The surprise decision by voters in the United Kingdom to leave the European Union has rattled global financial markets and led to the sudden announcement of resignation from Britain's Prime Minister David Cameron, but the long-term impact on America's credit unions is still unclear.
As of late Friday morning, the Dow Jones Industrial Average was down about 450 points, while the Pound Sterling plunged to 30-year lows. Bank stocks in both the U.S. and U.K. have incurred significant losses in Friday trading.
But how will "Brexit" impact credit unions in the U.S.?
Volatility, Then Uncharted Waters
Some experts believe that an EU without Britain (which is expected to take at least two years to complete) will spark increased volatility in U.S. financial markets (as witnessed Friday morning); compel the U.S. Federal Reserve bank to refrain from further hiking interest rates until at least the end of the year; and strengthen the U.S. dollar against both the pound and the euro. Some have also suggested mortgage rates will fall, as well.
Of course, any significant ripples in the U.S. economy will eventually have some impact on credit unions finances — but it's unclear to what extent.
Curt Long, the chief economist at National Association of Federal Credit Unions (NAFCU), said in a statement that credit unions "should prepare for the present interest rate environment to persist for some time as normalization is bound to proceed on an even more gradual path than the Fed has previously indicated."
In addition, credit unions are also "likely to see a repeat of the second half of last year when market volatility led to a surge in share growth," Long said.
Meanwhile, economists at Credit Union National Association (CUNA) said their outlook for credit union financial operations is "essentially unchanged" as a result of the Brexit vote.
"Credit union members are likely to be a bit more cautious initially and some credit unions will likely see above-normal flows into savings accounts," CUNA said in a statement. "However, our view still calls for double-digit growth in credit union loans in 2016, healthy earnings and improving asset quality."
But CUNA also warned that Britain's departure from the EU will have a short-term "negative effect" on the U.S. economy, noting that the UK is the seventh largest trading partner of the U.S.
"The appreciation of the U.S. dollar affects our trade not only with the UK but also with other countries," CUNA said. "As uncertainty in the EU area rises, demand for risk-free financial assets will rise causing [U.S. Treasury] yields to drop even lower."
Indeed, on Friday morning the 10-year U.S. Treasury yield was as low as 1.50%.
"We can expect an increase in financial inflows into the U.S. as a result of uncertainties in the Euro area," CUNA added.
Still, the association assured that any adverse short-term negative effects on the U.S. economy will "eventually diminish" as investors get a "better handle of market reaction" to Brexit, and plans on UK's disassociation with the EU becomes concrete."
Moreover, in the medium- to long-term, CUNA believes that Brexit "should benefit the U.S. economy assuming that our trade relations with the UK is enhanced."
G. Michael Moebs, an economist & CEO at MOEBS $ERVICES, takes a decidedly more pessimistic view, citing that as a result of Brexit, the American consumer will "continue to stockpile money in their checking accounts" due to the uncertainty and that the Great Recession in the U.S. will continue as the consumer stockpiles checking dollars.
