Review of Industrial Organization 18: 229–242, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
U.S. Financial Services Consolidation: The Case of
Corporate Credit Unions
W. SCOTT FRAME
Ofﬁce of Financial Institutions, U.S. Treasury Department, Washington, D.C. 20220, U.S.A.
TIM J. COELLI
Centre for Efﬁciency and Productivity Analysis, School of Economic Studies, University of New
England, Armidale, NSW 2351, Australia
Abstract. This paper estimates a stochastic cost frontier for U.S. corporate credit unions using
call report data for 1992–1997. The results indicate that corporate credit unions were 91 percent
cost efﬁcient, on average, over this period and that institutions passing a larger percentage of their
investments to U.S. Central Credit Union are more cost efﬁcient. However, the economic magnitude
of estimated efﬁciency gains from investment concentration is found to be modest. We conclude that
the current three-tier hierarchical structure for the U.S. credit union industry is likely to endure.
Key words: Credit union, consolidation, cost efﬁciency, stochastic frontier.
The U.S. ﬁnancial services sector has undergone a remarkable transformation this
decade. Mergers and acquisitions have resulted in larger ﬁnancial institutions that
offer a wider array of products and services to their customers. This structural
change is generally attributed to product and geographic deregulation and advances
in information technology, thereby increasing competition and markedly altering
the cost structures of ﬁnancial institutions. Not surprisingly, a voluminous literature
has emerged examining the impact of consolidation on ﬁnancial services ﬁrms and
their customers. One particular line of inquiry – recently surveyed by Berger and
Humphery (1997) – examines the cost and/or proﬁt efﬁciency of various types
of ﬁnancial services providers. Although studies of the U.S. commercial banking
sector dominate this literature, other types of ﬁnancial institutions are also im-
portant in that they may expose certain industry-speciﬁc effects. This paper, for
example, examines a particular class of credit unions – corporate credit unions – in
This paper does not reﬂect the opinions of the U.S. Treasury Department. The authors acknow-
ledge the helpful comments of Hal Fried, Knox Lovell, Christine McClatchey, Kevin Rogers, William
Shepherd (the editor), David Shetler (NCUA), an anonymous referee, and seminar participants at the
1998 Atlantic Economic Association and Southern Economic Association meetings.