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Consolidation in the US Credit Union Sector: Determinants of Failure and Acquisition

Consolidation in the US Credit Union Sector: Determinants of Failure and Acquisition. Discussion Bob Adams Board of Governors of the Federal Reserve System December 1, 2007 Mergers and Acquisitions of Financial Institutions

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Consolidation in the US Credit Union Sector: Determinants of Failure and Acquisition

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  1. Consolidation in the US Credit Union Sector: Determinants of Failure and Acquisition Discussion Bob AdamsBoard of Governors of the Federal Reserve System December 1, 2007 Mergers and Acquisitions of Financial Institutions The opinions expressed do not necessarily reflect the opinions of the Board of Governors or the Staff of the Federal Reserve System.

  2. Summary • The authors analyze the determinants of US credit union survival using a hazard function. • Analysis of disappearances includes characteristics of credit unions such as size, age, profitability, liquidity. • Analysis also includes: • Market penetration: actual members / potential membership • reported reason for disappearance included as a dependent variable • The study analyzes the role of internet capability on credit union survival. • Study finds internet capability affects probability of acquisition, but not probability failure

  3. Comments • Motive of not-for-profit entities • Flannery (1974) - no single objective function is applicable • Do the results indicate behavior by credit unions different from banks • The role of the cooperative nature of the organization on survival of the institution. • Tax exempt status • Data issues: • Survival rates relative to bank survival rates • Measurement • Assisted mergers – government involvement • Conversions • Other potential determinants: • Rural versus urban credit unions • Multimarket/Multi-state credit unions • External macroeconomic variables such as interest rates and credit cycles • Relationship between Internet and size

  4. Comments • Citations on earlier studies of credit union failures: • Shafroth (1997) – CUNA • Gordon et al. (1987) – NCUA study • Miller and Wolken (1982) • Dugger, Miller and Wolken (1981) • How do the results tie in with literature on outsourcing/ Internet adoption decisions by credit unions. • Borzekowski and Cohen (2005) • Stango and Yukako (2005) • Borzekowski (2004)

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