Reuters poll: Federal Reserve to cut rates by 25 basis points at next two meetings

BENGALURU, Oct 29 (Reuters)—The U.S. Federal Reserve will cut its key interest rate by 25 basis points on Nov. 7, according to all 111 economists in a Reuters poll. More than 90% of the economists predicted another quarter-percentage-point move in December.

Since the U.S. central bank kicked off its long-awaited easing cycle last month with a half-percentage-point reduction in the federal funds rate to a 4.75-5.00% range, news on the economy has been strong, including consumer spending and jobs data.

The Fed's next policy meeting is scheduled to start just after the Nov. 5 U.S. presidential election. Opinion polls show a neck-and-neck race, but recent momentum has shifted toward Republican candidate Donald Trump.

All 111 economists in the Oct. 23-29 Reuters poll predicted the Fed will switch back to a quarter-percentage-point reduction next week. More than 90% of them, a total of 103, expected the same-sized move in December, taking the fed funds rate to a 4.25%-4.50% range.

"I expect we will get a 25-basis-point cut at each of the next two meetings," said Thomas Simons, senior economist at Jefferies.

But Simons said, "The information we gather suggests the economy overall is not in desperate need of easing."

Poll medians showed that the Fed will deliver a total of 50 basis points of cuts each in the first two quarters of 2025 and another 25-basis-point cut in the final quarter of the year. This will take the fed funds rate to 3.00%-3.25% by the end of 2025, slightly lower than the Fed's median "dot-plot" projection.

Nearly 80% of economists, 74 of 96, predicted the fed funds rate to be in a 3.00%-3.25% range or higher by the end of next year, still technically in restrictive territory.

The Fed's current neutral rate estimate, the level of interest that neither stimulates nor restrains the economy, is 2.9%.

"Since the start of this year, the median view of Fed officials on the neutral rate has risen from 2.5% to 2.9%, and this view can likely edge up slightly more," noted Stephen Gallagher, chief U.S. economist at Societe Generale.

As most Fed officials advocate, the more cautious approach is the appropriate course, particularly as economic evidence shows more strength and perhaps more significant challenges in achieving the 2% inflation objective."

Asked about the greater risk to their end-2025 forecast, more than 80% of the economists, 33 of 40, said it was more likely to be higher than expected. The rest said lower.

For now, inflation appears under control, but economic growth is set to stay strong and could eventually usher in a revival.

The latest report of inflation as measured by the personal consumption expenditures price index, the Fed's preferred gauge, is due to be released on Thursday. PCE inflation is expected to edge down to 2.1% in September from 2.2%. According to the poll, PCE inflation was expected to hit the 2% target next quarter, averaging 2.1% and 2.0% in 2025 and 2026, respectively.

According to median forecasts in the poll, the U.S. economy will expand faster than Fed officials currently see as a non-inflationary growth rate of 1.8% in the coming years.

An advance estimate of gross domestic product, due to be released on Wednesday, is expected to show that the economy grew at a 3% annualized rate last quarter.

TRUMP ECONOMIC POLICIES

In the race for the White House, both Trump and Democratic Vice President Kamala Harris have proposed policies that could reignite price pressures, according to many economists.

When asked whose policies would be more inflationary, an overwhelming majority, 39 of 42, said Trump's would. He plans higher import tariffs as well as additional tax cuts, which will require a sharp increase in borrowing.

"Relative to our baseline, Trump's proposals, including more tax cuts ... could add to growth and upside inflation risks. And if the fiscal loosening is coupled with tariffs, the risks to higher inflation are significantly higher," said Brett Ryan, senior U.S. economist at Deutsche Bank.

A word of Caution! CFPB Takes Action Against VyStar for 'Botched' Online Banking System Rollout

The CFPB ordered Jacksonville, Fla.-based VyStar Credit Union ($14.7 billion in assets, 997,469 members) to pay a $1.5 million civil penalty for its failed online banking system rollout in 2022.

