Credit Unions: Strong and Robust Liquidity, Reserves, & Insured Deposits

As uninsured bank deposits come under the societal microscope, credit unions are assuring members their deposits are safe, their cooperatives are financially sound, and they remain committed to serving local communities amid uncertain periods — just like they always have.

California & Nevada: Liquidity, Reserves, and the Facts
California’s 267 locally headquartered credit unions are among the most well-capitalized financial institutions, maintaining equity reserves and liquid investments that prioritize safety and soundness for their members. They currently have more than $29.9 billion in equity reserves, according to publicly filed data.

Combined with $51.4 billion of available liquidity, credit unions in California have the reserves to protect their members and weather shocks to the financial services market. In addition, more than 90 percent of total deposits (approximately $240 billion) at California’s credit unions are insured by the National Credit Union Share Insurance Fund (NCUSIF).

Nevada’s 14 locally headquartered credit unions have more than $815 million in equity reserves. Combined with $1.6 billion of available liquidity, credit unions in Nevada also have the reserves to protect their members and weather shocks to the financial services market.

Credit Unions Remain a Safe Harbor for Life’s Storms
After the California Department of Financial Protection and Innovation (DFPI) took possession of Silicon Valley Bank (Santa Clara, CA) for inadequate liquidity and insolvency issues on March 10 and appointed the Federal Deposit Insurance Corp. (FDIC) “receiver” to manage its assets, credit union leaders are staying alert to potential liquidity concerns at a handful of other regional mid-size banks.

Simultaneously, they remain prepared for how to best serve current members, as well as local consumers who flock to credit unions to become new members.

However, credit union leaders aren’t the only ones diligently observing the latest turmoil in the financial markets. State and federal regulators, lawmakers, economists, and others are also on heightened alert. Through it all, credit union deposits are safe, secure and federally insured, and recent bank collapses have no connection to credit unions.

The situation may still create consumer concerns and questions directed to local credit unions. Many federally insured credit unions are reminding members that they:

• Are locally owned financial cooperatives.
• Committed to serving consumers in their communities through good times and uncertain times, no matter what the situation.
• Have a history of weathering economic crises and maintaining a commitment to serving members’ financial needs.
• Remain a safe and sound option for consumers seeking financial services and products during times of economic uncertainty.
• Have assets that are concentrated in low-risk, conservative-yielding investments — whether it’s within the financial markets or in lending to local communities.
• Recognize that recent events may create consumer concerns as they navigate the financial services marketplace.
• Can be counted on by consumers for their commitment to serving member-owners with their “for people — not for profit” philosophy.
• Are not associated with the Federal Deposit Insurance Corporation (FDIC) for banks.
• Are insured for up to $250,000 per individual depositor through the National Credit Union Share Insurance Fund (NCUSIF).
• Have never lost a penny of insured member savings.
• Have a deposit insurance fund that has the backing of the full faith and credit of the U.S. government.

For 90 years, credit unions have remained member-owned and democratically managed by their volunteer boards of directors. Credit unions were born in a time of financial crisis, remaining a safe harbor during life’s storms for so many households. Credit unions act in accordance with the best interests of their member-owners to meet their needs.

Additional Resources to Assure Members
The Credit Union National Association (CUNA) launched a webpage to support and provide resources for credit unions looking to highlight their safety and soundness. The webpage contains messaging resources and graphics, tracks credit union outreach to members, and contains website links to information on the credit union difference at YourMoneyFurther.com and information about the National Credit Union Share Insurance Fund (NCUSIF).

CUNA has also provided a templated Safety and Soundness Talking Points for credit unions to customize and use.

“We continue to coordinate with CUNA and engage with policymakers in Washington, D.C to ensure credit unions have the resources they need,” said Diana Dykstra, president and CEO of the California and Nevada Credit Union Leagues.

Silicon Valley Bank’s Unique Business Model
The reasons for the failure of Silicon Valley Bank (now Silicon Valley Bridge Bank) include:

• An extreme percentage of uninsured deposits. Overall, only 5 percent of the bank’s deposits were federally-insured — which means 95 percent were not. Naturally, many of these uninsured depositors pulled funds out of the bank at the first hint of trouble.
• Extreme concentration within uniquely structured loans overwhelmingly made to venture capital firms that mostly focus on the technology sector.
• A low and fast-deteriorating liquidity position. The bank’s investment portfolio was highly concentrated in longer-term bonds in the financial markets (albeit conservative investments) that had significant unrealized losses arising from the Federal Reserve’s 2022 historic interest rate-hiking plan to keep U.S. inflation in check.

CLF Update, Joint Statement, and NCUA Comments
The Leagues and CUNA support the Central Liquidity Facility Act (S.544) — sponsored by Sen. Alex Padilla (D-CA) and Kevin Cramer (R-ND) — which would extend agent membership access to NCUA’s Central Liquidity Facility (CLF) for three years. You can read more here about the bill’s introduction and details (or read about details of the NCUA’s CLF).

Rep. Maxine Waters (D-CA), ranking member of the House Financial Services Committee, issued a joint statement this week, saying: “As we work to better understand all of the factors that contributed to the events of the last several days and how to strengthen guardrails for the largest banks, we urge financial regulators to ensure the banking system remains stable, strong and resilient, and depositors’ money is safe.”

As not-for-profit financial cooperatives, credit unions’ first priority is members’ financial success and security — a message echoed by NCUA Board Chair Todd Harper this week.

“The credit union system remains well-capitalized and on a solid footing,” he said. “The National Credit Union Administration continues to monitor credit union performance through both the examination process and offsite monitoring, and it will continue to do so into the future. Credit unions have access to a wide range of liquidity sources. The NCUA, along with its Central Liquidity Facility, is able to provide a back-up source of liquidity to member credit unions as needed.”