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July 16, 2007
Net Interest Margin
You are using the wrong measurment. It''s not cu''s vs banks... it''s small cu''s not having the economies of scale of the larger ones that is making a difference in cu-land. Those cu''s that have achieved large size, have a marked advantage over the smaller cu''s in economies of operation. They don''t need to be controling costs as much as managing the cost/ benefit / strategic plan models. You are focusing on the wrong area for a fix... it''s not expenses.
Credit unions nationwide with assets over $1 billion have an average operating expense under 3% of assets... cu''s under $100 million have expenses that range from 4% to 4.5% of assets. That''s a 150bp advantage for the larger cu''s. That makes for economies of scale in my book. My point was that the author lumped all cu''s in the same bucket. His chart does not tell the whole story. Size does matter when it comes to credit unions. (source of my data - Callahan''s)
It''s about time somebody challenged the presumption that large size delivers economies of operation. A few years ago I analyzed all Connecticut credit unions and found that there is no correlation between asset size and operating expense ratio.
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