Brightening the Future of Credit Unions

Jamie Locke-Jones
Wednesday 17 November 2021

During particularly difficult economic periods, traditional profit-oriented banks are often quick to limit the assistance they afford their customers. Credit unions are different. As member-owned, not-for-profit financial cooperatives, they enjoy an enduring popularity because their sole motivation is helping their members. As a result, they act as a haven for households and smaller businesses, especially during times of instability such as the Covid-19 pandemic. Professor John Wilson, of the School of Management, is arguably one of the most influential scholars on credit unions, and the insights of his work have helped to ensure their longevity.

Professor Wilson’s work has covered the credit unions found in Canada, Ireland, the United Kingdom and the United States, providing valuable insights into (among other things) their growth, governance, innovation and performance. He has found that credit unions are much more likely to prosper when they are relatively large, well-governed and diversified close to their core business of deposit taking and lending. Moreover, innovation is critical to their success, with those unions failing to take advantage of new technologies quickly being left behind. One particularly valuable insight of Wilson’s research is that government regulation and supervision results in far less risky credit unions, who can ride out economic hardships through the reliable build-up of capital during better periods.

The impact of this research has been particularly noticeable in Ireland, which overhauled its credit union regulations between 2014 and 2018. Irish credit unions have been historically apposite to Wilson’s definition of a successful venture, being small, limited in product range, and without integrated information systems. These issues, combined with the global financial crisis, led to the establishment of a Commission to review credit union regulation, of which Wilson was a member. Its eventual list of over 60 recommendations, used as the basis for legislation passed in 2013, was influenced heavily by Wilson’s research.

Credit unions are run by their members, who have a collective interest such as living in the same community. Kenneth Allen, licensed under Creative Commons.

Specifically, Wilson’s observation that unions benefit from a larger scale led in part to the establishment of a Restructuring Board in 2013. In the subsequent four years, the Board oversaw fundamental changes to the structure of the Irish credit union sector, which resulted in the increased consolidation of unions through mergers and an overall increase in their assets. The Board oversaw 117 mergers in total, and those unions who merged were found to be more efficient and gave a higher return on assets. Finally, the restructuring precipitated an increase in membership – by 2020, Irish credit unions served over 3 million people, accounting for roughly a third of the personal lending market.

The impact of Wilson’s research extends beyond mergers, and beyond Ireland. Most of the recommendations made by the Commission have been made, ‘either by legislation or regulation’, and stretch to include corporate governance, prudential regulation, stabilisation policy and sector re-structuring. This influence is mirrored in countries around the world, including the United Kingdom, where the Chairman of the CUNA Mutual Group noted that Wilson’s research has been ‘a source of insight in ongoing strategic discussions across both the Building Societies sector and Credit union sector’.

This work contributed to the University of St Andrews’ REF 2021 submission.

The Research Excellence Framework (REF) is a system which assesses research at UK Higher Education Institutions by discipline, based on three elements: outputs, impact and environment. This blogpost is based upon an impact case study that contributed to St Andrews’ outstanding results this REF cycle. Visit REF to view the submitted case study in the UKRI’s impact case study database.

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