Skip to main content

Your Credit Union CAN Use Public Fund Deposits To Fund Assets

By Corporate One Federal Credit Union


Once largely thought of as taboo, the use of external funding is now widely accepted throughout the credit union industry. In fact, the NCUA has required all credit unions to seek multiple liquidity sources and document those sources in their liquidity policy.
As the acceptance of external funding has improved, credit unions are increasingly sourcing funds from many channels, including the Federal Home Loan Bank System, the corporate credit union network, and several non-member deposit channels, such as public fund deposits.
Yes, public fund deposits are being increasingly sourced to fund credit union assets.

Increasing Growth, Benefits, And Uses

Total member and non-member government deposits totaled $5.4 billion at year-end 2017. This is an increase of 27% since 2015. While this amount pales in comparison to total deposits and other liabilities, how important are these deposits to the nearly 500 credit unions who report them?
Many of these credit unions are strategically pursuing public fund deposits as these deposits are an additive funding source from outside the industry. These deposits provide stability as they are not subject to the liquidity strain that can occur across the entire credit union and banking industry. Additionally, they mitigate the seasonality of consumer deposits and support core deposit metrics.
When pursuing a matched book asset liability strategy, public fund deposits offer a compelling and economically sound funding source for select loan portfolios while preserving your existing credit lines. The amount and term of a public fund deposit can be structured to closely match a member business loan origination. Or, the deposits can be used to fund an unsecured loan portfolio or a specific vintage of originated of auto loans.

Acquiring Public Fund Deposits

But, you ask, how are credit unions accepting public fund deposits? Public fund deposits are largely controlled by state statutes for both the depositors and deposit takers. When these statutes were initially created, the credit union industry was largely cut out, and public unit depositors were limited to FDIC-insured institutions. Much like the taboo of using external funding, many credit unions think they are completely locked out of the public funds market. But that is not true.
The great news is that efforts to facilitate public fund deposits to credit unions are paying off. Many states now allow government entities to deposit funds in credit unions. Additionally, there are states that allow their government entities to place their deposits nationwide.
So, consider a federally insured and chartered credit union in Florida or Ohio accepting public fund deposits from multiple government entities from Minnesota. This is happening.

Looking At Collateralized Options

While credit unions may find the NCUSIF insurance limitation restrictive for raising external deposits, several states allow collateralized deposit options. Using excess collateral at a Federal Home Loan Bank or the Federal Reserve Bank are a couple of options for collateralizing deposits. Or, credit unions could work directly with their safekeeping agent on possible collateral arrangements. Lastly, these states may also allow a public fund deposit to be supported by a letter of credit issued from a Federal Home Loan Bank.

Serving Our Local Communities

Credit unions restricted on a local level continue to lobby legislators to modify rules and statutes to expand the deposit market to credit unions. This is a growing need, as smaller communities with local and state government operations have lost bank presence in their community and thus access to local financial services. The desire and willingness of public fund depositors, and their aggregators, to place deposits with credit unions will certainly promote further change.
Overall, continued growth of public fund deposits in credit unions will further support our position as a viable and, in some cases, preferable deposit taker for local government entities.

Getting Started

Learn how your credit union can take advantage of public fund deposits in this on-demand webinar: Public Fund Deposits And Your Credit Union.
Perry Jones is VP, Portfolio Manager, at Corporate One FCU


Read more: Yes, Your Credit Union CAN Use Public Fund Deposits To Fund Assets | Credit Unionshttp://www.creditunions.com/articles/yes-your-credit-union-can-use-public-fund-deposits-to-fund-assets/#ixzz5FZPo5dH4

Comments

Popular posts from this blog

NCOFCU Newsletter

The Bucket Coach is a financial advice book designed by Fire Services Credit Union, Tronto, Canada. and written exclusively for Fire Fighters It's a practical guide for household financial management, including investments, credit and mortgages, and retirement. Developed with contributions from Fire Fighters," NCOFCU Newsletter : " Kevin Connolly Chief Executive Officer    Fire Services Credit Union Phone: 416-440-1294 ext 301  Toll Free: 1-866-833-3285 E-mail:  kevin@firecreditunion.ca 1997 Avenue Rd Toronto, ON M5M 4A3 

CUNorthwest Todd A. Powell Award is SFCU CEO Gayle Furness.

Spokane Firefighters Credit Union Big Enough to Serve. Small Enough to Care. This year’s recipient of the CUNorthwest Todd A. Powell Award is SFCU CEO Gayle Furness. Like Todd, Gayle has been instrumental in the growth, as well as the safety and soundness, of the credit union. Congrats to Gayle for living up to the standard that Todd created for our organization and the greater credit union community. __ ________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board

The Shrinking Pool of Small Credit Unions: Why It Matters & What We Can Do About It. - Henry Meier, Esq.

  Henry Meier, Esq. Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at  henrymeieresq@outlook.com . For as long as I’ve been around the industry, I’ve heard concerns about the demise of the small credit union. But I’ve come to realize it’s a lot like the weather: Everyone talks about it, but no one does anything about it. This is unfortunate. We need credit unions of all shapes and sizes to survive, and if we don’t take action soon, it will be too late.  Fortunately, there are steps the industry can take to potentially decrease the rate at which small credit unions are disappearing by making it viable for credit unions to survive by getting larger credit unions interested in making the necessary investments to keep the sma...

What Are Your Plans -As Government Shutdown Continues, Credit Unions Expand Offers of Assistance

BILOXI, Miss.— With the federal government shutdown now entering its second week, an increasing number of credit unions across the country are offering relief and financial assistance. All indications are the shutdown is no closer to ending than it has been since it began on Oct. 1. While the House has passsed a continuing resolution (CR) to fund government operations in the short term, the Senate remains at an impasse, even as it has scheduled a vote for today. In addition to the earlier assistance reported by the CU Daily  here , the latest pledges to support members include: • In Biloxi, Miss., Keesler FCU said it is offering paycheck relief for all eligible federal employees affected by the shutdown and will advance the amount of direct deposit paychecks for eligible members during the shutdown for up to 90 days. There is no cost or fee to enroll in the program. • In Nebraska, Cobalt Credit Union is offering furloughed members loans of up to $5,000 with no fees or interest...

Sunday Reading - FIRE, 101 - “financial independence, retire early,”

  Retiring at 30     FIRE, 101 Most US workers aim to retire around age 65—but for many followers of the FIRE movement, which stands for “ financial independence, retire early ,” that’s not the case. FIRE followers, who range from low- to high-income workers, typically prioritize high savings rates, relatively frugal living, and aggressive investing strategies in an effort to work less and enjoy life more in the long-term ( see five distinct approaches ). While many proponents argue that the movement is more of a mindset about achieving financial freedom than any ...