Risk Management & Analytics: Five factors affecting credit union deposits

Five factors affecting credit union deposits

In today’s economic environment, financial institutions of all shapes and sizes need to think long-term about their balance sheet and business decisions. Credit Unions, in particular, are unique in that a large percentage of funding comes from member shares, money markets and Certificates of Deposit. Since deposits are a main source of funding, Credit Unions need to keep in mind the following five factors affecting deposit performance:

(1) Interest Rates

As the Fed continues to hike rates, no blanket predictions can be made as to how rate change will affect Credit Union deposit behavior. Behavior may vary significantly among product types, depending on the Credit Union’s member base and product mix. Studying past behavior will provide better insights as to how depositors will respond as interest rates continue to rise.

(2) Online Banking

Online banking presents a growing risk to Credit Union deposits as rates are more competitive, visible, and the convenience factor is appealing to the average consumer. Moreover, younger generations expect a financial institution to provide tech-enablement. As part of your overall deposit strategy, evaluate how online and mobile banking will affect deposit performance and retention, and ensure your team is focused on identifying opportunities to remain competitive and strengthen member loyalty.

(3) Over or Under Pricing Products

If a Credit Union is reacting to the competition by offering attractive rates on CDs and other products, it may bring in more members but it could also create overhead costs and increased rate sensitivity. Ensure your pricing strategy is part of an overall balance sheet plan.

(4) Member Loyalty and Acquisition 

Credit Unions rely heavily on the loyalty of their membership. While some credit unions may lose members to online banking, others will increase membership due to attractive promotions, solid reputation, and community engagement. Knowing the difference between loyal members versus rate-sensitive members will enable Credit Unions to better understand deposit performance and create a solid pricing/funding approach.

(5) Unbalanced Growth and Liquidity Constraints

How balanced a Credit Union’s short-term and long-term funding is has larger liquidity risk implications. If loans are outpacing deposits, the stability of your growth may not be sustainable. The fear of liquidity constraints creates a “WAR” for deposits to keep balances and attract a source of funding for assets.

While many Credit Unions continue to thrive and gain membership, other Credit Unions are looking for innovative solutions or alternative sources of funding to catalyze growth and compete.  Using our proprietary McGuire methodology, MountainView Financial Solutions provides its Credit Union partners with independent deposit analysis, which paints a detailed picture of deposit supply and retention, and other behaviors affecting the balance sheet. To view the above article as an infographic, click here.

To learn more about the McGuire deposit analysis, please reach out to Karen Schwall, kschwall@mviewfs.com.

CFPB: Banks effectively managing ECOA compliance risk in small-business lending

The Consumer Financial Protection Bureau recently issued a “Supervisory Highlights” report focusing on recent examiner observations of several bank products or business lines, including auto loan servicing, credit cards, debt collection, mortgage servicing, payday lending, and for the first time, small-business lending.

With respect to small-business lending, the CFPB found that the financial institutions it examined were effectively managing the risks of violations under the Equal Credit Opportunity Act (ECOA), and that boards and management teams were generally maintaining active oversight over the institutions’ compliance management framework. Exams revealed, however, that banks are collecting only limited data on small-business lending decisions, which the bureau noted could affect their ability to effectively monitor and test for ECOA violations.

The bureau also flagged several issues related to mortgage servicing, including delays in converting trial modifications to permanent modifications, charging consumers amounts other than those stated in their loan modification agreement, initiation of foreclosures after borrowers accepted a loss mitigation offer, and misrepresentations around foreclosure sales.

Read more: American Bankers Association Banking Journal

Reforms haven’t eliminated risk of another Lehman-type failure

Reforms made in response to the bankruptcy of Lehman Brothers in 2008 won’t prevent a repeat, experts told MarketWatch.

As the 10th anniversary of the Sept. 15, 2008, bankruptcy of investment bank Lehman Brothers approaches, MarketWatch looked at whether the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 and other reforms will prevent another financial crisis if there’s a messy failure of a non-bank financial institution like Lehman.

According to the law’s preamble, Dodd-Frank’s purpose is “To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end too big to fail, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices and for other purposes.”

MarketWatch looked at two areas of reform resulting from Lehman’s bankruptcy and the effect the failure had on the financial crisis: the new Dodd-Frank orderly resolution authority that replaced bankruptcy for “too big to fail” banks, and the elimination by accounting standard setters of the loophole that enabled the use of Repo 105, an accounting technique Lehman that also allowed balance sheet “window dressing.”

Read more: MarketWatch

U.S. Bank names chief risk officer

U.S. Bank has named Jodi Richard as its new vice chairman and chief risk officer, overseeing the company’s risk management and compliance efforts as it continues its legacy of developing and maintaining strong risk management capabilities, the company announced.

She will succeed P.W. Parker, who previously announced his intention to retire this fall. The handoff between leaders will begin in the next few weeks to ensure a smooth transition, with an effective date of Oct. 1. Richard will join the company’s managing committee and will report to Chairman, President and CEO Andy Cecere.

Richard is currently the company’s chief operational risk officer, overseeing operational risk management and independent testing functions, which encompasses everything from operational loss mitigation and risk control assessment to consumer complaint management, fraud risk management, third-party risk management, data protection and governance, model risk, payments risk, enterprise security and crisis management.

Read more: Compliance Week

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