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January/February 2001, 
Vol. 83, No. 1
Posted 2001-01-01

Membership Structure, Competition, and Occupational Credit Union Deposit Rates

by William R. Emmons and Frank A. Schmid

How do occupational credit unions set deposit rates? This article shows that the answer to this question will depend on (i) who actually makes business decisions in credit unions (who is in control) and (ii) whether local deposit market competition is important. It is not obvious who controls occupational credit unions. If the sponsor (the employer) is in control, then loans and deposits are priced to maximize the surplus received by all of the credit union’s current and potential members (those eligible to join). If members are in control, then a group of members with a majority can maximize its own surplus. The group in control may include members whose primary purpose for joining the credit union is to borrow money or, alternatively, to lend money (make deposits). If local deposit-market competition is the dominant influence, then internal characteristics of the credit union won’t matter at all. This study tests the sponsor-control, the member-control, and the market-control hypotheses against each other using a large sample of occupational credit unions observed in 1997. Our results suggest that sponsors exercise effective control over occupational credit unions.

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