The Financial Stability Oversight Council (FSOC) in its 2018 Annual Report stated that the credit union industry posted relatively strong performance due to solid loan demand and a strengthening economy.
FSOC noted the credit union industry performance has bifurcated. Larger credit unions have fared better than smaller credit unions across many performance measures.
FSOC also commented that credit unions continue to struggle with interest rate risk.
It wrote that some credit unions appear to be reaching for yield by lengthening the term of their investments in order to boost near-term earnings. However, these credit unions' financial performance could be adversely impacted, if short-term interest rates rise faster than expected. But it seems that this risk is retreating as markets are anticipating fewer rate hikes from the Federal Open Market Committee in 2019.
The report further noted that credit unions' exposure to localized economic distress can present unique challenges, as they are closely tied to specific geographic areas or business organizations.
For example, credit unions exposed to the taxicab industry, which has been disrupted by ridesharing companies, have undergone significant financial distress. As of the second quarter of 2018, there were seven credit unions with with $3.0 billion in taxi medallion loans either on their balance sheets or sold to other credit unions. Two of these credit unions with total assets more than $1.5 billion and specializing in taxi medallion loans were placed into conservatorship in the first half of 2017 and liquidated in the third quarter of 2018.
Read the report.
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