Addressing a session of the 31st annual National Directors Convention here, the Corporate One CEO suggested CUs in funding loans start turning to new sources "other than deposits to take advantage of these opportunities" and that can include "your corporate or the FHLB," a reference to the Federal Home Loan Bank system, which recently has courted CU borrowings.
"Borrowing to help grow the balance sheet has not been a common practice, and I wanted to demonstrate some straight-forward and practical ideas on how to effectively use borrowing to grow your organization and add value," said Butke. Borrowing not only can grow the CU "but can add additional earnings as it can provide a cost effective way to provide funds for your borrowers."
He asked, "Who said the only place you can get money to loan is from your members? Credit unions can look to the FHLB and or their corporate for loan solutions to match assets."
Often, he said, this can happen "in a way that allows for better matching and for longer terms than you can achieve through member deposits. As an example, borrowing to match mortgage loans can provide longer term funding and, if appropriately matched against the assets, an excellent hedge against interest rate risk."
In his remarks, Butke also said CUs might think of adding a new executive position, chief funding officer. "New ideas require we also look at how we manage our liabilities," he said. "It is interesting that almost all credit unions have a chief lending officer and a chief investment officer, but how many have created a position to manage the liability side of the balance sheet?"
The chief funding officer would "focus the same level of interest and management time on the liability side as we spend on the asset side," said Butke.
On borrowing practices, he said it represents "simply one more tool to add to your management of your balance sheet, and if done within the context of a plan, can increase your overall liquidity, provide low cost funds to make loans and can even help lower you overall interest rate exposure."