Tuesday, July 26, 2011

Non-member Deposits

The Material Loss Review on the failure of Beehive Credit Union noted that high cost non-member deposits rose to 18 percent of the credit union's deposits.

This got me thinking about how prevalent are non-member deposits as a source of funds for credit unions.

Federal credit unions are allowed to accept non-member deposits, as are state chartered credit unions. [Editorial note: This acceptance of non-member deposits seems to be at odds with the basic principle of a credit union as a membership organization.]

NCUA's regulations specify that the maximum amount of all public unit and non-member shares that a federal credit union can receive cannot, at any given time, exceed 20 percent of the total shares or $1.5 million, whichever is greater. However, this threshold can be waived by a NCUA Regional Director.

But if a federal credit union qualifies for reg flex designation, the federal credit union is exempted from the maximum amount of non-member deposits a credit union can accept. Also, credit unions that are designated as serving predominately low-income members are not subject to the cap on non-member deposits.

As of March 31, 2011, 831 credit unions reported accepting non-member deposits, worth slightly less than $2.4 billion. Almost 70 percent (576 credit unions) were not designated as serving predominately low-income members.

For these 831 credit unions, non-member deposits were about 1 percent of their total deposits.

The following analysis focuses on those credit unions without a low-income designation. Some of these credit unions reported substantial holdings of non-members deposits.

For example, ESL Federl Credit Union reported $316 million in non-member deposits, which represented 12.6 percent of its total deposit base.

There are 13 credit unions that report at least 10 percent of their total shares and deposits are from non-members. First General Credit Union has more than 25 percent of its deposits from non-members.

Additionally, some credit unions appear to be paying above market interest rates for these non-member deposits. According to its financial statement, Granite FCU reported paying an interest rate of 4.45 percent on non-member deposits.

Table 1 lists the 25 credit unions with at least $50 million in assets and not a low-income designation that have the largest holdings of non-member deposits.

Table 2 lists the 25 credit unions with at least $50 million in assets and not a low-income designation that have the most non-member deposits as a percent of total deposits and shares.


  1. Please remember that "non-member" deposits also include public fund deposits. Public fund deposits do not go against the credit union mission and provide an alternative federally-insured option for local governments that may have used up their insurance in local for-profit institutions.

  2. Keith,

    As with commentator #1, the non-member deposits at SECU are an aggregate deposit from the NC 529 Plan, an education related savings plan administered by the State(most States have these plans). Participants in the Plan like to limit their investment risk as a child approaches college age. SECU offers a federally-insured, daily interest money market account as an option.

    The $19 million is part of the over $700 million in the Plan. Most of the funds are actually from individual SECU members, altough the aggregate deposit is designated as non-member.

    NC state-chartered CUs have been permitted to accept non-member deposits since 1915!!! Non-member deposits are generally viewed as a source of short term borrowing and are rarely used by any NC CU.

    As usual, far more than you wanted to know...

    Thanks for the opportunity to comment.

    Jim Blaine, SECU

  3. Wow...I am truly appalled!

    Credit union have strayed so far from their central mission as a not-for-profit financial cooperatives. They have the audacity to try and accept non-member deposits from a state adminstered educational savings plan.

    Yet another example of credit unions gone wild!

    Kudos to Keith Leggett for conducting this shocking investigative report.



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