One doesn’t need to leave the house anymore to start feeling nervous about the state of the American economy.
The newspaper delivered to the front door has glaring headlines about recession, job cuts, mortgage defaults and decreasing consumer confidence. Turn on the TV or go online and you will find similarly distressing news that reflects a jittery market.
We all, of course, wish for a quick end to these concerns. But, the reality is, all of us who work in the credit union movement need to ride out this storm together.
While we might be unable to eliminate the sense of uncertainty in these turbulent times, those of us in the Corporate Credit Union Network can provide a significant measure of reassurance. Natural person credit unions and their members can and should breathe a sigh of relief that the corporate network and the credit union movement itself is strong, stable and extremely liquid.
As members and credit union professionals see and hear headlines about turmoil in the banking industry, they should try to keep a sense of calm and remember the facts.
First, let’s talk about natural-person credit unions. Deposit and asset growth is robust and this is likely to continue above trend throughout 2008. Additionally, loan-to-share ratios are around 80%, which is historically very high. While these ratios may decrease over time, liquidity levels are and will continue to be strong as they traditionally have been in the past.
Historically, during times of economic uncertainty and hardship, credit unions served as both safe harbors for their members’ funds as well as the place for members to save money as a result of credit unions’ lower fees and rates on loans. In fact, if history has taught us anything, it’s that credit unions are once again poised to help their members through this latest financial downturn.
As for the Corporate Credit Union Network, there will continue to be an influx of liquidity. In slow growth and recessionary times, the savings rate at natural person credit unions surpasses loan growth, and most credit unions store that liquidity at their corporate.
Corporate credit unions in general had a banner year in 2007, with many posting record earnings despite the unprecedented market dislocation. Based on NCUA call report data, aggregate average assets (12-month moving daily average net assets (DANA)) of corporate credit unions totaled $90 billion at year-end. That was well over $11 billion higher year-over-year, an average increase of more than 14% percent across the corporate network. Likewise, U.S. Central’s average assets (12-month moving DANA) in 2007 grew $8.3 billion to $44.9 billion–nearly 23% year over year. Corporates also continued to maintain and build strong capital levels that complement their financial cooperative business models.
Through natural person credit union support, this strong corporate credit union growth and performance continues into 2008. NCUA call report data as of February shows average assets of the corporate network are 2% higher since the end of 2007 (U.S. Central’s 12-month moving DANA is up nearly 2.5%) and earnings continue to be strong. Credit unions continue to view their corporate as a trusted partner, and this partnership is what allows our movement to successfully manage through the current market dislocation and economic uncertainties.
All this leads to another key point. Corporate credit unions invest significant assets into U.S. Central, and that’s good news. More than 90% of U.S. Central’s investment assets are securities are “AAA” rated, with about 95% rated “AA” and above. The quality of assets held by all corporates is very high and corporate investment portfolios continue to perform well.
Realizing corporate credit unions are not-for-profit, we manage our risk profile accordingly. Our goal is not to stretch to provide inordinately high returns, but rather liquidity, safety and soundness. That is not to imply that any financial institution can be completely free from losses due to exposure to the present credit markets. However, with strong capital and liquidity, corporate credit unions are more than able to weather the current market dislocation and inspire confidence.
In fact, throughout this period of market dislocation, the Corporate Credit Union Network has successfully functioned as it was designed to do and that is to effectively provide credit unions with a strong buffer from disruption in the markets. Investments in corporates allow credit unions to avoid the mark-to-market adjustments and direct effects related to the current market disruption. Some corporates as market participants have accumulated unrealized losses in their financial statements. In effect, these adjustments are paper losses that reflect what a buyer may be willing to pay for a security, but not what the security is worth to the corporate. The good news is that corporates have ample liquidity and very strong funding sources available such that these mark-to-market adjustments do not have to become realized losses by selling securities into an illiquid market.
None of us can predict when the economy will revive. There likely will continue to be stormy seas, and the rough weather will be felt on Main Street and by those who live near it. And yes, the headlines on the doorstep may be unpleasant. But the readers of the newspapers–the close to 90 million credit union members across this country–should and must remember that despite the headlines, our credit union movement and the Corporate Credit Union Network is very strong. We’ll get through this together, doing what we do everyday, with safety and soundness.
Brad Miller is the executive director of the the Association of Corporate Credit Unions. He can be reached at 202-508-6731 or email@example.com.