On May 13, 2022, VyStar attempted to switch to a new online and mobile banking platform. The brief outage, as explained to members, was planned to last for two days. The outage lasted for more than a week, and systems were still not fully functional a month later. At the time, members were furious and posted tens of thousands of complaints on the credit union's Facebook page.

Thursday's action by the CFPB called VyStar's rollout "botched" and "dysfunctional."

"VyStar and its senior management bungled the credit union's rollout of a new banking system and left customers stranded without online access to their accounts," said CFPB Director Rohit Chopra. "VyStar's careless errors inflicted financial harm on their credit union members."

The CFPB's order requires VyStar to:

• Refund fees to affected consumers: VyStar must ensure that the fees charged to its members as a result of the outage have been refunded, and reimburse any outstanding third-party fees or costs, including interest costs, imposed on members as a result of the outage.
• Clean up its broken process for updating its systems: For future updates to its banking systems, VyStar must create contingency plans to minimize the impact on consumers' ability to use its banking platform. The plans must include sufficient customer service resources to address consumer problems, and ensure upgrades and maintenance for consumer-facing banking systems are performed in a timely manner.
• Pay a $1.5 million fine: VyStar will pay a $1.5 million civil penalty to the CFPB's victims relief fund.

5 Things Credit Unions and Banks Should Consider Before Responding to Fed Rate Cuts

The Federal Reserve's pivot to cutting interest rates presents a complex landscape for financial institutions, combining fresh opportunities with heightened risks. While lower rates typically spark increased lending activity, banks face unprecedented challenges: credit card delinquencies have hit a 12-year high, and nearly 40% of cardholders have maxed out cards since rates began rising.

Now that the U.S. Federal Reserve has finally started to cut interest rates to achieve a soft economic landing expect activity to ramp up at banks and credit unions as consumers and businesses adjust their finances to reflect the new reality. Some will seek high-rate CDs while they’re still available, others will want to consolidate credit card debt, and mortgage activity may pick up, too.

This sounds positive, but for financial institutions, the monetary policy shift reflects rising risks from both new competitive pressures and the risks of serving debt-strapped consumers. A range of Federal Reserve Bank studies tell the story: Credit card delinquencies have hit 10.9%, a 12-year high. Subprime delinquencies hit 63% in 2023 vs. 38% in 2021. Meanwhile, nearly 40% of cardholders have maxed out a credit card or come close since the Fed started raising interest rates, according to a Bankrate credit utilization survey, which draws on data from the Fed and Equifax.

To better understand how banks and credit unions might react to the changing rate environment, The Financial Brand spoke with two executives — business analyst Kim Gaines and client strategist Wendy Erhart — both from Vericast, a firm that helps banks and credit unions improve their marketing engagement through more effective use of data.

Here are five suggestions they had for financial institutions as interest rates fall:

As rates fall and your customers start to consider new borrowing options, they won’t necessarily come to you. That’s especially true in today’s market, where online rate shopping is a long-established norm—and where both old and new digital-first players invest heavily in customer acquisition.

Rather than wait for your comprehensive strategy to take shape, begin outreach to high-value customers and members as soon as possible. The truth is that customers can take a year or more to reposition themselves in response to a significant market change or shift in personal circumstances. As they get oriented and start to weigh options, your messaging — not just products and rates, but branding and voice — should be in the mix.

Proactive customer engagement based on pragmatic outbound communications can educate customers about what financial products make the most sense for them now. For example, try engaging them with informational content that helps them understand the dollar savings consumers might, in fact, gain following a series of rate cuts.

Dynamic Markets Demand Dynamic Toolsets

As credit quality declines and delinquencies rise, banks and credit unions face increasing pressure to be selective when approving loan and credit applications. This environment makes it more crucial than ever to leverage big data and analytics to target the right customers with the right products. By using such resources, financial institutions can navigate these challenges while keeping an active hand in the market.

