Credit Union and Bank Subprime Lending in the Great Recession.

This article examines how firm structure influences incentives and performance by comparing subprime mortgage lending and financial outcomes between commercial banks and credit unions during the 2007–2009 Great Recession. Using a theoretical model and a difference-in-differences empirical approach with data from the National Credit Union Administration (NCUA), Federal Financial Institutions Examination Council (FFIEC), and Home Mortgage Disclosure Act (HMDA), the study finds that commercial banks issued significantly more subprime mortgages than credit unions prior to and during the crisis, even after controlling for size, portfolio composition, borrower characteristics, and economic conditions. Consequently, banks experienced higher failure rates, delinquency ratios, and net charge-offs compared to credit unions. The authors attribute these differences primarily to credit unions' nonprofit cooperative structure, which internalizes member welfare and leads to more risk-averse lending practices, highlighting important implications for financial regulation, tax policy, and the modeling of firm objectives in research.