Corporates' Market Share Plunges to 30-Year Low
The corporate credit union market share in 2007 was about 20%. As of July 2010, it was down to 7.7%.
"That share is at a 30-year low and indicates that credit unions are vacating the corporate credit union system en masse," said Charles Felker, managing director of regulatory services at First Empire Securities Inc. and managing director of Balance Sheet Management and Consulting Services Inc. "What's happened during this period of time to accelerate the exodus of this, if you will, was the corporate meltdown. That served to accelerate the exodus. If you wanted to go back about 20 years, corporates held almost 50% of the investments of credit unions. This is my own personal recollection."
Felker explained it was because the credit union system was three-layered, with U.S. Central at the top, corporates in the middle and natural person credit unions at the bottom.
"In theory, corporates were used to aggregate credit unions' funds, and in turn U.S. Central was supposed to act as a depository for corporate credit unions," he said. "The idea was that through this aggregation there would be larger funds that could be invested by U.S. Central and the return would be enough to sustain corporates and credit unions. In theory, it was supposed to work that way, but in reality if you think of the system as a three-layer cake, and you think of spread as frosting, there wasn't enough frosting to cover all three layers. You could say the system was economically flawed in that respect. So corporates began to invest by bypassing US Central."