WASHINGTON -
But there's another check cut by the NCUSIF-in fact, thousands of them-that is often overlooked but that acts as something of a bellwether for the state of the industry, and at first glance, it doesn't look good.
Since the 1980s credit unions have been required to keep 1% of their total member deposits on deposit with the NCUSIF. If member deposits rise during the year, a credit union must make a corresponding adjustment in its payment to the NCUSIF. But the reverse is also true; if there is a deposit outflow, the credit union has more on deposit with the insurance fund than it needs to, and the NCUA transfers the corresponding amount back to the credit union.
The number of adjustments paid as refunds by the NCUSIF on the 1% deposit has risen nearly every year for the last seven years. In October of 2000, for instance, the NCUA made adjustments for 3,538 credit unions totaling $21 million. For the most recent period, March of 2007, the payments made were significantly larger (reflecting in part a growth in assets). In March of this year, NCUA sent adjustments to more than 5,000 credit unions whose deposits had decreased since the previous quarter for a total of $86 million.
Is deposit growth not just flat but shrinking? Is it just Americans' poor savings habits that are to blame?
It's not that simple, two experts told the Credit Union Journal, acknowledging that it's no secret that deposit growth has been stagnant and even shrinking for many CUs. Dr. Tun Wai with NAFCU, along with CUNA's Chief Economist Bill Hampel, noted that the NCUA data reflects a diverse collection of credit unions. Wai pointed out that each and every credit union doesn't get a refund every year, with CUs moving in and out of position for a refund depending on their individual circumstances. Wai added that he believes the congressionally-mandated equity ratio for the NCUSIF of 1.3% of total credit union deposits is working.
"To me, it's prima facie evidence that equity is set at the right level. It's not forcing credit unions to give too much money or the NCUA to keep too much," Wai said.
Hampel echoed Wai's comment on refunds not going to the same credit unions each year and pointed out that larger CUs have a much less difficult time increasing savings than smaller CUs, due in part to the ability to pay higher dividends. While Hampel cited the obvious drastic change in refunds from 2,400 payments in March 2003 to a peak of 6,000 refunds in September 2006, he said a primary factor is the negative savings rate of the American people.
"It's awful hard to get people to save when they are not saving money," he said.
Credit unions only deserve "half the blame" according to Hampel, citing the fact that the United States has had 22 straight months of poor or no savings, the longest stretch since the Great Depression. Hampel said the American household sector is "dis-saving" by borrowing money or drawing down on its assets, simply to buy more things.
Hampel said overall savings grew by 4.5% last year, with larger credit unions bringing in more than small CUs. Another factor affecting the data, is a nine-month old inverted yield curve that has caused short term rates to be higher which in turn is making it more difficult to increase share deposits. "I'm not convinced these are permanent external pressures affecting all deposit institutions. When people start saving, credit unions will get their share," Hampel said.
NCUF 1% Deposit Adjustment Refunds
Year Paid Number $ Amount
2002 1,493 13,886,881
2003 2,379 29,716,766
2004 3,073 59,967,095
2005 4,871 72,611,251
2006 6,074 104,915,569
Source: NCUA
