Economies of Scale and Continuing Consolidation of Credit Unions
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This Economic Letter shows that, in contrast to banks, larger credit unions, on average, have decidedly lower average costs and higher net incomes, as we might expect in the presence of important economies of scale. It further notes that these economies of scale put pressure on the credit union industry to continue consolidating into fewer, larger credit unions. It also describes how some recent legislation may have further added to the pressures on both the banking and credit union industries to consolidate.Keywords:
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Credit union
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The article examines the determinants of capital-assets ratios for credit unions in the United States, before and after the implementation of current framework for capital adequacy regulation in the year 2000. Credit unions appear to hold capital in excess of what is required by current capital regulation. The fact that credit unions take longer than banks to accumulate net worth might have encouraged a more prudent, pro-cyclical approach to capital provisioning. In general they entered the crisis in a stronger position to absorb unforeseen losses than many banks.
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Credit crunch
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Brazilian economy has experienced a major boost in leverage in the first decade of 2000 as a result of a set factors ranging from macroeconomic stability to the abundant liquidity in international financial markets before 2008 and a set of deliberate decisions taken by President Lula's to expand credit, boost consumption and gain political support from the lower social strata. This paper analyzes the determinants of credit using an extensive bank level panel dataset. As relevant conclusions to our investigation we verify that: credit expansion relied on the reduction of the monetary policy rate, international financial markets are an important source of funds, payroll-guaranteed credit and investment grade status affected positively credit supply. We were not able to confirm the importance of financial inclusion efforts. The importance of financial sector sanity indicators of credit conditions cannot be underestimated. These results raise questions over the sustainability of this expansion process and financial stability in the future.
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Payroll
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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.
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Credit crunch
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Credit union
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Univariate
Credit union
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U.S. credit unions serve 93 million members, hold 10% of U.S. savings deposits, and make 13.2% of all nonrevolving consumer loans. Since 1985, the share of U.S. depository institution assets held by credit unions has nearly doubled, and the average (inflation-adjusted) size of credit unions has increased over 600%. We use a local-linear estimator, dimesion-reduction techniques, and bootstrap methods to estimate and make inference about ray scale and expansion-path scale economies. We find substantial evidence of increasing returns to scale among credit unions of all sizes, suggesting that further consolidation and growth among credit unions are likely.
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