MADISON, Wis. -- If the current trend of stronger deposit inflows and receding loan demand continues, credit unions may need to get more "aggressive" in investment management especially if lending spreads further erode.
That's according to Dave Colby, chief economist at CUNA Mutual Group, and compiler of the June Credit Union Trends Report. Credit unions increased surplus funds by just over $1 billion in June. The nation's credit unions currently hold $208 billion in surplus funds, an increase of $9.2 billion (4.6%) over the past year.
"Liquidity in the credit union system is more than adequate as surplus funds equal 27.2% of assets," Colby said. "This measure has drifted lower over the past few years as loan demand has outpaced deposit inflows. Credit unions have additional liquidity options in borrowing."
Colby said given the current shape of the yield curve and uncertainty of deposit inflows, credit unions are intentionally keeping surplus funds in short duration investments. At the end of June, 60.2% of all surplus funds had a duration of one year or less.
"In an era where every basis point counts even more, squeezing additional basis points out of investments helps cover rising expenses and eroding net interest margins," Colby said.