Last updated: 01/23/2008


The Credit Union Economics Group Meeting with the 
Board of Governors of the Federal Reserve System - April 4, 2003 

Meeting Summary

Federal Reserve Board Governor Olson (right), Tun Wai (center) from NAFCU and Scott Mainwaring (left) from Vystar CU at the Credit Union Economics Group's Meeting.
Liquidity – 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.  
Auto 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.

Mortgage 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” purchases.  Some members are refinancing from 30-year mortgages to 15-year mortgages.  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 rise.  

Clockwise from top left: Brian McVeigh (State Employees CU), Dave Dickens (U.S. Central CU), Scott Mainwaring (Vystar CU), Tun Wai (NAFCU), Federal Reserve Board Governor Mark Olson, Bob Burrell (Western Corporate FCU), Jeff Taylor (NAFCU)
Left to right: Federal Reserve Board Governor Mark Olson, Bob Burrell (Western Corporate FCU), Jeff Taylor (NAFCU), Dave Colby (CUNA Mutual Group)
Savings Behavior – Safe Harbor  

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 ago.
Economic 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 charge-offs.

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CUEG intends to provide the credit union community as well as the general public with a biannual report discussing both current macroeconomic conditions as well as credit union-specific financial activity in each of the five NCUA regions. 
Fall 2005 Regional Report
One of the foremost purposes for CUEG is to provide a broad perspective on a variety of macroeconomic and credit union growth trends. A consensus forecast on the U.S. economic landscape is provided to the public free of charge.  
Economic Forecast
Through detailed planning sessions among the membership, the issuance of press releases on all current work products, and meetings with the Federal Reserve Board, CUEG intends to remain quite active throughout the calendar year.  
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