Propensity models are an essential weapon in your arsenal. These AI-powered models analyze vast amounts of customer data—including credit applications, loan payments, and demographic and geographic information — to identify patterns and predict future behavior. By applying these insights, banks & credit unions can determine which customers are most likely to borrow via a specific loan product over the next three to six months. This allows for highly targeted marketing campaigns, focusing efforts on those with a higher likelihood of engagement.

For instance, propensity modeling could identify individuals who are actively shopping for personal or auto loans, enabling institutions to present them with tailored offers for home equity products. Such precision targeting has been shown to yield measurable results. According to Vericast’s Gaines, campaigns that integrate propensity modeling typically see a 20 percent increase in the number of incoming applications, demonstrating the significant advantage of data-driven marketing in a dynamic lending environment.

Remember to Play Defense

The catchphrases we use to talk about rate cuts, such as “unleashing the animal spirits”; “loosening the purse strings”; “spiking the punch bowl,” are colorful but also hint at risk. After all, there are less-than-optimal economic conditions that tend to trigger rate cuts in the first place. They also contain an implicit warning to financial services marketers to sync up with their CFOs and their colleagues in compliance, to level-set on balance sheet targets and review exposures.

With consumers already weighed down with unsecured credit cards and personal loan debt, now is a great time for financial institutions to shift to secured loans. It makes sense to educate customers and members — who have amassed large amounts of credit card debt at high rates — about the merits of taking out a home equity loan or home equity line of credit. Encouraging consumers to move from high-interest credit card debt to secured options like home equity loans or lines of credit enhances asset quality and stability, which likely contributes to balance sheet discipline and capital requirements.

Meanwhile, secured products’ lower rates lead to more manageable monthly payments for borrowers. As interest rates decline, educating customers about these benefits positions the institution as a trusted partner while supporting long-term portfolio health.

 

Finally, before activity spikes, make sure your compliance approach is buttoned down and that all marketing materials, collateral, and offers are updated before new campaigns are launched. It’s especially important to check language on pre-approvals at a time when delinquencies are rising.

Be As Flexible on The Way Down as You Were on the Way Up

With interest rates high, banks & credit unions have been offering cash incentives for new deposits, for example, offering $300 for opening a checking account. But “that’s exactly what banks and credit unions today want to get out of,” said Vericast’s Erhart. “Instead, they want to gain new customers with incentives that build long-term value.”

As your institution looks to compensate for narrowing net interest margins, incentives still matter — possibly even more so. The good news is that the current rate environment unlocks a range of opportunities to boost loyalty while avoiding “hot money” deposits. That’s where flexibility and creativity can play a role.

The Fed’s Calendar Isn’t the Only One That Matters

Banks and credit unions should always be mindful of seasonal factors when planning campaigns. For example, now is a prime time to promote credit card offers with attractive rates and zero-percent consolidation options, especially if the marketing campaign can be launched before Black Friday, the official start of the U.S. holiday shopping season.

Financial institutions should also consider that customers may be on edge about how a new presidential administration in 2025 might impact their finances and confidence in the economy. A recent survey for The Financial Brand found that 61% of people believe the election result will have a tangible impact on their individual finances.

This suggests that offering financial advisory services to help customers navigate potential economic scenarios to match new economic policy could be a strategy to help retain deposits during this period of heightened uncertainty. It also makes sense to stage different offerings and campaigns as policy outcomes come into focus after Election Day and into 2025.

 

CO-CEOs 1 Small CU's Succession Planning Solution

By Ray Birch

ROANOKE, Va.—Is an answer to the succession planning problem at small credit unions creating "co-CEO" positions?

One $103-million credit union that has two chief executive officers believes it is a solution for a number of small shops that lack a succession plan for their leader.

Roanoke Valley Community CU is led by Pam Duke and Lauren Whitmire. The co-bosses spoke with CUToday.info about how having a small team leading the organization has made it more successful and the job of running the show easier.

