Consumers who are disenchanted with poor service and higher fees at banks are moving accounts from commercial banks to credit unions, a study by the Federal Reserve Bank of St. Louis suggests.

Moreover, the surge in credit union membership could be furthering concentration of commercial banks, two of the bank's economists conclude in the study they co-authored.

The conclusions were drawn from a seven-year study of credit unions and bank customers in 1,062 counties. The authors, William Emmons and Frank Schmid, found that while those counties' population increased only 10% from 1989 to 1996, their credit union membership rose 40%.

Mr. Emmons attributed the rise to a decline in service. The number of bank charters has decreased by about one-third since 1988, so it stands to reason that customers are getting less attention, he said.

"If banks are not serving their needs maybe as well as people would like, people become a little disappointed and move to credit unions," Mr. Emmons said.

The research was conducted before Congress passed the Credit Union Membership Act of 1998, which gave credit unions the right to expand fields of membership. But Mr. Emmons said the study, which was published last month, nonetheless offers insight into competition between credit unions and commercial banks.

"Taken all together, there must be some customer segments where they are competing directly," he said.

Bill Hampel, chief economist at the Credit Union National Association, said he agrees that banks and credit unions compete on some fronts. But he also said commercial banks have a clear advantage in business lending.

Credit unions must cap business loans at 12.5% of assets. Commercial banks have no such restrictions.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.