Developing and governing sustainable credit unions in the modern financial services industry of Ireland
Submitting InstitutionUniversity of St Andrews
Unit of AssessmentBusiness and Management Studies
Summary Impact TypeEconomic
Research Subject Area(s)
Economics: Applied Economics
Commerce, Management, Tourism and Services: Business and Management
Summary of the impact
Professor Wilson's research has increased understanding of how credit
unions have developed in different countries, with the intention of
informing policy around these institutions. Such work is especially
important in the aftermath of the financial crisis in 2008, as many
countries seek to strengthen their retail financial sectors. The research
has had wide-ranging impact internationally on the ways in which policy
makers, regulators and practitioners view the sector. Specifically, as
part of the Irish Commission on Credit Unions, Wilson's work was taken up
in reports which made a raft of recommendations that were later adopted to
form the basis for new legislation (Credit Union and Co-operation with
Overseas Regulators Act 2012). This new legislation in turn has affected
the governance, regulation, stabilisation policy and structure of the
credit union sector in Ireland.
Credit unions are self-help cooperative financial organizations geared to
attaining the economic and social goals of members and wider local
communities. Each credit union is governed by its members. In 2012 there
were over 56,000 credit unions across 101 countries with more than 200
million members and approximately $1.7 trillion in assets. There is great
diversity within the credit union movement within and across countries in
terms of size, scope, structure, membership, performance, products and
market penetration. Research in this area has posed a series of questions
which seek to explore the policy implications of the diversity and
dynamics of credit unions within different countries.
The research underpinning this impact took place between January 2001 and
December 2011 (while Wilson was employed at the School of Management at
the University of St Andrews). During this period Wilson produced an
extensive portfolio of research on credit unions comprising: three reports
for government; two reports for professional bodies; and 17 refereed
journal articles. The research centred on understanding the growth,
development, governance, performance and risk of credit unions, and their
role in tackling financial exclusion in different parts of the world. In
order to do this, large scale econometric studies, surveys and interviews
were conducted. Along with co-authors from Bangor University, Queen's
University Belfast and Ulster University, Wilson has produced research
that has provided valuable insights into the operation of the credit union
sector at advanced (Canada and United States), transitional (Ireland) and
nascent (Great Britain) stages of development. The nature of the research
that underpins the impact described here may be summarised as follows.
How do credit unions vary in scale and scope? The research
explored the scale and scope of credit unions in different countries. The
fact that credit unions are at different stages of development made this
review difficult given that issues pertinent for a mature credit union
movement may currently have little or no bearing on a credit union
movement in its formative stages. As a consequence, the research
constructed a developmental typology with maturity as an implicit goal.
The analysis showed that there is a great diversity within the credit
union movement across countries, which reflects the various economic,
historic and cultural contexts within which credit unions operate. In the
developing world, a small membership base is concentrated on the
financially excluded. These credit unions provide basic savings and loans
products, and are run and organised exclusively by volunteers. At the
other end of the spectrum are credit unions in North America and Australia
which comprise members spanning the entire income distribution. In these
countries credit unions provide an important counterbalance to the power
of the mainstream financial institutions (McKillop and Wilson, 2011).
Assuming that the developmental typology is valid, the analysis presented
in this paper shows issues facing mature movements today will face nascent
and transitional movements in future.
Do larger credit unions grow more quickly than their smaller
counterparts? This research developed stochastic growth models which
allow understanding of variation in the growth of individual credit unions
and the resultant evolution of industry structure. US data confirms that
larger credit unions grow more quickly than their smaller counterparts.
This is mostly due to economies of scale advantages (Goddard, McKillop and
Wilson, 2002). Liquidity, capitalization and risk are also important
drivers of growth.
How much diversification by credit unions is desirable? An
econometric analysis of the impact of revenue diversification by credit
unions on various financial performance measures was conducted. The
analysis suggested that small credit unions should eschew diversification
and continue to operate as simple savings and loan institutions, while
larger credit unions should be encouraged incrementally to exploit new
product opportunities around their core retail competencies (Goddard,
McKillop and Wilson, 2008).
Which credit unions are most likely to be acquired? Driven by
de-regulation and technological change, consolidation (via merger and
acquisition) is a common feature of the modern financial services
industry. A large scale analysis of US credit union data finds that
growth-constrained credit unions are less attractive acquisition targets,
while credit unions with low capitalization and those with relatively
small loans portfolios are more likely to be acquired. The absence of an
internet banking capability also appears to render a credit union more
vulnerable to acquisition (Goddard, McKillop and Wilson, 2009).
