Are (Nonprofit) Banks Special? The Economic Effects of Banking with Credit Unions

Nonprofit banks in the U.S. are primarily organized as credit unions (CUs) and have grown steadily over the last two decades, increasing their share of total lending to U.S. households. This paper studies the economic effects of banking with CUs using consumer credit report data merged to administrative data on originated mortgages and detailed data on the locations and balance sheets of CUs. To estimate causal effects, I construct a novel instrument for banking with a CU using a distance-weighted density measure of nearby CUs. I find that banking with a CU causes borrowers to have fewer unpaid bills, higher credit scores, and a lower risk of bankruptcy several years later. I find support for several mechanisms behind these results: CUs charge lower interest rates, price in less risk-sensitive ways, and are less likely to resell their originated mortgages in the secondary market. These results are inconsistent with CUs behaving as ``for-profits in disguise" and suggest that many consumers experience better outcomes with CUs than with for-profit banks.