Abstract
Using NCUA credit union call report data, I find that uninsured depositors and excess share insurers provide valuable monitoring benefits for credit unions for the years following the 2008 financial crisis. I find that the capital ratio, liquidity ratio, and delinquencies-to-total loans and leases decrease with an increase in the percentage of deposits that exceed the $250,000 per depositor regulatory threshold of standard deposit insurance. The influence of uninsured depositors is generally more significant for small credit unions than large credit unions. The results for the precrisis period are not consistent with those of the postcrisis period. However, the results are consistent across the six-year period following the financial crisis. Overall, the results are consistent with the hypothesis that uninsured depositors are value-maximizing stakeholders who exercise control over the firm.
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Notes
Uninsured deposits refers to those deposits that exceed the $250,000 per depositor, the minimum insurance amount that credit unions are required to maintain. In 2014, approximately 130 US credit unions purchased primary deposit insurance through American Share Insurance (ASI) instead of the NCUSIF. Those deposits under the $250,000 threshold that are insured by ASI are counted as being insured.
The data source is the NCUA credit union call report database. Size is based on the value of total assets for the credit union.
The 2013 CUES® Executive Compensation Survey (Dettmann and Cartwright, 2013) documented that the proportion of incentive-based compensation to base salary was consistently lower for credit union CEOs than for commercial bank CEOs.
On September 8, 2008, one week prior to the bankruptcy of Lehman Brothers, Warren Buffett directed Kansas Bankers Surety, then a subsidiary of Berkshire Hathaway and a leading insurer of excess deposits, to stop insuring excess deposits. At the time, Kansas Bankers Surety insured deposits at approximately 1500 banks in 30 states (Paletta 2008).
BancInsure, an Oklahoma company that was poised to insure the deposits that were abandoned by Kansas Bankers, was liquidated as part of a Chapter 7 filing in 2013 by its parent company, BMSI Holdings Inc. The Chapter 7 filing was the result of losses due to the financial crisis that began in 2008 (Paletta 2008; Bailey 2013).
Calculated as the sum of draws against lines of credit; other notes, promissory notes, and interest payable; borrowing repurchase transactions; subordinated debt; and subordinated debt included in net worth.
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Van Dalsem, S.A. Uninsured deposits and excess share insurance at US credit unions: the impact on risk and returns to members. J Econ Finan 41, 714–738 (2017). https://doi.org/10.1007/s12197-016-9376-4
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DOI: https://doi.org/10.1007/s12197-016-9376-4