How can credit unions ensure sustainable growth? The financial
performance of credit unions appears to be adversely affected if they are
overly focused upon areas of high financial exclusion (which has tended to
be the case in the UK). In order to be successful in the long-term, credit
unions should strive to attract a wide cross-section of people from local
communities as members, and not just those who are socially or financially
excluded (McKillop, Ward and Wilson, 2007).
How should credit unions be governed? There are differences in the
governance and operational structures of credit unions depending on their
size, country of origin and the regulatory system within which they
function. A large-scale survey of credit unions in both Canada and the
United States reveals that good governance is crucial to ensuring the
continued vitality of credit unions. Governance of credit unions can be
strengthened by establishing governance committees, improving members'
awareness of their rights and obligations, and enhancing director
qualifications and professional development (Goth, McKillop and Wilson,
References to the research
The body of research summarized above meets or exceeds the 2* quality
threshold, has been published in internationally recognised peer-reviewed
journals, has been cited in influential government reports in the US and
Ireland, and as a consequence has shaped policy as well as research
agendas in this field. Key references include:
1. Goddard, J., McKillop, D.G and Wilson, J.O.S. (2002) `The Growth of US
Credit unions' Journal of Banking & Finance, 22, 2327-2356.
(Peer reviewed, 73 citations, Google scholar)
2. Goddard, J., McKillop, D.G. and Wilson, J.O.S. (2008) `The
diversification and financial performance of US Credit Unions' Journal
of Banking & Finance, 32, 1836-1849. DOI: 10.1016/j.jbankfin.2007.12.015.
(peer reviewed, 58 citations Google scholar))
3. Goddard, J., McKillop, D.G and Wilson, J.O.S. (2009) `Which Credit
Unions Are Acquired?' Journal of Financial Services Research, 36,
231-252 10. DOI: 10.1007/s10693-009-0055-x.
(Peer reviewed, 13 citations, Google scholar)
4. Goth, P., McKillop, D.G and Wilson, J.O.S (2012) Corporate
Governance in Canadian and US Credit Unions. Madison: Filene
Institute.(commissioned report, but also peer reviewed)
5. McKillop, D.G., Ward, A-M., Wilson, J.O.S. (2007) `The development of
credit unions and their role in tackling financial exclusion,' Public
Money and Management, 27, 37-44. DOI: 10.1111/j.1467-9302.2007.00553.x.(peer
reviewed, 23 citations, google scholar)
6. 'McKillop, D.G. and Wilson, J.O.S. (2011) Credit Unions: A Theoretical
and Empirical Overview' Financial Markets, Institutions and
Instruments, 2011, 20, 79-123. DOI: 10.1111/j.1468-0416.2011.00166.x.
(peer reviewed, 10 citations, Google scholar)
Details of the impact
The non-academic reach of Wilson's research is demonstrated by
commissioned reports for the Scottish and Irish Governments and invited
talks at the US Federal Deposit Insurance Corporation in Washington and at
Westminster Briefing Events in London (amongst others). These outreach
activities draw directly on the knowledge gained from the underpinning
research discussed in Section 2 above.
The clearest and most significant impact of this research has been its
influence on the credit union sector in Ireland where credit unions are
central to the financial services sector (with 70% of the adult population
members of credit unions). In 2011, following an IMF and EU bailout, the
Irish government established the Credit Union Commission to investigate
and make recommendations about their future role and operation. Due to his
previous research on credit unions, Wilson was one of two academics
appointed by the Irish government to the Credit Union Commission. His
previous research and expertise were integral to the production of a
report (2012) that formed the basis for legislative change (Credit Union
and Co-operation with Overseas Regulators Act, 2012), which in turn led to
structural change in the industry (by enabling consolidation) and enhanced
stability (via increased regulation and supervision). The Minister for
Finance for the Irish Government asserted that `the work of the
Commission will inform Government policy on credit unions for the
foreseeable future' (S1); and the head of credit union policy at the
Central Bank of Ireland noted that `the Commission considered and
discussed many issues in relation to credit unions and these discussions
were informed by John Wilson's knowledge of, and research on, credit
union movements around the world' (S2). Wilson fed the results of
his research into the Commission's deliberations, and many of his findings
and their implications were subsequently reflected in the Commission's
interim and final reports:
The final report contained over 60 recommendations, which covered
corporate governance, prudential regulation, stabilisation policy and
sector re-structuring. In particular, Wilson's research directly
influenced the following findings and recommendations:
- The possibility of voluntary consolidation or restructuring of the
credit union sector over time, recognising the need to maintain local
presence and taking into account the not-for-profit mandate, the
volunteer ethos and community focus of credit unions.
