Lending Perspectives: Running on empty (with not enough deposits)

Like the famous Jackson Browne tune, credit unions may find their loan funding tank running on empty. Is this temporary or a problem with long-term consequences?

Over the last year or so, I’ve been making predictions around the office that may be a bit of a stretch. I qualify them by saying “I could be wrong; I’m wrong all of the time.” This is true, but I think I’m wrong more than most people because I opine on more topics than most. It’s sort of like Michael Jordan saying he missed all the shots he never took. I promise that’s the only time I’ll try to compare myself with Jordan.

When it comes to funding loans, I will say “I told you so.” In this column a little over three years ago, I questioned whether credit unions could consistently fund loans solely through deposits. The COVID surge of deposits notwithstanding, the experience of the last three years has only increased my concerns about deposits as a long-term source of funding. The growth in digital-only banks has introduced even more high-rate deposit options for consumers. The earlier article on this topic also expressed my concern for the next generation of retirees and their potential lack of propensity to park money in credit unions.

A short time after writing that article on funding loans, my credit union, Ent, broke through the 100% loan-to-share ratio for the first time. A short time after that, COVID-19 hit, and we were awash with deposits. Now, less than three years after the start of the pandemic, many credit unions are out of funds and subject to rapidly escalating borrowing costs or high costs to liquidate investments.


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