Oregon and Washington credit unions were reminded last week of something they know full well: the S&P downgrade of the nation’s credit rating and the market turmoil could bring in 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 NWCA.“If credit unions’ capital-to-assets ratios dip below 6%, credit unions’ regulatory burdens increase significantly,” said Troy Stang, NWUA president.
Data shows 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% percent ratio.”
Stang noted that the Bank of New York during the week announced it will charge large depositors such as pension funds a fee for holding “extraordinary 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 sell, said Stang.
Stang added that CUs 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 on Aug. 15 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.