Skip to main content

CUNA Mutual’s Chief Economist Steve Rick - What is Happening in the Savings Market?

MADISON, Wis.–A new analysis from CUNA Mutual’s chief economist is offering some insights into what is taking place in the savings market and driving consumer behavior.

Writing in CUNA Mutual’s newest Trends Report, Chief Economist Steve Rick noted the recent failure of Silicon Valley Bank was due to a liquidity crisis as depositors set off an old-fashioned bank run and withdrew their deposits. As a result, many small- and medium-sized regional banks have reported a loss of deposits, as some depositors have moved deposits to larger “too big to fail” banks.

CUNA Mutual Checking Chart

“Credit unions are not immune to this trend,” wrote Rick. “During the first two months of 2023, credit union checking balances declined 2.4%, regular share balances fell 1.1% and money market deposit account balances fell 3.8%. But offsetting this decline has been a surge in certificates of deposits, which rose 12.5%. This shift in the mix of credit union deposits from low-cost to high-cost deposit accounts has tripled credit union cost of funds, from 0.35% in the first quarter  of 2022 to 1.1% in the first quarter of 2023.”

The Driver

So, what is driving the drop in money accounts (i.e., checking, savings, MMDAs) and the rise in investment accounts (i.e., certificates of deposit), asked Rick.

“The famous 20th-century economist John Maynard Keynes theorized that the demand for money was a function of interest rates, income, and the price level,” he explained. “He stated that a rise in market interest rates should reduce the demand for checking balances. The interest rate on CDs and Treasury bills represents the opportunity cost of holding checking balances that typically pay little to no interest.”

Rick pointed to the chart below, which shows the negative relationship between credit union checking account growth and the Fed Funds interest rate.

Shift Occurring

“Whenever the Federal Reserve raises the Fed Funds interest rate by more than three percentage points, credit union checking account growth slows significantly as funds shift to CDs or move to money market mutual funds,” Rick stated. “This happened in 1994-1995, 2005-2006, and again today in 2022-2023. This trend will only intensify as the Federal Reserve continues to raise interest rates.”

Comments

Post a Comment

Please no profanity or political comments.

Popular posts from this blog

Update: First Responder Credit Unions Academy (FRCUA) Udates

In an ongoing effort to keep your FRCUA education current, modules are continually updated to reflect current NCUA and other regulatory agency requirements. As an example, BSA 26 now includes  Artificial Intelligence and BSA,  Elder Financial Exploitation,  Pig Butchering & BSA, and Executive Order –  Free and Fair Banking.
Post a Comment
Read Complete Article HERE>»

Mortgage Rates Tick Down

MCLEAN, Va.--Mortgage rates moved slightly lower this week, with the 30-year fixed-rate mortgage averaging 6.56%, Freddie Mac reported. “Mortgage rates are at a 10-month low,” said Sam Khater, Freddie Mac’s chief economist. “Purchase demand continues to rise on the back of lower rates and solid economic growth. Though many potential homebuyers still face affordability challenges, consistently lower rates may provide them with the impetus to enter the market.” The 30-year FRM averaged 6.56% as of Aug. 28, down from last week when it averaged 6.58%. A year ago at this time, the 30-year FRM averaged 6.35%. The 15-year FRM averaged 5.69%, unchanged from last week. A year ago at this time, the 15-year FRM averaged 5.51%, Freddie Mac said. ____________________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board
Post a Comment
Read Complete Article HERE>»

SIGN UP FOR YOUR CUSTOM HEALTH INSURANCE SOLUTION TODAY

 https://bizu65.allstatehealth.com/?password=demo ____________________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board
Post a Comment
Read Complete Article HERE>»

Many CUs Likely to Face New Operating Challenges "Michael Moebs"

04/08/2024 09:04 pm By Ray Birch LAKE FOREST, Ill.—The trend lines don’t lie: Financial institutions charging high overdraft fees will likely face operating challenges in the near future and may even be forced to merge if they don’t follow the market trend of lowering their OD charge. Michael Moebs, economist and chairman of Moebs $ervices, is offering that forecast following his company’s new overdraft study, which has found overall net OD revenue for 2023 was down 5.7%, with banks dipping by 8.1% to $31.4 billion, thrifts falling by 28.6%. and credit unions actually increasing net revenue 2.2%. The study further reveals the m...
Post a Comment
Read Complete Article HERE>»

Wendelville Fire Chief Andrew Pilecki re-elected to FASNY board

Andrew Pilecki, the current fire chief of Wendelville Volunteer Fire Company, has been re-elected to the board of directors of the Firefighters Association of the State of New York. Pilecki has been a member of the fire service for more than four decades, including the past 22 years as a responder with the Wendelville company. Previously he was an active member of Columbia Hook and Ladder Co. He’s also a former assistant director of emergency management for the City of North Tonawanda. FASNY directors serve five-year terms of office. During his first term, Pilecki was instrumental in supporting the association’s pandemic response, championed fire company recruitment and retention efforts, and worked to amplify the needs of Western New York’s volunteer fire service at the state level, according to FASNY. “I’m honored to be re-elected and to continue advocating for the men and women who volunteer their time, risk their safety and serve their communities across the state,” Pilecki said. “...
Post a Comment
Read Complete Article HERE>»