Corporate Capital Needs Reduced by Fed Program
A temporary Federal Reserve program is quietly providing a cushion to corporate credit unions as they attempt to raise capital from members to meet NCUA regulatory requirements.
The excess balance account program allows corporates to offload overnight balances onto the Fed’s balance sheet while still earning the same interest rate as overnight accounts. The Fed launched the program in July 2009 because it found some institutions preferred to hold excess balances at the Fed rather than selling them in the federal funds market. However, the large balances inflated correspondents’ assets during a time when they were struggling to maintain capital ratios.
Vrigian said Alloya’s business plan doesn’t ask members for capital based on their asset size; instead, it’s how a member credit union utilizes Alloya’s balance sheet that determines its capital requirement. “If members wanted to keep higher balances with us, they could do that, but we would need more capital,” he said.
As of March 31, Alloya’s capital ratio was 5.82%.