Report Finds Mergers Not Always A Cost-Saver

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MADISON, Wis.-When CUs join forces, it doesn't always lead to increased savings, according to a recent report from the Filene Research Institute titled "Impacts of Mergers on Credit Union Costs: 1984-2009."

The report, by James Wilcox, PhD, and Luis Dopico, PhD, found that even after staff reductions, consolidating systems and vendors, system integration and other factors that play into a merger, only some CUs end up reducing their operational costs.

Wilcox and Dopico found, among other things, that in the average CU merger, members of the smaller merger partner experienced large reductions in NIEXP and loan rates and increases in paid on deposits, whereas those impacts were relatively small for the larger partner. As equal size partner mergers increase, the researchers found that NIEXP fell by -0.29% among merging CUs with less than $100 million in assets and rose by 0.15% among those with more than $100 million.

Filene's Research Director Ben Rogers wrote in his commentary for the report that the findings serve "as a dual warning for boards and CEOs of larger credit unions" that "cost reductions do not magically spring from the merger process" and that "members may not reap noticeable advantages, even in the long term.

On the other hand, these findings speak loudly to smaller credit unions that, absent a compelling independent value proposition, larger credit unions usually provide better economic value to members."

The report is the third in a series examining economies of scale and mergers in credit unions. It is available on the Filene Research Institute's web site:

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