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Evaluating the Performance of Credit Unions

In this report, Professors Harold Fried and Knox Lovell develop a performance evaluation measure specifically tailored to the unique features of credit unions. 

Executive Summary

Credit unions' special organizational characteristics, such as their cooperative, not-for-profit structure, means many commonly used performance measures—profitability, cost efficiency, etc— are inappropriate for evaluating overall credit union performance. For example, a credit union's operating performance is frequently measured using accounting rations. Although these rations provide information about the credit union's financial performance, they provide only a limited picture of how well the credit union's management is meeting the demands of its membership. 

In this report, Professors Harold Fried and Know Lovell develop a performance evaluation that is based on criteria specifically tailored to the unique features of credit unions.

What is this research about? 

The methods developed in this study of 8,947 credit unions provide insights and benchmarks that can assist credit union boards and managers in their efforts to increase and enhance service to members. Fried and Lovell's approach recognizes many unique operating features and different competitive environments of these credit unions. Their study takes into account the competitive pressures faced by credit unions and recognizes price, variety, and convenience as competitive tools. It avoids comparing small, limited-service credit unions with large, full-service credit unions. In addition, the researchers take into account that certain credit unions are sufficiently different in their service mix or resource mix that they cannot be compared to other credit unions.

What are the credit union implications? 

One of the most valuable outputs of Fried and Lovell's approach is the potential ability to statistically discover role model credit unions. A credit unions's board of directors and management team could contact these similar, but more efficient role model credit unions. The ensuring dialogue is likely to generate ideas that can be implemented to improve efficiency and service to members. These dialogues are compatible with the credit union movement's tradition of exchanging ideas and experiences for mutual benefit.