Study Confirms How Banks, CUs Differ In Changing Their Pricing

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Research has confirmed what many might have suspected, which is that credit unions and banks differ in their response to changes affecting the price of their products and services.

In the new research from the Filene Research Institute, entitled "Pricing Movements and For-Profit Behavior: A Comparison of Banks and Credit Unions," author William E. Jackson III of the University of North Carolina-Chapel Hill, suggests that credit unions differ from banks not so much in what they do-providing financial services -but in how and why they do it, which is a function of their ownership and governance structure.

In the study, Jackson found that credit unions change savings rates during economic cycles at different speeds than banks do, with banks moving faster.

"This finding supports the general proposition that banks and credit unions should be viewed and regulated differently because their dissimilar governance and ownership structures produce different marketplace behaviors," Jackson wrote.

The Filene Research Institute noted that previous research it and others had conducted found that in many businesses, even in competitive markets, firms adjust prices downward more slowly than they adjust them upward, consistent with profit maximization.

"This suggests that in consumer financial markets we would expect to see banks adjust rates on deposits downward more rapidly than they adjust them upward, and vice versa for loans," Filene stated. "However, to the extent credit unions exhibit different market behavior from banks due to different governance structures, we would expect a difference in their rate adjustment behavior."

This is what Jackson found with respect to deposit rates. Banks adjust savings rates downward significantly more rapidly than they adjust them upward, he said. "However, credit unions do not show this type of profit enhancing pricing behavior. Credit unions adjust savings rates downward at the same speed as they adjust them upward. At the same time, rates on loans examined in the study did not exhibit different pricing patterns in upward and downward rate environments for either banks or credit unions."

Data for the study was derived from CUNA Economics and Statistics national surveys, and from, monthly from January 1990 to May 2003, or 161 months.

CUJ Resources

Copies of Pricing Movements and For-Profit Behavior: A Comparison of Banks and Credit Unions and other Filene monographs are available free to Institute members; $125 to non-members. For info: (608) 231-8550 or visit on-line at

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