"As I am heading towards retirement, I wanted to make sure we had a succession plan in place for this credit union," said Duke, who is 61. "In the credit union movement, generally, it's difficult to replace CEOs at small credit unions. I've been here 16 years, and Lauren has been here 14. We wanted to make sure this credit union continues on, even if she or I would leave."

Duke explained that her focus at RVCU is on the lending side, operations, and compliance. Whitmire is responsible for accounting and also shares operations responsibilities with Duke.

As CUToday.info has extensively reported, lack of succession planning is a problem with smaller credit unions and is often a reason small shops merge out when the CEO retires.

Takes Special Twosome

"This is a good way for smaller credit unions to approach succession planning, having co-CEOs for a number of years," Duke said. "This is a good approach, we believe. However, it takes a special twosome to be able to do this. We didn't go into this haphazardly. We thought it through and discussed it multiple times between each other."

The co-leaders said they recognize the difficult job a small credit union CEO has guiding a small organization and also keeping up with daily tasks.

Lauren Whitmire (L) and Pam Duke.

"It's tough when you are the sole person running the show, wearing so many hats," Duke said. "Laurie and I had to step back and take a different viewpoint of our CEO roles. And that is: You are who I am, and I am who you are. We are a true pair. We're no longer a me, we are a we."

Duke said she and Whitmire, who is 41, discussed the idea for weeks more than a year ago before presenting the idea to their board, which immediately approved the new positions.

"We were very conscientious about where this was going to go, how this was going to work," Whitmire said. "We took this on still continuing to do the roles that we had previously performed. We hope that eventually we can move other people into other positions that will change some of (our workload). And that will give other individuals an opportunity to move up within the credit union. We see this as an opportunity for both of us to be able to move this credit union forward and have an excellent succession plan in place."

COO Helping

RVCU recently established a COO position, which has been filled by Scott Ruhlman.

Asked if the credit union would continue with co-CEOs if one of the current leaders left or retired, Whitmire said that would be a decision made in the future.

"We'll make that decision when the time comes. But it's very possible we could continue with co-CEOs," she said. "But, again, it's one of those decisions we will make when we have to cross that bridge."

Can a small CU with 30 total employees afford two CEOs?

"When we became CEOs, when I did early in 2023 and Lauren did later that year, we never relinquished any of our previous duties and roles," Duke explained. "For example, I'm still working in lending. I'm still in compliance. I'm still in operations. Lauren is still in accounting and investing and in operations. But Scott, our COO, is acclimating himself into his position. And with time, hopefully some more duties can be removed from our plates and added to his."

Whitmire said RVCU is "getting the best of all worlds" with co-CEOs.

"We're getting a director of lending, a CFO, a compliance person, accounting person, operations professionals…," she said.

The CU almost doubled its net income in 2023 ($1.7 million) over 2022, and is on track to post the same annual total this year, according to Call Report data. Net worth has substantially grown in the last year to 13.76%. ROAA is 1.51%.

Both Whitmire and Duke believe it is easier to run the credit union with two leaders.

"The burden can be heavy when it's carried by just one person," Duke said. "So, this working situation helps with that a lot. I also think we make better decisions as a team, than as individuals. My decision or my opinions are not always correct, and the same with Lauren. We listen to each other's opinions, step away, take a little bit of time, come back together and rediscuss things and come to a better decision together. I think that's what makes us a good team. We've worked together for multiple years before we become co-CEOs. That has helped a lot. So, maybe this is not for every credit union, but it's doing really well for us."

For small credit unions struggling with succession planning, the two leaders offered some advice.

"You don't always have to have one specified person to be CEO," Duke said. "Take yourself out of that box and see how you can share those burdens with other functions within the credit union. You're going to get more bang for your buck, and it might keep you away from a merger."

"The team aspect is a huge contributor to our CU's success," said Whitmire. "Add to that credit unions were built on wanting to promote from within and grow from within. Consider giving those employees, who have some years at the credit union under their belts and the knowledge the opportunity to assist in driving the credit union forward. This is a great opportunity for them—being a 'we' and not a 'me.'"

