Credit Union Failures: Why Liquidate Instead of Merge?

We examine whether certain credit union (CU) characteristics are associated with the likelihood of CU liquidations. Using a sample of CU liquidations and a control group of CUs involved in a merger, we find that a CU\u27s percentage of delinquent loans, provision for loan losses, and average loan balance are positively related to the likelihood of liquidation. Moreover, a CU\u27s return on assets (ROA) is negatively associated with the likelihood of liquidation. We incorporate tests of the impact of the financial crisis on determinants of CU liquidation and find that neither ROA, percentage of delinquent loans, nor provision for loan losses are more important liquidation predictors in the post-financial crisis period. Our findings have implications for not only academics, but for anyone involved with CUs. Perhaps most significantly, regulators may benefit from our findings as they determine the appropriate level and method of intervention, and consider how to minimize costly liquidations