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Costs and Consolidations

This report documents that differences in average performance across credit unions of different sizes are large and long running and have grown over the last two decades. These differences have implications for both the service that credit unions provide to their members and the past and future evolution of the credit union industry.

Executive Summary

In this study, University of California, Berkeley professor James Wilcox examines one of the unequivocal and long-term trends facing credit unions: consolidation. This trend began in 1969 and continues unabated. Notwithstanding earth- shattering shifts in the regulatory environment, consumer behavior, economic policy, or business models, credit union consolidation is a high-probability event well into the future. Credit union consolidation is one of the only sure bets in an uncertain business environment, so it is wise to study the topic intensely.

What is the research about?

In Credit Union Costs and Consolidations, James Wilcox answers the question “Is there significant empirical evidence that credit unions can reduce their costs by operating at a larger scale?”

Findings include:

  • Differences in average performance across credit unions of different sizes have risen over the last two decades.
  • A large fraction of credit unions, as measured by assets, are involved in mergers in any give year.
  • Scale matters, but it is not the only thing that matters.

What are the credit union implications?

Economies of scale will influence credit unions’ financial and nonfinancial performance for the foreseeable future; however, size and scale are hardly the only levers credit unions have at their disposal to meet member needs. Many credit unions (small, medium, and large) have dynamic and entrepreneurial managers, effectively control their costs, and provide their members with high levels of service, all of which positively impact credit union performance and operations. For the increasing number of credit unions faced with escalating costs and difficulty in meeting members’ needs, several reasonable prescriptions exist.

Practically, Wilcox confirms what most credit unions already know: Scale matters, but it is not the only thing that matters. Understanding this important trend will prepare your credit union for the future and not catch you off guard the next time you read a headline about the impact of credit union consolidation.