Credit Union Economics Group Meeting with the
Board of Governors of the Federal Reserve System -
April 4, 2003
Reserve Board Governor Olson (right),
Tun Wai (center) from NAFCU and Scott
Mainwaring (left) from Vystar CU at the Credit Union Economics
– Credit Union System
The surge of liquidity in the credit union system that
began in 2001 is continuing this year. As a result,
the loan-share-ratio for the community declined from
79 percent in 2000 to 68 percent in 2003.
Credit unions have done a good job of managing
the cost of the liquidity, securitizing assets, and
maintaining an appropriate return on assets.
Credit unions are very aware of the interest
rate risk attached to their liquid positions and are
performing ALM analysis regularly.
The corporate credit union system continues to
play an important role for the community during these
times of excess liquidity.
Lending – Low Cost Financing
Credit unions continue to face the “zero-zero” and
other automobile dealer incentives.
Credit unions are taking advantage of the
additional traffic in showrooms by educating members
about the true cost of incentives, and engaging in
indirect automobile lending.
Credit union used automobile lending continues
to be strong. While leasing exists, it is not a large
portion of most credit union portfolios. Credit unions
are utilizing risk-based lending procedures for auto
lending, and their
use is becoming more prevalent. Credit unions are very
aware of the fair lending regulations, and have
programs in place to insure compliance.
Lending - Refinancing
Demand for credit union real estate loan products
remains strong. Refinancing
activity continues at a brisk pace expected to last
for most of 2003.
Home equity loan demand remains strong, with
many credit union members using the funds (or savings)
to pay off debt and/or finance “big ticket”
members are refinancing from 30-year mortgages to
Credit unions are using corporate credit unions
to assist them in selling jumbo mortgages, and with
loan participation arrangements. Outlook for real
estate lending remains positive even if interest rates
from top left: Brian
Employees CU), Dave
Dickens (U.S. Central
CU), Scott Mainwaring
(Vystar CU), Tun Wai
Reserve Board Governor
Mark Olson, Bob
Corporate FCU), Jeff
to right: Federal Reserve Board
Governor Mark Olson, Bob Burrell
(Western Corporate FCU), Jeff Taylor
Dave Colby (CUNA Mutual Group)
Share growth remains strong during the first quarter
of 2003 and
is expected to remain relatively strong for the
entire year. Many credit union members are placing
their funds in short-term, liquid accounts such as
regular shares and money market shares.
However, members are worried about the present
state of the economy and cautious of the stock market.
As a result, members are putting some of their
funds into IRAs. Credit
unions have done a good job adjusting share rates, which
are now 50 to 70 basis points lower than a year
Forecast - Uncertainty
Credit unions and their members are concerned about
the present state of the economy.
Weak labor markets, the poor financial shape of
many industries (credit union fields of membership),
the weak fiscal position of most state and local
governments, and the geopolitical situations have
created a great deal of uncertainty.
While some credit unions are concerned about
loan growth, there is no evidence that the community
as a whole is lowering lending standards.
Many credit union boards are delegating loan
and share rate determination to senior management, and
credit unions are frequently adjusting those rates.
Credit unions remain cautious with their
investments and are not chasing yields.
When the economy, interest rates and the
capital markets reverse, credit unions will be
prepared. The community remains sound financially,
with an average ROA of 1.07 percent and a net worth of
10.7 percent. Asset quality remains solid, with the
principal concern being bankruptcy reform.
Bankruptcies continue to account for 50 percent of