Explaining the Credit Union Entry Decision, and Implications for Performance

Abstract

Earlier research exploring rural bank entry decisions suggests that market size and its growth seem to be major explanatory factors. In addition, the role of leading bank holding companies is found to be important in stimulating entry of smaller rivals. This article finds that credit union entry responds in a similar way, and in addition that the state-level financial regulatory climate matters. An ordered-probit analysis of credit union numbers yields the intuitive result that credit unions possess little market power (even in rural markets where they might be expected to play a significant role), and what little there is can likely be eliminated by a third credit union in the market.