Credit union leaders are closely monitoring member deposit levels and ramping up information campaigns after a wave of regional bank failures has left many consumers questioning which institutions are secure.
Following the self-liquidation of
Although credit unions generally cater to a narrower client base with less exposure to the startup and cryptocurrency markets, their members can just as quickly lose confidence and pull their deposits. To address fears, credit unions are taking multiple approaches to avoid being swept up in the current crisis.
Some are adapting their approaches around monitoring member deposits that exceed the $250,000 insurance threshold under the National Credit Union Administration.
Kim Reedy, president and CEO of the $3.3 billion-asset OneAZ Credit Union in Phoenix, said his institution is in the process of building and rolling out the capability for daily reporting of liquidity risk as an additional component of its internal monitoring processes.
"We always want to make sure that we are 100% confident in the ability to provide the deposits and cash needs of our membership, anytime," Reedy said, estimating that only 12% to 14% of member deposits are uninsured.
After reviewing the tool and ensuring positive results, Reedy plans to further deploy the solution into OneAZ's Asset and Liability Management Committee, which is tasked with overseeing the risk management of a credit union's balance sheet and drafting financially sound business plans based on the results.
Other credit unions are making their most senior executives available to talk to members. Harold Hagen, chief executive of Hometown Credit Union in Hulm, North Dakota, said he has been fielding questions from members all week in regards to the credit union's safety and soundness.
"I have reassured them that we are well capitalized (over 15%), plus we have a large loan loss reserve (over 2% of total outstanding loans) that would more than cover our depositors. We have solid liquidity now and many sources of additional funding should we need to access additional liquidity," he said in an interview.
Hagen is presently working on a memo that the $178 million-asset credit union's staff can share with all members to address these concerns. In addition, it is already helping some members legally structure their deposit accounts to maximize their NCUA insurance coverage.
In response to the uncertainty spreading throughout the financial services industry, Todd Harper, chairman of the NCUA, addressed worries around the bank failures at the agency's monthly board meeting by highlighting the NCUA's Central Liquidity Facility and other federal alternatives as sources of funding while also stressing that more than 91% of all share deposits are insured.
"Recent events provide a good reminder of the dangers of concentration risk and the need for effective risk-management policies and practices in the areas of capital, interest rate risk, liquidity risk and credit risk. … Credit unions must remain diligent in managing risk and ensuring their safety and soundness," Harper said.
At the beginning of the year, the NCUA's board placed risks surrounding
Experts with the Credit Union National Association and the National Association of Federally-Insured Credit Unions hold that proposed legislation for increasing access to liquidity backstops and doubling down on lending risk oversight are key for ensuring the longevity of the industry.
"Between the NCUA, the state regulators and individual institutions, all that we need is there. … I think we just need to stick to good fundamentals and balance sheet management during what's going to be a tough time," as uncertainty around interest rates continues to rise, said Greg Mesack, senior vice president of government affairs for NAFCU.
As many credit union leaders remain confident in the system — and as member doubts are slowly resolved — business strategies for furthering financial inclusion in underserved communities remain largely unchanged.
"Giving people more financial options means less concentration in any one financial institution, and that's good for consumers and good for the economy. … Providing that safe harbor in life's storms is built into credit unions' DNA," said Jim Nussle, president and CEO of CUNA.
