Bank competition and concentration: do credit unions matter?
One interesting aspect of the financial services industry is that for-profit institutions, such as commercial banks, compete directly with not-for-profit financial intermediaries, such as credit unions. In this article, William R. Emmons and Frank A. Schmid analyze the competition between banks and credit unions. Using annual county-level data on banking-market concentration and household participation rates at occupational credit unions for the period between 1989 and 1996, the authors find empirical evidence of two-way competitive interactions between banks and credit unions.
Corporate governance and corporate performance
National corporate-governance traditions are distinctive, deeply rooted, and difficult to change. Recent research points to a country's legal traditions and its stage of economic development as important determinants of corporate-governance institutions. Common-law countries tend to provide more explicit investor protections than civil-law countries. Richer countries tend to enforce corporate law more strictly. Broader and deeper financial markets emerge in the presence of strong investor protections, fostering more outside financing and better corporate financial performance. ...
Extracting inflation expectations from bond yields
Conjectural guarantees loom large: evidence from the stock returns of Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are government sponsored enterprises (GSEs) with publicly traded equity. Although these companies hold government issued charters, their securities are not legally backed by the full faith and credit of the United States government. Yet, investors and rating agencies seem to believe that the U.S. Government would "bail out" Fannie or Freddie if they became distressed. We provide evidence of a conjectural guarantee in GSE stock returns. Stock that contains an option on returning the shares at a given price to the issuer -- the government, in this case -- show ...
Membership structure, competition, and occupational credit union deposit rates
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 ...
Banks vs. credit unions; dynamic competition in local markets
One interesting aspect of the financial services industry is that for-profit institutions such as commercial banks compete directly with not-for-profit financial intermediaries such as credit unions. In this article, we analyze competition among banks and between banks and credit unions using a dynamic model of spatial competition. The model allows for the co-existence of (for-profit) banks and (not-for-profit) credit unions. Using annual county-level data on banking market concentration and credit-union participation rates for the period 1989-96, we find empirical evidence of two-way ...
When for-profits and not-for-profits compete: theory and empirical evidence from retail banking
We model competition in local deposit markets between for-profit and not-for-profit financial institutions. For-profit retail banks may offer a superior bundle of financial services, but not-for-profit (occupational) credit unions enjoy sponsor subsidies that allow them to capture a share of the local market. The model predicts that greater participation in credit unions in a given county will be associated with higher levels of retail-bank concentration. We find empirical evidence of this association. The ability of credit unions to affect local banking market structure supports the ...
Do productivity growth, budget deficits, and monetary policy actions affect real interest rates? evidence from macroeconomic announcement data
Real-business-cycle models suggest that an increase in the rate of productivity growth increases the real rate of interest. But economic theory is ambiguous when it comes to the effect of government budget deficits on the real rate of interest. Similarly, little is known about the effect of monetary policy actions on real long-term interest rates. We investigate these questions empirically, using macroeconomic announcement data. We find that the real long-term rate of interest responds positively to surprises in labor productivity growth. However, we do not reject the hypothesis that the real ...
Asset mispricing, arbitrage, and volatility
Market efficiency remains a contentious topic among financial economists. The theoretical case for efficient markets rests on the notion of risk-free, cost-free arbitrage. In real markets, however, arbitrage is not risk-free or cost-free. In addition, the number of informed arbitrageurs and the supply of financial resources they have to invest in arbitrage strategies is limited. This article builds on an important recent model of arbitrage by professional traders who need?but lack?wealth of their own to trade. Professional abitrageurs must convince wealthy but uninformed investors to entrust ...
Stock return and interest rate risk at Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) with the stated objective of promoting home ownership by improving the availability of mortgage financing for private households. These enterprises engage in two separate and distinct lines of business: (i) assembling and marketing pools of mortgages on which they guarantee the timely payments of principal and interest and (ii) purchasing mortgage assets for their own portfolio, mostly funded with debt securities. This article examines the sensitivity of the returns on GSEs' equity shares to realizations of interest rate ...