Credit Union and Cooperative Patronage Refunds - Filene ...

A recent post to the Filene Research Institute’s website posed the
question: Why do credit unions compare themselves to banks or
even worry about return on assets? One could argue that cooperatives
should not compare themselves with IOFs or that cooperatives could
operate economically on a shoestring, out of a shoe box, inside a steel
shed—a most utilitarian approach. It is also argued that cooperatives
do not have to worry about financial comparisons so long as money
flowing into the cooperative is just one penny more than money
flowing out.
For cooperatives—including credit unions—there are always at least
three criticisms of this philosophical position. First, it is impractical
to operate or manage any business organization of any size that
close to the edge. Second, most
members expect that their
Cooperatives must generate enough earnings to compete with shares (and entitlement to undivided
earnings; more on that
IOFs by maintaining and growing the cooperative’s base of
capital assets and its business. So even if the cooperative does later) will be safeguarded by the
not raise capital in private capital markets, it is likely to have its board of directors and management.
Members understandably
own business objectives that must be financed with the cooperative’s
earnings and equity.
expect that the cushion will be
more than a penny. The board
must pay attention to earnings
because members have legal recourse to sue the board if they suffer
losses from a breach of the board’s fiduciary obligations.
Third, some cooperatives are regulated by government agencies
(NCUA for credit unions; FCA [Farm Credit Administration] for
farm credit associations) and required to maintain minimum standards
of financial strength. In addition, some cooperatives join
together to raise capital from private markets. These cooperatives
must maintain strong financial standards so that the notes and
bonds sold by their agents are attractive to investors in those markets.
For example, the National Rural Utilities Cooperative Finance
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