Don’t get caught chasing rates just because your members complain!

Once upon a time, there was a Credit Union named XYZ. The credit union was started with the aim of providing affordable and accessible financial services to the employees of XYZ. Over the years, XYZ had built a strong reputation as a reliable financial institution that offered low-interest loans and attractive deposit rates to its members.

However, as the competition increased in the local market, XYZ faced pressure to keep up with the local rates offered by other financial institutions. In order to attract more deposits, they started offering higher deposit rates than what they could afford. They ignored their Asset Liability Management (ALM) and continued to chase deposits, hoping to improve their bottom line.

As a result, XYZ started to experience a decrease in profitability. The higher deposit rates paid to the members were not being offset by the returns on their loan portfolios. They were losing money on the interest rate spread, which is the difference between the interest they pay on deposits and the interest they charge on loans. The credit union’s ALM was out of balance, and they were taking on more risk than they could handle.

The management of XYZ ignored the warning signs and continued to offer high deposit rates to keep their members happy, hoping to attract more business. However, this strategy proved to be costly. The credit union was forced to borrow money at higher rates to meet its obligations, and this put a strain on their financial health.

Finally, the board of directors realized that they had made a mistake by chasing deposits and not balancing their ALM. They took steps to correct their strategy by lowering their deposit rates and focusing on their core business of lending. They also sought the help of an expert in ALM management to ensure that they had a more balanced approach to their operations.

In the end, XYZ was able to recover and regain its financial health. They learned a valuable lesson that chasing deposits and ignoring their ALM could get them into trouble. They regained the trust of their members by focusing on their core business and providing reliable financial services to their members!

Grant Sheehan CEO
Sheehan's Consulting LLC
305-951-3306
grant@gsheehan.com