Deposit & Liquidity

Loan growth is improving. Deposit costs are higher. Liquidity is tight. These are common phrases we hear daily. Large and small financial institutions across the country are simultaneously dealing with all three. This is a recent phenomenon, which has accelerated over the past several quarters. It all started slowly as the Federal Reserve began raising short-term interest rates in response to an improving economy. Loans began to grow slowly, then came on strong more recently. Short-term interest rates have increased faster than long-term rates, and the yield curve is very flat. Over the long term, a flatter yield curve is not favorable for financial institution earnings. Impressive loan growth has caused a fierce battle for core deposits, resulting in higher funding costs and liquidity stress.

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Credit Union Connection

Credit unions kicked auto lending up a notch in 2017. In the second quarter of last year, the NCUA reported that new auto loans had risen 16.3% from the year before – a continuation of what had been a longterm acceleration over the preceding several quarters. However, while the numbers may look good overall, there are a number of warning signs that this growth may not be sustainable at this rate, and that perhaps credit unions should grab the wheel and correct course before the road ahead gets treacherous.

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