Monday, October 16, 2017

Report: CU Business Loans Have Grown Rapidly in Post-Recession Period

The Federal Reserve reported that small loans to businesses have grown rapidly in the the post-recession period, according to a Report to the Congress on the Availability of Credit to Small Businesses.

Between 2012 and 2016, outstanding business loans at credit unions increased by 53.4 percent. In comparison, small loans to businesses by commercial banks increased only 1.4 percent.

Despite this growth, outstanding small business loans at credit unions remain a small fraction of the total small business lending marketplace.

The report notes that aggregate credit union business lending is capped at 12.25 percent of assets.

As of June 2016, 5.6 percent of credit unions had outstanding loans to businesses totaling in excess of 80 percent of their cap. However, among credit unions with assets of more than $1 billion, 23.2 percent had outstanding loans to business in excess of 80 percent of their cap.

The report states that raising the cap has the potential to accelerate the rate of small business lending by credit unions.

The report was issued in September 2017.

Read the Report.

Saturday, October 14, 2017

Illinois Amends St. Elizabeth CU's Suspension Order

The state of Illinois announced on October 5 that it was amending the suspension order for St. Elizabeth Credit Union (Chicago, IL).

The Illinois Division of Financial Institutions suspended the operations for the tiny credit union for an additional 60 days.

The amended order cited numerous compliance deficiencies at the credit union.

For example, the credit union's point of contact(s) did not log in to the Financial Crime Enforcement Network's (FinCEN) Secure Information Sharing System. The point of contact(s) ignored biweekly notifications sent by FinCEN.

The amended suspension order also cited the credit union for not developing a policy to provide the necessary training for directors and committees to assist with their credit union duties.

Additionally, there was no Financial Elder Abuse of the Board's Vice Chairperson and transitioning manager of the credit union in the last three years.

The initial suspension order was issued on August 9.

Read the amended suspension order.

Friday, October 13, 2017

NCUA Chairman McWatters: Equity Ratio of 1.30 Percent Not Sufficient to Weather 2007-2009 Recession

National Credit Union Administration Chairman McWatters sets the record straight that the National Credit Union Share Insurance Fund's Normal Operating Level of 1.30 percent was not sufficient to weather the 2007-2009 financial crisis and recession.

McWatters stated:
"Some in the credit union community contend a 1.30 percent normal operating level has historically been sufficient to address risks to the Share Insurance Fund, including during the 2007–2009 financial crisis. This is simply not true. The very existence of the Stabilization Fund and the fact the NCUA borrowed $5.1 billion from the U.S. Treasury to fund resolution obligations, demonstrates that the credit union community was not prepared to handle the impact of the large losses that resulted from the failure of five federally insured corporate credit unions as a result of the 2007–2009 recession.

These corporate credit unions were not some wholly separate and anomalous externality. They were insured credit unions created, funded, and governed by natural-person credit unions. As noted previously, without the Stabilization Fund, all of the equity in the Insurance Fund would have been consumed by these losses.

The corporate system is better regulated now, and much smaller than it used to be. Therefore, the exposure to future losses from corporate credit unions should be significantly reduced. However, one cannot ignore the fact that the Insurance Fund was imperiled by the risk exposure of this portion of the credit union community.

Others contend that the credit union community weathered the financial crisis just fine with the caveat “if you don’t include the corporate credit union losses.” This contention also is not consistent with established historical fact. The number of troubled credit unions, including large institutions, increased materially during the Great Recession. The Share Insurance Fund’s equity ratio fell below 1.20 percent even without the corporate credit union losses. Meaning, the equity ratio fell below 1.20 percent only because of natural-person credit union losses and insured share growth.

The result was two Share Insurance Fund premiums totaling 22.7 basis points or $1.66 billion. The actual decline in the equity ratio from the 2007–2009 severe recession was predominantly the result of the increase in loss reserves for natural-person credit unions, as required under accounting standards applicable to the Insurance Fund and, to a lesser extent, elevated insured share growth. Realized Share Insurance Fund losses were significantly elevated as well. From 2008–2012, 112 natural-person credit unions failed at a cost of $807 million to the Insurance Fund.

Clearly, a 1.30 percent normal operating level for the Share Insurance Fund was not adequate to handle the 2007–2009 severe recession."
Hopefully, McWatters' statement puts to rest the false narrative being pushed by certain credit unions and their trade associations that the equity ratio of 1.30 percent for the National Credit Union Share Insurance Fund was adequate.

Thursday, October 12, 2017

Eight Lawmakers Write NCUA over Melrose's Treatment of Taxi Medallion Borrowers

Crain's New York Business is reporting that eight New York Democratic lawmakers wrote National Credit Union Administration (NCUA) Chairman McWatters urging the agency to review its treatment of taxi medallion loans originated by Melrose Credit Union, which is in conservatorship.

