I CU, And Raise
Credit unions have been fighting a long and arduous political battle here in Utah, but according to data provided by DataTrac, deposit rate competition is also heating up here. The Credit Union Journal discussed this growing competition with Shane London, chief financial officer of Deseret First CU.
CUJ: Are you feeling pressure to raise deposit rates?
London: There is a strong market here and credit unions have to be responsive. The credit unions tend to raise each other's rates. We have a lot of outside institutions, too-they are pretty strong and competitive on money market and CDs in particular. Probably CDs more than money market.
CUJ: How do your rates compare to your competition?
London: We are competitive. We tend to be in the top 10% to 15%. There are some that beat us on some rates, but we have rates that meet our members' needs. Outward pressure keeps us competitive.
CUJ: In addition to the Fed and your competition, what other factors do you consider in setting your rates?
London: We look at what the interest rate market is doing nationally and we try to stay as close as possible. We look at WesCorp and SunCorp and other sources every day to help us look at what the market is and combine that with our ALM modeling to mitigate interest rate risk as best we can.
CUJ: What sort of asset liability management tools are you using, and what are they telling you about your deposit interest rates?
London: We use Brick and Associates for our ALM modeling tool, and they are another source for data on trends and where things should be priced. In this rising rate environment coming out of historical lows, our modeling shows we are maintaining a pretty good number. Our interest rate risk is pretty minimal.
CUJ: Which rates are moving fastest?
London: Right now, deposits are moving faster because we have liquidity needs. Competitive pressures have forced deposit rates to move pretty quickly. Loans seem to be lagging behind. We try to be at the front end of responding on both deposits and loans. We monitor and try to keep adjusted to economic events. We can't do that all the time because interest rates on loans change slowly in this market.
CUJ: Which deposit rates are moving fastest for you?
London: CDs respond faster than money markets do. There seems to be more adjustments in the marketplace to CDs. The money market rate seems to be tied to the Fed changes, but CD rates have more variance. Institutions respond to each other's CD rates. You'll see more adjustment to those rates than the money market accounts.
CUJ: Where do you expect rates to go from here?
London: That's a hard one to look at. We monitor economic events. Many economists expect one or two more raises from the Fed. I don't envision a lot of rate changes. I think we've reached a plateau. By the end of the year or next year, I wouldn't be surprised if things start sliding down a little bit. We have to keep repricing - that's the challenge we face.