Insights from Catalyst

Credit union balance sheets look much different than they did at the beginning of 2020. As a result of government stimulus and the economy entering recession, deposit growth exceeded expectations through the first half of the year. High deposit growth combined with low loan demand resulted in excess liquidity on most credit unions’ balance sheets.

Budget time will be here again soon, which means you have an opportunity to demonstrate your credit union’s preparedness for potential stress events and scenarios.

2020 is certainly not turning out the way anyone expected. The year began on a positive note, with trade tensions between the U.S. and China finally resolved. The Federal Reserve was committed to keeping the fed funds target range steady at 1.50 to 1.75 percent. Consumers were still driving the economy in the longest expansion in history, and we were set up for another year of slow, but steady economic growth.

Opportunity cost is defined as the loss of potential gain from other alternatives when one alternative is chosen. When applied to the concept of a credit union balance sheet, it relates to keeping excess deposits in cash when new loans or investments are an available option.

The COVID-19 pandemic – and its sudden, yet lingering presence – has taught us that nothing is impossible. With that in mind, credit unions have been forced to reexamine 2020 projections to include a new realm of possibilities. Should those possibilities include negative interest rates?