The determinants of credit union failure in the United Kingdom: how important are macroeconomic factors?

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 21 April 2017

Working Paper No. 658
By Jamie Coen, William B Francis and May Rostom

This paper examines the determinants of credit union failure in the United Kingdom. Using regulatory data on credit unions, we estimate several discrete-time logit models and evaluate their predictive ability at one, two and three-year time horizons. We find that a small set of financial attributes related to capital adequacy, asset quality, earnings performance and liquidity is useful for early identification of troubled credit unions. Both in and out-of-sample results indicate that this parsimonious set of firm-level characteristics, augmented with national and regional unemployment rates, reliably identifies failures while keeping false alarm rates at modest levels. The results provide support for establishing early-warning criteria for supervisory use in monitoring credit unions.

PDFWorking Paper No. 658 - updated February 2018

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