Essays on Policy Issues in the Financial Services Industry

In the first chapter, I estimate structural equilibrium models that identify the degree of overlap in products and services, and hence competition, between community banks and large credit unions in 1,771 local US financial services markets. Large credit unions offer some of the products and services as community banks, leading many to question if federal tax exemptions are needed to facilitate the provision of such goods. My results suggest that large credit unions do not dis-place community banks, suggesting that they primarily serve different customer bases with different types of products. Counterfactual simulations suggest that the overlap in product and services between community banks and large credit unions reduces the number of community banks by only 2.5 percent. In addition, the results indicate that the presence of large credit unions lead to 13.5 percent more institutions, suggesting that they facilitate variety in products and services. In the second chapter, I investigate if non-binding fee caps can be used as focal points by payday lenders to facilitate tacit collusion in 1,978 local markets in the United States. The results show that, after controlling for local demand and cost characteristics, sufficiently high fee caps can increase payday lender entry and profitability relative to lenders in markets without fee caps. The evidence suggests that the use of non-binding fee caps can be an effective tool for tacit collusion. In the third chapter, I investigate the relationship between interest rate swaps and growth in mortgage lending by US credit unions from 2011 to 2017. I exploit a rule change by the National Credit Union Association in 2014, which allowed certain credit unions access to financial derivatives, to identify this effect using a difference-in-differences approach. I find that credit unions using interest rates waps experience greater growth in mortgage lending, where growth in fixed-rate mortgage lending is most significant, than credit unions that do not use these financial instruments