A Different Way To Price Deposits

LAKE FOREST, Ill.—Are credit unions using money supply to determine deposit pricing?

One economist suggests using money supply in an adjusted manner is a useful pricing tool.

Michael Moebs, economist and chair of Moebs $ervices, explained why.

“Money supply is best measured by discarding currency and foreign funds. Focus only on domestic deposits,” said Moebs. “Adjusting money supply, showing only the deposit essentials, helps identify strategic and tactical actions depositories can make. Use money stock as defined (see table below) and offer high rates. The market demands higher deposit interest rates.”

Moebs said using money supply is simply a different—more effective—way to price deposits in a period in which liquidity dollars are in high demand.

Different Thinking

“This is not something financial institutions typically think about doing,” said Moebs. “Think of it this way. It is now apple season in the nation. You are a family of four that each wants apples to eat. Are apples sold individually, priced by apple, or by the pound? Right now, FIs sell deposits by individual prices. They do not sell by balances. Should deposits less than $100,000 get paid less than those up to $250,000? And what about the rate for over $250,000?”

The price of a deposit should be by both account type and by balance, Moebs said.

For example, Moebs said a $100 interest checking deposit could be priced at o.25%. A $1,000 savings deposit at 0.50%, a $100,000 CD could be priced at 1.00%, and a $200,000 money market deposit account could be 2%.

Michael Moebs

“Knowing how money supply maps out by individual  deposit service balances is equally as important as determining deposit rate,” noted Moebs. “Think of this as either tiering by price and/or balance within one service, or tiering with price and/or balance with multiple individual services. Either approach can work, yet tiering with multiple services increases cross-sales, therefore making it harder for the consumer to leave and take money to a competitor.”

Money Stock And Economy

Money stock mirrors population and economic growth, noted Moebs.

“Since the creation of the Fed in 1914, money stock has grown an average of 7% yearly. Interestingly, this computes after 110 years to $25 trillion,” said Moebs. “In just five years since 2019, money stock growth is 45%, driven from major events: COVID, stimulus funds, fed balance sheet actions, and now a major election.”

M1 is interest and non-interest checking plus savings. M2 is mainly term deposits or retail and commercial CDs. M3 is mainly Wall Street funds—both retail or investor oriented and commercial or business dollars.

“The searching saver era has begun,” said Moebs. “This means the menu for savers is now: deposits, Treasuries, or money market mutual funds invested in Treasuries. COVID brought about these changes and depositories need to comply now.”

Moebs outlined how to use money supply to price for specific deposit types.

Transaction Accounts

“Savers are riskless but shrewd in deposit rates. Savers moved money during COVID to get better rates on their funds to U.S. Treasury securities. With the full rescue of Silicon Valley Bank, savers got better rates on Treasuries,” said Moebs, who added that total savings levels have declined 2.9% from pre-COVID balances.

“To keep savings account balances, depositories must change pricing and offer higher rates or lose these funds,” said Moebs. “Checking moved considerably higher as consumers want liquidity with their short-term money and also higher rates with more money in interest checking.”

Insured Savings Accounts

“A mainstay since introduced in 1962, IRAs and Keogh accounts ccounts declined for the first time ever as savers searched for higher rates and got it with money market mutual funds (MMMFs) and Treasuries. To win these funds back, depositories must pay more aggressive rates,” said Moebs.

“Retail CDs, like the elephant, were nearly extinct, falling to only $50 billion in 2022. The elephant came back with protected reserves and retail CDs came back with high deposit interest rates. Jumbo CDs, the lifeblood of small business, increased 33.1% from pre-COVID balances due to higher rates.”

