Will the US Debt Downgrade Result in an influx of Cash Deposits in Credit Unions?

Investors watching the market drop since Friday’s announcement may find it more attractive to invest their money in accounts insured up to $250,000 rather than in the volatile stock market.

“Many investors are just converting their investments into cash and waiting out the turmoil,” reported the Associated Press.

Such a trend could present a challenge for credit unions. The National Credit Union Administration (NCUA) requires credit unions to maintain a net worth ratio of seven percent to be considered well capitalized.  If credit unions’ capital-to-assets ratios dip below six percent, credit unions’ regulatory burdens increase significantly.

“Membership growth continues to be paramount for most credit unions,” said Troy Stang, President of the Northwest Credit Union Association. “However the timing for the potential of servicing more deposit dollars could bring additional stress to the balance sheet of many institutions.”

“Although all the financial regulators provided a joint confidence in the US Treasury investment down grades, we will see a ripple effect of finger pointing in our nation’s capitol between the Administration, Congress and the rating agencies,” Stang noted.

Data analyzed by the Northwest Credit Union Association show Washington and Oregon credit unions with an average net worth of 10.85 percent, leaving breathing room if members rush to sell stock and deposit it as cash. However, there is little to no wiggle room for up to 30 credit unions which are close to the seven percent ratio.

The Bank of New York announced it will charge large depositors such as pension funds a fee for holding “extraordinary high deposit” levels.

Posted in Economy.