Wow how times have changed – remember during the pandemic, credit unions had so much liquidity no one knew exactly what to do with it. Now everyone is asking where has all the money gone?
AIM knows! The money has largely gone to loans, longer term investments, inflation, and institutions competing for certificates and money markets. Credit unions in Millennium’s primary field of membership (Kansas, Missouri, Montana, & Nebraska) saw loans increase by $5 billion in 2022. In the three years past from December 2018 to December 2021, credit unions’ loans only increased by $5.3 billion. Credit union borrowings increased 164% (1.2 billion) year over year in 2022 and have already increased 29% annualized as of March 2023.
What Can Credit Unions Do? They can try the traditional method of attracting funds from their members by raising share rates. However, if that is not working, credit unions are going to have to look elsewhere.
Credit unions have several different options and AIM would like to help you find the one that works best for your credit union.
Option 1: Issuing Non-Member Certificates – Whether you need $100,000 or $100 million, credit unions can issue Non-Member Certificates through SimpliCD or another rate service. SimpliCD is quick and easy with no fees other than you must pay current market rates. The downside is that current rates are higher than usual and there aren’t as many buyers as usual with liquidity being so tight.
Option 2: Redeeming Certificates – Selling your certificates/CDs and taking a penalty for early redemption is another option. This has been hit or miss for a lot of credit unions that AIM works with because financial institutions have increased their penalties from what has been done in the past. Some issuers do not even allow early redemption. We see more financial institutions issuing DTC Certificates (Depository Trust Company). These are sold in the open market at current market rates so you might have to sell at a discount. If the market is right, you might get above par for your certificate, giving you a gain. In the current market, with the rates ramping up so quickly, we are seeing large penalties.
Option 3: Selling Securities – Credit unions that hold marketable securities see their monthly market values and know that most if not all their securities are at a loss right now. However, selling your securities might be a cheaper option than some of the alternatives.
Option 4: Participations – Selling loan participations to other CUs is an option, but this hasn’t been very popular because most credit unions would have to sell at a loss. Again, with liquidity being tight there are not many buyers in the market and if they have funds, they can purchase investments with similar rates and less risk.
Option 5: Borrowing – Finally, borrowing from Millennium Corporate or another financial institution. Through Millennium Corporate you can get an overnight advance with your line of credit. However, if you want to leave your Line of Credit open for future advances, you can do a secured term loan.
There is not one perfect solution that works for all credit unions, and it can be too difficult to analyze every option so if you need help looking at what’s available to you give AIM a call - 855.882.8474 or email aim@aimcusolutions.org.