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Explaining the Credit Union Branch Entry Decision, and Implications for Performance

Explaining the Credit Union Branch Entry Decision, and Implications for Performance

A recent edition of American Banker reported, “In the decade from 1996 through 2005, banks added an average of 1,484 branches a year.” In the credit union world, a similar trend was in play. Credit union branches increased by nearly 25% during the decade, despite a marked decrease in the actual number of credit unions. These numbers indicate that branching is an important – and growing – delivery channel for all types of financial institutions.

How do credit unions decide where to locate a new branch, and what impact do new branches have on financial performance? Researcher Robert Feinberg, professor of economics at American University in Washington, D.C., examined these questions in the report Explaining the Credit Union Branch Entry Decision, and Implications for Performance.

The research finds that when credit unions see the presence of a strong financial leader such as a top-50 bank holding company it is a signal for positive market growth prospects. Market size is also a major determinant of the number and presence of credit unions and branches, as well as a driver for growth in number of branches. State financial regulatory climate also seems to play a role, though more strongly in numbers than in their growth. And there is a strong suggestion that branching – both within and across markets – facilitates growth and profitability. The results will provide insight into what facilitates credit union branch entry and how this affects financial performance.

Categorized: 'Operations'

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