Uninsured Deposits

“These funds represent Wall Street. With heavy use of Treasuries in MMMFs, these mutual funds have taken IRA and Keogh funds from depositories and have curbed the growth of bank, credit union, and thrift deposits,” Moebs said. “Yet, MMMFs have only grown 1.8%. Contrast this with CD depository growth of 2.5%. FIs have proven with reasonable market rates consumers and small businesses will stay with depositories. If FIs stay within at least 50 basis points of MMMFs they will win.”

A new rule could make it easier to switch your bank. (Guess who hates it.)

Federal regulators want to make it less of a pain to change your bank — but first, it looks like they’ll have to win a battle in court.

On Tuesday, the Consumer Financial Protection Bureau (CFPB) unveiled the final version of its highly anticipated open banking rule, which aims to create more competition between financial services companies by making it simpler for customers to transfer their personal data between them.

The measure is in part designed to relieve some of the common headaches familiar to anyone who has ever tried to move their checking account or upgrade to a better credit card — a process that can require manually resetting a number of automatic bill payments and may mean losing years' worth of transactions history.

Those kinds of inconveniences are known to keep many consumers from shopping around for better deals. One survey found that the average American has had the same checking account for more than 17 years; about 10% of consumers say they haven’t switched mostly because of the hassle involved.

During a speech in Philadelphia, CFPB Director Rohit Chopra said the agency’s new regulation, officially known as rule 1033, would help remove some of those “roadblocks.” Under the measure, banks, credit card issuers, and payment apps will be required to provide customers electronic access to their account data, including by giving third parties of their choice permission to collect it — making it seamless for fintech firms and other institutions to plug in and transfer over key information.

“That means you can more easily walk away from mediocre products or services,” Chopra said. He compared the changes to rules that allowed cell phone customers to take their numbers with them when they changed service providers, which made jumping to a new plan far easier.

The rule has drawn fierce criticism from banks, however, who argue that it will be unfairly expensive for them to implement and expose customers to serious fraud risks. On Wednesday, industry groups filed a federal lawsuit in Kentucky aiming to halt the regulation, accusing the CFPB of “overstepping its statutory mandate.”

What’s really changing

For many consumers, the new open banking rule might not seem to change much at first glance. According to the CFPB, at least 100 million Americans already let third parties access their various financial accounts, using apps like Plaid to connect their banks and brokerages to personal budgeting software and services like TurboTax. That’s led some to downplay the significance of the agency’s new regulation.

“In a lot of senses, 1033 is just a formalization of the digital finance economy as it already exists,” Plaid CEO Zach Perret, told a crowd at a fintech conference Wednesday.

But regulators and outside supporters argue that the open banking rule will make important behind-the- scenes changes benefiting consumers. Today, they note, banks can pick and choose which companies they let touch their customers’ data, and on what terms. Tech firms that they refuse to work with often resort to workarounds like “screen scraping,” which are widely considered security risks.

The new rule will force banks to give access to any third party that customers want using a formal portal, as long as they meet certain standard requirements. It also creates privacy rules about how data can be handled once it’s ported over so that the information can only be used as the customers intend.

“At its core, the rule that the CFPB put out says that it’s not up to the bank, it’s up to you,” said Steve Boms, executive director of the Financial Data and Technology Association of North America. “Your bank can’t stand in front of you and say, ‘No we don’t think so.’”

How consumers could benefit

Beyond making it more convenient to hop between banks, advocates say the new data rules open up new, consumer-friendly ways to make everyday purchases and apply for credit that could shake up big swaths of consumer finance.

One type of service that could potentially see growth: Pay-by-bank apps, which let customers buy things or cover bills directly from their checking account, rather than via a debit card or paper check. Retailers are already cheering that possibility, since those services could save merchants the so-called swipe fees that banks and other card issuers collect on each transaction. Some could eventually offer discounts to customers who use a pay-by-bank option instead of whipping out a Visa or Mastercard.

“Open banking could cut out these middlemen and create competition that would benefit small businesses and consumers alike,” National Retail Federation general counsel Stephanie Martz said in a statement this week.

