MADISON, Wis. (5/20/11)--A Filene Research Institute report on credit union financial sustainability and listing six key factors for return on equity is now available. Controlling key variables is vital to staying on course, according to speakers at a Harvard University Colloquium on Credit Union Financial Sustainability, sponsored by the Filene Research Institute. The report is based on issues discussed at the colloquium held in October. The Colloquium featured presenters: Frances Frei, UPS Foundation professor of service management at Harvard Business School; John Lass, senior vice president at CUNA Mutual Group; Dorian Stone, partner at McKinsey & Co. and Filene research fellow; and Peter Tufano, Sylvan C. Coleman professor of financial management at Harvard Business School and Filene Research Fellow. In today’s financial turbulence caused by a combination of market and regulatory forces, the key to keeping credit unions thriving, the speakers said, is to understand and control the intricate interrelationships among six primary factors that feed into the overall return on equity equation:
* Interest rate spread; * Fee income; * Loan-loss provision; * Operating expense; * Asset turnover; and * Leverage factor.
The report points out that any company, including a credit union, can only grow in a way that keeps these factors in good correspondence. “A key takeaway is that you should at least understand that you cannot be great at everything and that relentlessly seeking out problems coincides with above-average rates of improvement,” said Mark Meyer, Filene CEO. Credit unions tend to operate less efficiently than banks of similar size, according to the report, which cites case studies illustrating how efficiency improvements contribute to the success of other organizations. “Credit unions should adapt the mindset that every dollar that they do not spend efficiently is a dollar that they may be taking out of their members’ pockets,” said George Hofheimer, Filene chief research officer. The colloquium was supported by Harvard University Employees CU, the Massachusetts and New Hampshire Credit Union Leagues, and the Credit Union Association of Rhode Island. For more information, use the link.