Given the similarities between credit unions and other types of cooperative organizations around the world, Filene asked agricultural cooperative experts, Michael L. Cook, University of Missouri-Columbia and Fabio. R. Chaddad, IBMEC Business School, Sao Paulo, Brazil to study how credit unions might use the experience of North American and European cooperatives to find ways to meet their own capital needs
Cook and Chaddad explain how different types of cooperatives around the world create and form capital. Their study reveals that cooperatives have a variety of flexible and effective capital formation tools at their disposal. U.S. credit unions, on the other hand, rely exclusively on retained earnings for capital formation.
The authors find that agricultural cooperatives utilize a number of capital formation tools, including initial risk capital, member investments and public listing. European credit cooperatives, similar in form and function to U.S. credit unions, can create capital through traditional retained earnings and through share certificates, trust-preferred securities, cooperatively-owned commercial entities, and subordinated debt.
The result is a study that we hope will broaden the view of U.S. credit union in regards to capital formation. Although U.S. credit unions are currently well capitalized, the future business challenges, and thus the capital needs, of the industry may require such flexible and varied tools enjoyed by other cooperatively held organizations.
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Cooperative capital formation is a constantly progressing field, recent developments include the issuance of $100 million in capital in Australia and the potential for new capital formation tools in India’s Urban Co-operative Banks. This study is a real good read, and I encourage anyone with an interest in capital issues to dive right in!
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