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Dynamics of Populations of Credit Unions

This report investigates the development of credit unions over time, focusing on organizational processes that shaped and continue to determine the evolution of credit unions and how the potential for future development of the credit union movement is shaped by the past dynamic of American credit union development, the growth of competing forms of deposit institutions, and government regulations. 

Executive Summary

Hannan, West, and Barron use the theoretical and methodological perspective of organizational ecology. This approach to organizational analysis seeks to understand how social conditions affect the rates at which new organizations and new organizational forms arise, the rates at which organizations change their fundamental features, and the rates at which organizations and organizational forms die out.

The researchers posed hypotheses that apply to many kinds of organizational populations and collected credit union data appropriate for testing these hypotheses. Their research reveals a number of informative patterns in the proliferation and growth of credit unions. These patterns suggest strong parallels with the dynamics of other kinds of organizational populations. Consequently, they conclude that their research indicates that organizational ecology theory can help us better understand the evolution of credit unions.

What is this research about?

This report summarizes the results of research on the organizational dimensions of the evolution of the credit union movement. The researchers investigated macro-organizational processes that have shaped and continue to determine the evolution of urban credit credit unions over the history of the movement. The potential practical value of this research lies in clarifying how past dynamics — the interaction of the path of development of the population of American credit unions, the growth of competing forms of deposit institutions, and government regulations — shape the potential for future development of the credit union movement.

This study's geographic focus is the state of New York, but its implications are national. The complexity of the research methodology and the need for comparisons to other local financial institutions required analysis of credit unions in a limited area. The authors of this study found New York to be an excellent choice because of its long, diverse history of credit union development and the uniquely rich data available about other financial institutions. 

What are the credit union implications?

The following are some of the thought-provoking implications of the researchers findings:

  • The closed form of credit unions resulted from the need for survival and was not an inherent form of a credit union.
  • The process of forming credit unions was little affected by swings in the economy.
  • Conventional wisdom about the relationship between age and organizational morality rates misses a major point: credit union size.
  • The connection between the age of a credit union and its likelihood of failure if that some credit unions become inflexible and fail to adapt to changing conditions.
  • There is an inverse relationship between age and growth rates.
  • There is a sharp increase in the likelihood that a new credit union will fail when that credit union is founded in a market that already has many credit unions and other financial institutions offering financial services. 

This report was sponsored byNational Science Foundations Grants.