Detecting abnormal credit union performance

Credit unions are an important financial intermediary, but little credit union research is done. A primary reason for the lack of research is the cooperative nature of the industry, making traditional methods of detecting abnormal performance inappropriate. This paper proposes two methods of detecting abnormal performance, one parametric, the other non-parametric. Instead of testing the efficiency of the institution, this paper proposes testing the return vector, as indicated in the theoretical objective function of the member. Simulations demonstrate that both methods are correctly specified and powerful.

Perceived risk and Internet banking

Bankers and consumers are both interested in the potential for Internet banking. Individuals have been adopting die Internet in large numbers, with more than half of all American households having some form of Internet access by 2000. Banks too have been developing their infrastructure to address what they perceive as a growing demand for online services, with 84% of all accounts offering some form of Internet banking by 1999. However, the adoption rate has not followed the hype. By 2000, the proportion of households using Internet banking was less than 10%. This research looks at the critical factors needed to promote banking adoption from the consumer's perspective. We use a consumer utility maximization framework, and include in the consumption bundle the possibility of using conventional, phone-banking and/or Internet banking. Phone-banking is added because it could be seen as a substitute for Internet banking. Many of the same services are available on both, and many of die restrictions are the same, i.e., no cash can be withdrawn from either. Using the utility maximization approach, we are able to conclude that adoption depends on marginal utility gain, marginal cost and a risk premium; where risk premium is the product of subjective probability of adverse outcomes from the technology and the utility of each adverse outcome. We use logistic regression to explore what factors are important to consumers adopting Internet banking in general. A conditional logit model is used to estimate the sensitivity of different decision factors to the marginal propensity of phone-bank customers adopting Internet banking and vice-versa. The overall utility maximization model is consistent with our results from these logistic regressions. The results presented in this research also support the hypothesis that the subjective probability of security problems experienced by Internet bank customers is not the same for all customers, and that it depends on their level of education. Varying subjective probability means that the risk premium can be affected by exogenous factors, in this case education. In other words, banks could affect the risk premium of their customers, thereby affecting adoption rates

The effect of mergers on credit union performance

The motivation for mergers in the credit union industry differs from the commercial bank industry due to the lack of residual claimants to benefit from wealth gains. In the cooperative ownership environment of credit unions, the owners/members gain utility via the rates offered for loans and deposits. Credit union regulators also gain utility when mergers remove risky credit unions from the industry. We measure these utility gains using the event study method of Bauer [Bauer, K., 2008. Detecting abnormal credit union performance. Journal of Banking and Finance 32, 573-586] employing quadrant tests based on a multivariate test of equality of centroids. We find gains to the owners/members of the target credit union and to the regulators but not to the acquiring firm. We posit that the acquiring credit unions may encounter regulatory pressure to merge. In addition, the owners/members of the acquiring firm may avoid potential disutility in the cooperative insurance environment were the target firm allowed to fail.Mergers Credit unions