskara & Florence Neymotin, employed data from the Consumer Finance Monthly survey and limited their analysis to the time period between April 12, 2007 and March 13, 2013.
The Role of Members
“The paper controlled for selection bias. In other words, the decision regarding a HELOC could have been the choice of a credit union member, not the action of a credit union,” Leggett said.
The authors said they found that after controlling for selection bias credit unions during the financial crisis did not extend HELOCs any more than other depository institutions in areas experiencing housing price declines, said Leggett.
“However, the results from the paper are limited to HELOCs offered by credit unions,” he said.