LAKE BLUFF, Ill. — According to one economist, CUs must do three things to grow and protect the bottom line: Put in place strong IRA and Keogh programs, price money market deposit accounts against money market mutual funds, and streamline checking offerings, including hanging onto a free account.
Mike Moebs, CEO of Moebs $ervices, insists CUs need to take these steps to capitalize on the opportunity to take checking business from banks and avoid money in savings deposits-much of it used to fund lending-moving quickly to money market mutual funds when rates eventually rise.
According to Moebs, there has been a shift as consumers have moved funds from stable, longer-term accounts into less-stable savings accounts, such as MMDAs. In the past three months, the amount of money in retail CDs has dropped from $1.046 trillion to $991.8 billion.
"That is about a 5% drop, and we have been experiencing this trend since the fourth quarter of 2008 for a total reduction of almost $500 billion," Moebs explained. "In addition, we have seen jumbo CD money fall from a high of $2.5 trillion since the first quarter of 2008 to a low of $1.8 trillion in September 2010."
MMDA deposits have grown from $4.09 trillion in 2008 to $5.08 trillion September 2010-a 26.9% increase. The combined reduction of jumbo and retail CDs in the past seven quarters at $1.1 trillion matches the increase in MMDAs.
"When the Fed starts raising interest rates the mutual funds will be able to move within two to three weeks because of their structure," asserted Moebs, who is very concerned credit union MMDA money could leave quickly, forcing CUs to borrow to fund a portion of their loans. "Credit unions must watch the money market mutual funds and view them as their major competitor or they will lose their money to make auto and mortgage loans (CU Journal, Oct. 18). The money market mutual funds are like the wise old owl, sitting there waiting for the chance, and when they move, they will pounce."
CUs, therefore, will be wise to reprice MMDAs to reflect the average of money market mutual funds, insisted Moebs. "When the money market mutual funds pricing starts to change due to Ben Bernanke bursting the liquidity bubble he is building with QE2, credit unions need to be prepared to not lose that money. I think the liquidity bubble will burst in the second quarter of 2011, third quarter at the latest. If credit unions' money market deposit accounts are priced competitively, and credit unions move when the money market mutual funds move, they will not lose a penny."
IRA and Keogh deposits have steadily increased since 2008 by 17.7%, pointed out Moebs, as consumers opt for security and have moved money out of money market mutual funds. "I believe credit unions that have strong IRA and Keogh programs in place at the start of 2011 will take advantage of the shift in money to these accounts. They should be geared up with front-line staff trained to sell these products."
Moebs termed the three steps a "near money riskless solution. Near money is risky. It is money readily accessible to the consumer and can leave the credit union quickly. If the credit union follows these steps, it will get ahead of the eight-ball, won't lose a penny when rates rise, and can have the confidence to begin an aggressive vehicle and mortgage lending program now."