CUs Pulling Funds From Corporates, Chasing Better Rates Elsewhere

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WASHINGTON-Credit unions are pulling their time deposits from the corporate system at increasing rates in recent months, with the corporates' share of the movement's investable funds falling to a 30-year low of just 7.7% as of the end of July, according to CUNA.

Even with big increases in so-called investable funds-defined as cash plus investments-pulling $17.5 billion, or 42%, out of their corporates over the previous 12 months.

The corporates held almost 20% of the investable funds for credit unions at year-end 2007.

The low rates available through many corporates has also led many CUs to look at other options for funds (CU Journal, Sept. 13).

"They've been losing market share for years, it's accelerated," said Charles Felker, a vice president at credit union bond house First Empire Securities and a former corporate examiner for NCUA. "In the past, credit unions have put all of their excess funds or most of their excess funds in corporates. Now, they're pulling it out of the corporates and putting it directly into the capital markets."

CUNA's Chief Economist, Bill Hampel, added, "The corporate system is heavily damaged." Hampel's staff compiles the monthly data based on surveys of some 500 credit unions. According to Hampel, if it weren't for a big growth in investable funds over the past year-$38 billion-the decline in corporate deposits would be even greater. "The pie is growing substantially," Hampel said.

"A lot of credit unions are being cautious; a lot of credit unions are still angry," said Hampel of the ongoing change in the corporate system.

CUNA's figures show increasing share and dollar amounts are being invested in agency securities, those that are implicitly guaranteed by the U.S. government, and a bigger share in so-called other investments, which includes overnight accounts. Banks and S&Ls now hold a greater share of credit union funds (12.2%) than do the corporates.

"Credit unions are looking for alternatives to the corporates to lower their credit risk," said Felker.

In the longer term, he said, credit unions will look more to their corporates for payment functions, investment service providers and asset liability management services, and less for their investments. "It means that they are no longer investment vehicles," he said of the corporates," said Felker. "Credit unions are looking for higher return and I don't see corporates being viable as investment facilities in the future."

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Corporate credit unions