Capital Accumulation and Deposit Pricing in Mutual Financial Institutions

Abstract

This paper presents a multiperiod model of a deposit-type mutual financial institution and analyzes the manager's capital accumulation and deposit pricing decisions under uncertainty. The model is meant to describe a mutual savings and loan association (SLA) or a credit union in which there are no stockholders and nominal ownership is widely diffused (see [12] and [14]). The resulting paucity of monitoring gives rise to an agency problem (see [13]) in which the manager maximizes his multiperiod expected discounted utility with minimal intervention from nominal owners.