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Diversification, Fee Income, and Credit Union Risk

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Abstract

Australian credit unions (CUs) have introduced new fee generating activities, increased transaction fees on existing products, and diversified into residential mortgages. Using DeYoung and Roland’s degree of total leverage and other risk measures we find that more diversified CUs have lower risk and return. CUs that increase the revenue share of transaction fees (matched by a lower share of personal loan interest) increase risk and reduce returns while those that increase residential lending revenues reduce both risk and returns. There is also evidence of scale related economies with risk decreasing and returns increasing with CU size.

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Correspondence to Neil Esho.

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Disclaimer: The views and opinions in this paper are those of the authors and do not necessarily reflect those of APRA.

JEL classification: G21

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Esho, N., Kofman, P. & Sharpe, I.G. Diversification, Fee Income, and Credit Union Risk. J Finan Serv Res 27, 259–281 (2005). https://doi.org/10.1007/s10693-005-1804-0

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  • DOI: https://doi.org/10.1007/s10693-005-1804-0

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