Too Much of a Good Thing

Recent news stories have highlighted that some credit unions are starting to turn away deposits, as they struggle with excess liquidity.

The Vashon Beachcomber reported that Puget Sound Cooperative Credit Union (PSCCU) has put a halt to new business accounts at its Vashon branch because it is too flush with cash with little loan demand.

PSCCU's chief executive stated that the credit union is considering writing letters to members who have $500,000 or more in their accounts and asking them to lower their balances. The CEO contends that this will allow the credit union "to receive the deposits of more members.”

The credit union opened the branch a little more than a year ago and attracted almost $20 million in deposits. Over the last year, total deposits at the credit union have grown by more than 36 percent.

As a result, the net worth ratio of the credit union has fallen from 9.31 percent to 6.95 percent. But an alternative calculation to measure compliance with regulatory capital standards states that the credit union's net worth ratio is 7.83 percent. So instead of being adequately capitalized, the credit union is still well capitalized.

The Minneapolis Star Tribune reported that Star Choice Credit Union recently mailed a short letter to about 20 customers informing them that it will no longer pay interest on the amounts they have above $100,000 in their money-market accounts.

"With the recent inflow of money, we have found that we can no longer pay market or above market rates on these accounts," President Daniel Christiansen said in the letter.

According to the Credit Union National Association, 17 credit unions offering money-market accounts dropped interest rates on all or parts of the balances to zero last year.

Read the Vashon Beachcomber story.

Read the Minneapolis Star Tribune article.