LAS VEGAS-Credit union board members are being reminded to get their liquidity plans in order, while also preparing for an iffy recovery in the economy.

John Worth, NCUA's chief economist, said the pending loss of an emergency liquidity source for more than 6,000 credit unions-which will occur with the closure of U.S. Central on Oct. 25-means CU leaders need to map a plan of action.

"One of the key takeaways from the financial crisis is capital liquidity buffers are a fundamental protection," Worth said. "NCUA has a rule out for comment right now forcing credit unions to have a liquidity plan, with larger ones required to have a relationship with a source of liquidity."

A related issue, noted Worth, is every credit union needs to fully understand the interest rate risk it is carrying and what its balance sheet will look like under all possible scenarios, as "the financial crisis showed the unexpected can happen."

That crisis may have passed for the most part, but looking forward Worth made it clear that "unexpected" remains the watchword. Specifically, for every piece of analysis related to the economy, there appears to be a strong counterpoint.

For instance, Worth said in remarks to the 35th Annual Directors Convention, the recession took 8.7-million jobs out of the economy. An estimated 3.0 to 3.5-million jobs were created in 2011, which would be good news except the country remains "stuck" with a high unemployment rate, Worth observed. He said that the real rate of unemployment is closer to 14.9%.

In an unscientific poll, very few in audience raised their hands to agree with the statement they have a "vibrant" economy in their local area, but more than half said conditions are better than last year.

 

Other Points Worth Noting

Among other points made by Worth:

* CUs generated "a good number of loans" during the first two years of the recession, but the remainder of 2012 is likely to see "weak growth" that won't improve until "consumers feel good about their job."

* Recent improvement in ROA among CUs shouldn't be given too much weight, as it has much to do with reductions in ALL.

* Not too surprisingly, housing in the sand states continues to lag, with 40% of mortgages in Nevada, Arizona and Florida still showing negative equity. But there are bright spots in other parts of the U.S. "Home builders are optimistic for the first time in a while. This is important because more home building provides jobs."

* Worth noted potential outcomes for 2012-13 depend on key risks, including the Euro Zone crisis, a potential "disorderly default" in Europe, and the looming U.S. "fiscal cliff," which Worth said will become a larger concern as the election approaches.

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