Experts also say the data rules make it easier for some Americans to get access to loans via cash-flow underwriting, where lenders assess creditworthiness by looking at an applicant’s history of paying their rent and bills on time. That could be especially helpful to immigrants and young people who tend to have thin credit files.

Why banks are ticked

Banks have raised a number of complaints about the new data rules, starting with the expense.

The regulations will ban financial institutions from charging any fees to fintech firms for accessing customer data, while requiring they pay out for new compliance costs. They also argue that the new rules don’t do enough to shield them from legal and financial liability if a third party isn’t careful with the information they gather, or misuses it. That’s an especially acute problem, the industry says, since allowing more third parties to pick through data increases the odds of a bad actor slipping through.

“It’s just another vector and another chance for fraud to really be magnified,” said Brian Fritzsche, associate general counsel at the Consumer Bankers Association.

In its lawsuit filed Wednesday, the Bank Policy Institute argues that regulators went well beyond the authority outlined in the 2010 Dodd-Frank Act, which called for data regulations. “This is a case about a federal agency overstepping its statutory mandate and injecting itself into a developing, well-functioning ecosystem that is thriving under private initiatives,” the complaint states.

It’s asking the courts to overturn the rules entirely — or, failing that, to let banks charge fees to all those fintech firms that will be clamoring for access to the data.

Jordan Weissmann is a senior reporter at Yahoo Finance.

Steve Rick - Small CUs Beating Big CUs In Key Performance Area

MADISON, Wis.—The current rate environment, for a change, may actually be favoring small CUs, data from TruStage’s latest Trends Report show.

The September Trends Report, which is based on CU performance through July, reveals the credit union return-on-asset ratio fell to 0.66% in the first six months of 2024, on an annualized basis, down from 0.78% in the first six months of 2023.

The 12-basis point decrease in earnings during the last year was driven by a 15-basis point increase in provisions for loan losses as a percent of average assets, and a 7-basis point increase in operating expense ratios, the report states.

Higher Earnings

Partially offsetting the expense increase was a 3-basis point increase in net interest margins and a 6-basis point increase in fee and other income ratios. Credit unions with assets greater than $50 million reported a drop in earnings while smaller credit unions reported higher earnings due to the difference in the increase in their cost of funds ratios.

Steve Rick

“For example, billion-dollar credit unions saw their cost of funds ratios rise from 1.33% during the first half of 2023, to 2.03% in the first half of 2024, a 70-basis point increase. Meanwhile, credit unions with assets less than $20 million saw their cost of funds increase from 0.45% in 2023 to 0.81% in 2024, a 36-basis point increase,” wrote TruStage Chief Economist Steven Rick. “This cost of funds disparity is due to bigger credit unions relying more on higher-cost money market and certificates of deposit accounts for funding. So, for the first time in many years, these smaller credit unions reported a return-on-asset ratio similar to the billion-dollar credit unions.”

Membership Growth

Aside from rates, small shops continued to struggle, particularly with membership growth. Credit union memberships grew 0.1% in July 2024, below the 0.4% reported in July 2023, due to a significant reduction in auto loan originations and slower job growth. On an annual growth rate basis, memberships are up only 1.2% in the year ending in July 2024, below the 4.3% pace set in the year ending in July 2023. ‘

“This 1.2% pace is the slowest since the tail end of the Great Recession in November 2011. The membership growth slowdown was partially driven by the 2.4 million jobs gained during the last year, according to the Bureau of Labor Statistics, which is below the 3.2 million jobs gained in the year ending in July 2023,” Rick wrote.

The slowdown in membership growth in 2024, compared to 2023, was seen across the board. Most credit unions with less than $100 million in assets reported negative membership growth while credit unions with assets greater than $1 billion reported relatively strong membership growth of 3.8% due to organic growth and mergers.

“Credit unions should expect membership growth around 1.5% in 2024, and a slightly better 1.8% membership growth is forecasted for 2025 as loan growth picks up,” Rick said.