- The establishment and funding of a Credit Union Restructuring Board
(ReBo) to facilitate and support the restructuring of Credit Unions.
- The options for groups of credit unions to share services on a formal
basis and the extent to which this model is appropriate.
- The basic governance and regulatory requirements that are needed and
the benchmarks that credit unions should meet if they are to be
registered to operate.
The Chief Executive Officer of the Irish League of Credit Unions
concluded that `Professor Wilson's interventions went a long way to
ensuring that the recommendations, and by extension the legislative
provisions based on those recommendations, benefited from his
suggestions regarding the workability of various options based on his
experience of other jurisdictions' (S3).
The Commission's recommendations have been endorsed by the Irish Ministry
of Finance and approved by the troika of the International Monetary Fund,
European Central Bank and European Commission. They were used directly to
inform legislation in the shape of the Credit Union and Co-operation with
Overseas Regulators Act 2012, which was passed by the Irish Parliament on
21st December 2012 (S1-S3). The Commission's report and its
underpinning research have also received widespread media coverage in
Ireland (selected links numbered S4-S10 in Section 5). In short, Wilson's
research informed much of the Commission's deliberations and
recommendations, which were subsequently adopted by the Irish Government
and ratified in parliament via the production of new legislation. This new
legislation in turn has been instrumental in affecting the corporate
governance, prudential regulation, stabilisation policy and structure of
the credit union sector in Ireland (much of which is contained in a new
Credit Union Handbook published by the Central Bank of Ireland in
September 2013, and available online at http://www.centralbank.ie).
The Credit Union Restructuring Board in Ireland has now been funded to the
tune of €250 million, and is currently engaged in facilitating the
re-structuring of the entire sector.
Sources to corroborate the impact
Sources are of two kinds: direct quotes from correspondence with key
policy actors; and press coverage (with web-links) of the key policy
report and its impacts.
External contacts who have supplied corroborating letters evidencing
- Minister for Finance, Department of Finance, Irish Government
- Head of Credit Union Policy, Central Bank of Ireland.
- Chief Executive Officer, Irish League of Credit Unions
Press coverage and report citations evidencing impacts:
- Announcement by the Irish Minister of Finance on the establishment of
a credit union commission http://www.finance.gov.ie/viewdoc.asp?DocID=6891.
This press release discusses the establishment, remit and membership of
the Irish credit union commission.
- Announcement by Irish Minister of Finance on the publication of the
final report of the Irish Commission on Credit Unions18/10/12 http://www.finance.gov.ie/viewdoc.asp?DocID=7212.
This provides an overview of the general content of the final report and
commends the work of the Irish Credit Union Commission.
- Noonan published new credit union bill, RTE News, 28 Sept 2012.
This news story announces the new credit union bill based on the work of
the Credit Union Commission.
- Bill clears way for €250m credit union bailout by Vincent Ryan, Irish
Examiner, 22 Dec 2012. http://www.irishexaminer.com/archives/2012/1222/business/bill-clears-way-for-250m-credit-union-bailout-217741.html.
A news story which attributes the Credit Union Commission's work and
final report as enabling extensive regulatory reforms and restructuring
to take place in the sector.
- Minister for Finance welcomes the enactment of credit union
legislation, 21 Dec 2012 http://www.finance.gov.ie/viewdoc.asp?DocID=7478.
This press release announces the enactment of The Credit Union and
Co-operation with Overseas Regulators Act 2012
- Minister of finance launches an implementation plan for the Credit
Union and Co-operation with Overseas Regulators Act 2012. http://finance.gov.ie/viewdoc.asp?DocID=7720.
This press release announces the timeline of implementation of various
outstanding recommendations in relation to governance, oversight and
prudential regulation made in the Credit Union Commission's Final
- Minister of Finance outlines how the Recommendations of the Commission
have changed the credit union sector http://www.finance.gov.ie/viewdoc.asp?DocID=7657.
This speech asserts that the Final Report and recommendations of the
Credit Union Commission remains the blueprint for the reforms and
changes currently affecting the sector. The speech points out that
recommendations suggested by the Credit Union Commission with regard to
the re-structuring of the sector are already underway via the
establishment and operation of the Credit Union Restructuring Board.