NorthWesternFinancialReview.com Blog

Yesterday’s rate-comparison announcement from the National Credit Union Administration illustrates a point I’ve heard repeatedly in reporting an upcoming story about credit unions: if CUs are having a hard time raising enough capital to keep pace with share growth, they should curb that growth by paying less in dividends/interest. In the seven CD categories tracked by the NCUA survey, credit unions paid, on average, 31 bps more than banks for deposits.

The pace of share growth at some credit unions is certainly causing capital concerns, as indicated in this December letter from NCUA chairman Debbie Matz to Congressman Barney Frank, chair of the House Financial Services Committee. In the letter Matz points out that some credit unions are reluctant to take in more deposits, which, without a corresponding rise in capital, diminish net worth and make the credit union susceptible to prompt corrective action.

“The risk of reputational damage from being branded less than ‘well capitalized’ and in need of ‘restoring’ net worth…is reportedly having a significant chilling effect on the willingness of some ‘well capitalized’ credit unions to accept new share deposits,” Matz said.

H/t to CSBS Newbytes.