The letter stated that NCUA was unfairly punishing taxi medallion borrowers, who "through no fault of their own", were adversely impacted by the disruption of the taxi industry by riding sharing apps.

The letter urges the agency "to work with medallion owners, on a case-by-case basis, and to cease the practices of doubling interest rates, demanding homes be offered as additional collateral, refusing loan assumptions by willing third-parties, and requiring additional guarantors such as spouses be added to loans."

The letter was signed by Representatives Grace Meng, Joseph Crowley, Adriano Espaillat, Carolyn Maloney, Gregory Meeks, José Serrano, Nydia Velázquez, and Hakeem Jeffries.

Read the story (letter appears at the end of the story).

Wednesday, October 11, 2017

Cost of Funds for CUs About to Rise

Depository institutions need to plan for higher cost of funds, as higher interest rates cause depositors to shift to higher yielding deposit accounts.

Most Federal Reserve watchers anticipated that the Federal Open Market Committee will raise its target federal funds rate in the fourth quarter and continue to raise rates during 2018 and 2019. The federal funds rate will rise from 1.4 percent at the end of 2017 to 2.7 percent at the end of 2019.

The following graph shows the median projected federal funds rate for the years of 2017, 2018, 2019, and 2020.

According to a June S&P Global Market Intelligence report, the deposit beta is projected to reach 30 percent in 2017. The deposit beta indicates how much of the change in the effective fed funds rate banks pass onto customers." S&P Global Market Intelligence expects the deposit beta to reach 59 percent in 2018.

In comparison, during the last rate tightening cycle, the deposit beta was 41 percent and 62 percent in 2005 and 2006, respectively.

Moreover as interest rates rise, depositors will shift their funds from low yielding accounts into higher yielding deposits. As of June 2017, 73 percent of credit union deposits were in share drafts, regular shares, and money market share accounts; but 18 percent of credit union deposits were in share certificates.

However, a decade ago at the end of the last rate tightening cycle, credit unions reported 58 percent of their deposits in share drafts, regular shares, and money market share accounts, while 32 percent of credit union deposits were in share certificates.

What do you think your deposit mix will look like two years from now?

Tuesday, October 10, 2017

180 CUs Borrowed from Fed's Discount Window in Q3 2015

During the third quarter of 2015, 180 credit unions borrowed from the Federal Reserve's Discount Window.

In comparison, 166 credit unions borrowed from the Federal Reserve's Discount Window during the second quarter of 2015.

Credit unions borrowed 270 times from the Federal Reserve's Discount Window during the third quarter of 2015.

The aggregate amount borrowed from the Federal Reserve was approximately $505.7 million.

The average amount borrowed was just shy of $1.9 million. The median amount borrowed was $75,000.

There were 45 Discount Window loans of $1 million or more during the quarter.

Visions Federal Credit Union (Endicott, NY) borrowed the single largest amount at $65 million on August 19. The credit union borrowed a total of $210 million from the Federal Reserve during the quarter.

Several credit unions actively borrowed from the Discount Window during the third quarter. Aurora Credit Union (Milwaukee, WI) borrowed from the Federal Reserve 14 times during the quarter. Both Vermont State Employees Credit Union (Montpelier, VT) and Services Center FCU (Yankton, SD) visited the Discount Window 13 times. Glendale FCU (Glendale, CA) borrowed from the Federal Reserve 12 times.

All credit unions, except for four, borrowed under the Federal Reserve's primary credit program, which is reserved for only well run credit unions. Three credit union borrowed from the seasonal credit program, while two credit unions borrowed from the secondary credit program.

The Federal Reserve is required by law to disclose with a two year delay information on borrowings from the Discount Window.

Monday, October 9, 2017

Founders FCU Partners with Clemson University and its Athletic Program

Clemson University, Founders Federal Credit Union (Fort Mill, SC) and JMI Sports announced a comprehensive seven-year partnership that expands Founders’ commitment to Clemson Athletics and Clemson University.

As part of this agreement, Founders is now the Official Credit Union Partner of the Clemson Tigers and Clemson University.

Founders will be the presenting sponsor of the Homecoming football game and its brand will be prominently displayed throughout Littlejohn Coliseum.

Additionally, Founders will actively sponsor major events and programs on campus year-round, including being a proud partner of Clemson’s new bike share program.

Founders, the state’s largest credit union, has made a total commitment of nearly $6 million over seven years to sponsorship investments in Clemson Athletics and Clemson University.

Read the media release.

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