COMMITTEE CHAIR: Dr. Anish Shankar Menon

TITLE: PROTECTING THE POOR: FINANCIAL DISTRESS IN CREDIT UNIONS

ABSTRACT: Credit unions play a critical role in supporting underserved communities, yet they face increasing financial instability, closures, and consolidations. Traditional corporate bankruptcy models, such as the Altman Z-Score, fail to account for the nonprofit, member-driven structure of credit unions, limiting their predictive accuracy. This dissertation addresses the need for a sector-specific financial distress prediction model tailored to credit unions’ operational and financial characteristics. Using longitudinal data from the National Credit Union Administration (NCUA) spanning 2013 to 2024, this study develops and identifies key indicators to detect financial distress in credit union-specific financial and non-financial indicators, including capital adequacy, asset quality, liquidity, lending, earnings, and operational efficiency ratios. The methodology integrates multicollinearity assessment, propensity score matching control for confounding variables, logistic regression for variable selection, and discriminant analysis utilizing principal component-derived factors to enhance classification accuracy. Key findings indicate that ratios such as the loan-to-share ratio, short-term shares ratio, average loan size, and operational expense ratios significantly improve early detection of financial distress. The final indicators demonstrate superior detection accuracy compared to generalized corporate models, offering a practical tool for credit union regulators and managers to identify at-risk institutions proactively. This research contributes to the limited body of credit union-specific financial modeling literature and has practical implications for safeguarding community-based financial institutions essential to financial inclusion.

Keywords: financial distress, credit unions, predictive modeling, capital adequacy, discriminant analysis, propensity score matching, multicollinearity

Online Location:

Zoom Link:

https://pvpanther.zoom.us/j/94864805786? pwd=ZhSou3romlfPF2kQsNjvjOxXp8r7Zz.1

Meeting ID: 948 6480 5786

Passcode: 621019