Operations

Excess Liquidity: What To Do?

July 09, 2010
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By Scott Powell, CFA®

Many credit unions are faced with the challenge of carrying too much cash while dealing with the combined headwinds of lower credit demand and ultra low, shorter maturity yields for governments, agencies, and other eligible spread instruments.

In the meantime, member demand for the best possible rates remains ever present.

It appears the global economy and capital markets face continued challenges that will keep economic growth at bay and interest rates lower than expected.

While we’re all aware market conditions can and will change, credit union management should prepare for an extended deposit-rich, low-rate, low-credit-demand environment for the next 12 to 24 months.

Here’s how:

1. Reduce deposit assets

For credit unions that have an investment program, members may be encouraged to visit the investment representative to look at alternatives to core credit union deposits, such as fixed or single-premium immediate annuities, money market mutual funds, short duration funds, or other alternatives.

While deposits are reduced, the credit union still retains some control over them because members aren’t taking their deposits to another financial institution, eager to expand their relationship.

For credit unions without an investment program, a possibility may be to partner with a local investment representative to accomplish the same objective.

A secondary benefit from a reduction in deposits is that your National Credit Union Share Insurance Fund assessment may be lower.

2. Work with institutional fixed-income managers

Find someone who understands your business and objectives to access scalable investment talent and platforms that also provide narrow institutional pricing and proven value-added results. In this tight-spread environment, every basis point earned and/or saved counts.

As part of your investment portfolio, consider leveraging other financial institution balance sheets through insured certificate of deposit (CD) purchases either through direct purchase or a brokerage account. Some institutions are offering CD rates that are a function of higher lending demand as opposed to being priced of the Treasury yield curve.

3. Monitor deposit rates

Closely monitor competitive deposit rates and consider keeping your credited rates at the lowest end of your competitive and philosophical range—a hard balancing act, we know.

4. Boost lending

Continue to develop highly targeted, value-added lending programs to higher-quality credits within your member profile to build the asset side of your balance sheet in a prudent manner.

While these strategies may not offer anything particularly new, if managed collectively and consistently over a defined time period, we think you’ll be pleasantly surprised at the constructive results your organization can generate.

Scott Powell is managing director, general account investments, for MEMBERS Capital Advisors Inc., the wholly owned investment advisory subsidiary of CUNA Mutual Group. Contact him at 608-231-7500.

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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