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Performance divergence of large and small credit unions

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  • James A. Wilcox

Abstract

By various measures, larger credit unions have recently had stronger financial performance than smaller credit unions, indicating that these institutions face large and pervasive economies of scale. This Economic Letter uses data from the 1980-2004 period to show that this performance difference is a long-running state of affairs. Moreover, these data reveal increasing performance divergence over this period--that is, a widening in the gap in financial performance between large and small credit unions. Thus, it is not surprising that the number of smaller institutions has been shrinking, while the number of larger institutions has been rising. Specifically, between 1980 and 2004, the number of small credit unions (less than $100 million in assets in 2004 dollars) shrank from 17,132 to 7,859, while the number of large credit unions (over $1 billion) grew from 2 to 98. If performance divergence continues, it is likely to quicken the pace of consolidation in the credit union industry; nonetheless, thousands of small credit unions may well survive for decades.

Suggested Citation

  • James A. Wilcox, 2006. "Performance divergence of large and small credit unions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug4.
  • Handle: RePEc:fip:fedfel:y:2006:i:aug4:n:2006-19
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    References listed on IDEAS

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    1. James A. Wilcox, 2005. "Economies of scale and continuing consolidation of credit unions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov4.
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    Cited by:

    1. Malikov, Emir & Kumbhakar, Subal C. & Sun, Yiguo, 2016. "Varying coefficient panel data model in the presence of endogenous selectivity and fixed effects," Journal of Econometrics, Elsevier, vol. 190(2), pages 233-251.
    2. Bauer, Keldon, 2008. "Detecting abnormal credit union performance," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 573-586, April.
    3. Goddard, John & McKillop, Donal G. & Wilson, John O.S., 2023. "Who consumes the credit union subsidies?," Journal of Financial Stability, Elsevier, vol. 69(C).
    4. Emir Malikov & Diego A. Restrepo-Tobón & Subal C. Kumbhakar, 2018. "Heterogeneous credit union production technologies with endogenous switching and correlated effects," Econometric Reviews, Taylor & Francis Journals, vol. 37(10), pages 1095-1119, November.
    5. Javier Gómez‐Biscarri & Germán López‐Espinosa & Andrés Mesa‐Toro, 2022. "Drivers of depositor discipline in credit unions," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(4), pages 849-885, December.
    6. Yamori, Nobuyoshi & Harimaya, Kozo & Tomimura, Kei, 2017. "The efficiency of Japanese financial cooperatives: An application of parametric distance functions," Journal of Economics and Business, Elsevier, vol. 94(C), pages 43-53.
    7. Jordan van Rijn & Shuwei Zeng & Paul Hellman, 2021. "Financial institution objectives and auto loan pricing: Evidence from the survey of consumer finances," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(3), pages 995-1039, September.
    8. Wheelock, David C. & Wilson, Paul W., 2013. "The evolution of cost-productivity and efficiency among US credit unions," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 75-88.
    9. Goddard, John & McKillop, Donal & Wilson, John O.S., 2008. "The diversification and financial performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1836-1849, September.
    10. Naaman, Christine & Magnan, Michel & Hammami, Ahmad & Yao, Li, 2021. "Credit unions vs. commercial banks, who takes more risk?," Research in International Business and Finance, Elsevier, vol. 55(C).

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    1. Bauer, Keldon, 2008. "Detecting abnormal credit union performance," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 573-586, April.
    2. Malikov, Emir & Kumbhakar, Subal C. & Sun, Yiguo, 2016. "Varying coefficient panel data model in the presence of endogenous selectivity and fixed effects," Journal of Econometrics, Elsevier, vol. 190(2), pages 233-251.
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    4. Emir Malikov & Diego A. Restrepo-Tobón & Subal C. Kumbhakar, 2018. "Heterogeneous credit union production technologies with endogenous switching and correlated effects," Econometric Reviews, Taylor & Francis Journals, vol. 37(10), pages 1095-1119, November.

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    Keywords

    Credit unions;

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