DRAWS AGAINST BORROWING CAPACITY, FEDERAL RESERVE BANK
FOR U.S. CREDIT UNIONS | DATA AS OF 12.31.23
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- In January, the NCUA released its 2024 Supervisory Priorities. Among the items on the agency’s radar are credit risk, liquidity risk, consumer financial protection, information security, and interest rate risk. These each represent an important aspect of credit union operations for which board leaders should be well equipped to ask questions of management.
- As liquidity tightens across the industry, credit unions are turning more toward the Federal Reserve, drawing against borrowing capacity for funds. When discussing liquidity with boards, it is wise to highlight this trend.
- In the wake of the March 2023 banking liquidity crisis, the Federal Reserve established the Bank Term Funding Program (BTFP) to inject liquidity and stability into the banking industry. The program allowed depository institutions to borrow funds using qualifying investment securities as collateral. The program treats these investment securities at par value, a crucial benefit as most institutional investment portfolios carry significant unrealized losses following rate hikes.
- In the fourth quarter of 2023, credit unions draws from the Fed totaled $45 billion. That’s up from $10.5 billion in the first quarter of 2023. These draws now fund 2.0% of total credit union assets.
- The loan-to-share ratio at credit unions reached 85.2% in the fourth quarter of 2023, but because the Federal Reserve terminated the BTFP on March 11, 2024, credit unions must look for other, likely less-subsidized sources from which to borrow funds. This has implications for the industry’s cost of funds and margin compression.
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