Locational Factors in the Competition between Credit Unions and Banks after the Great Recession

TL;DR

This paper analyzes the locational choices of credit unions post-2008 financial crisis, revealing they tend to avoid areas with many banks, thus serving niche markets and not directly competing with traditional banks.

Contribution

It introduces a new perspective on credit union location behavior using central place theory and industrial organization, highlighting their niche market focus after the recession.

Findings

Credit unions avoid areas with high bank concentration.

They serve niche markets and have limited direct competition.

Location choices are influenced by regulatory and market factors.

Abstract

In the aftermath of the Great Recession, the regulatory framework for credit union operations has become a subject of controversy. Competing financial enterprises such as thrifts and other banks have argued that credit unions have received preferential treatment under existing tax and regulatory codes, whereas credit unions complained of undue restrictions on their ability to scale up and increase their scope of operations. Building on previous location models, this analysis focuses on credit union headquarter locations immediately following the 2008 financial crisis. We offer a new perspective for understanding credit union behavior based on central place theory, new industrial organization literature, and credit union location analysis. Our findings indicate that credit unions avoid locating near other lending institutions, instead operating in areas with a low concentration of other banks. This finding provides evidence that credit unions serve niche markets, product differential, and are not a significant source of direct competition for thrifts and other banks.