Performance divergence of large and small credit unions

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.