FARMERS BRANCH, Texas (5/19/08)--The federal government's efforts to boost the slumping economy through economic stimulus checks could result in a torrent of cash hitting credit unions. How should credit unions respond?
About 130 million Americans will receive checks, ranging in size from $600 to $1,800.
Preliminary surveys indicate that only 20%-25% of recipients will spend their checks, while the remainder will deposit the checks to bolster their savings balance or pay down debt--meaning credit unions could be awash in cash (LoneStar Leaguer May 16).
Such large inflows of cash are the kind of anomaly that can negatively impact a credit union's bottom line if the credit union has not been vigilant in adjusting interest rates relative to earnings, said analysts from Southwest Corporate Investment Services Asset/Liability Management (ALM) Service.
"If credit union capital is low and investment earnings are renewing at rates lower than those being paid on member dividends, large cash inflows will only exacerbate the move toward negative earnings," Mark DeBree, senior ALM analyst, told the Texas Credit Union League.
"Credit unions should determine whether dividend schedules are reasonable, based on earnings in the current interest rate environment," he added. "Some credit unions are reticent to cut the cost of funds because they want to provide the greatest value for their members. But maintaining share rates that are too high can result in negative earnings and jeopardize the credit union's financial condition.
"While credit unions can't ignore what competitors are paying on deposits, it should not be the sole determinant in setting deposit rates," DeBrees concluded.
courtesy of cuna.org
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