None of us want to see another lending crash. With today’s NCUA and FDIC insurance programs, money won’t be lost, but investments, collateral, and jobs are always in limbo.
How many of you know someone at a credit union which underwent a managed merger, either as the takeover entity or the one being absorbed? It accelerates a consolidation of the market, sure, but I don’t need to explain to any of you the hardships endured.
This post arises from a situation we faced during a recent partner planning meeting. The credit union had less-than ambitious goals for their auto lending growth. “Odd”, we thought. It was not until later in the meeting that we learned some background on their numbers.
Ever hear the phrase, “too much of a good thing”? This credit union was living it. They had been quite successful recently in their lending, so much so their cash reserves were depressed. The institution no longer had large sums of cash to lend and chose to devote marketing resources on growing their share account values. Turns out it isn’t an uncommon problem, as reported by CreditUnions.com.
What a wild challenge! It got me thinking. How can a credit union build cash reserves which are secure for a period of time, yet provide a value to their members? While, of course, having a low cost of attainment and maintenance?
I’m no financial expert (if my schooling had finance, I don’t remember). However, before I became more involved in investing, my go-to “safe bet” was a Certificate of Deposit. One year, three years, even 5 years; it was ok, since the money was safely locked away and earning a fixed interest.
Might CDs be a cost-effective strategy for growing cash reserves? No debit card required, the cash has a guaranteed term, and the member is happy to get more than 0.00014% interest.
Granted, I grew up in a world of Ferengis hoarding gold-pressed Latinum and a Starfleet which did away with money hundreds of years in the past. Perhaps I’m Scotty talking into the computer mouse in confusion.
Disclosure: As an independent agent working with credit unions, forced mergers are usually bad for our business. If our partner is the one being absorbed, we can probably bid their alliances goodbye. However, if it’s the other way around, we may find the potential market expanded. In truth, we would much rather expand our business through organic growth and greater credit union partner success. So, credit unions, please use your best judgment on maintaining a conservative loan to shares ratio. We are but lowly partners and should never be looked to for financial management advice. Besides, I’m a geek Millenial/Gen Y. Everyone knows you can’t trust us.
Disclosure 2: Image from Star Trek: DS9. Source: http://www.adafruit.com/blog/wp-content/uploads/2013/03/quark_600.jpg