Oregon and Washington credit unions were reminded this week of something they know full well: the S&P downgrade and the market turmoil could bring on a substantial deposit influx at a time loan demand remains tepid.
In a message emailed to its members, the Northwest Credit Union Association noted that many investors are “just converting their investments into cash and waiting out the turmoil.”
The timing, however, “for the potential of servicing more deposit dollars could bring additional stress to the balance sheet of many institutions,” warned the association’s Anthem newsletter.
The CU challenge could surface in the NCUA’s 7% net worth ratio, said NWCUA President Troy Stang.
“If credit unions’ capital-to-assets ratios dip below 6%, credit unions’ regulatory burdens increase significantly,” Stang said.
Data show Washington and Oregon credit unions “with an average net worth of 10.85%, leaving breathing room if members rush to sell stock and deposit it as cash,” wrote Stang. “However, there is little to no wiggle room for up to 30 credit unions which are close to the 7% ratio.”
Stang noted that BNY Mellon has just announced it will charge large depositors such as pension funds a fee for holding “extraordinarily high deposit” levels.
As for CUs, membership growth continues to be paramount but the current climate does not lend itself to income gains particularly when loans are hard to find, said Stang.
The trade group executive also observed that “although all the financial regulators provided a joint confidence in the U.S. Treasury investment downgrades, we will see a ripple effect of finger pointing in our nation’s capitol between the Administration, Congress and the rating agencies,” Stang said.
He said credit unions need to be vigilant and in a “monitoring” mode to prepare for changing conditions in a trying environment.
“You never want to turn away members but this does represent a major challenge,” said Stang, who is expected to discuss the CU response to the markets at a two-week series of town hall meetings in Oregon and Washington.
The first meeting, one of 14 ending Aug. 25, gets under way Monday in Longview, Wash.
The town hall sessions are a continuation of the CU grassroots conclaves stemming from the January merger of the Washington Credit Union League and the Credit Union Association of Oregon.