Archive Links

Consumer Archive
CU System Archive
Market Archive
Products Archive
Washington Archive

News Now

CU System
Shift in deposits a factor in lending says study
CHICAGO (3/17/11)--Investor aversion to risk and low interest rates on long-term investments are shifting where clients are putting their funds, according to an analysis of the Federal Reserve's Flow of Funds report. Dramatic shifts in deposits for 2010 are contributing to lenders lending less and to only high quality borrowers, according to the analysis by Moebs Services Inc., a Chicago-based consulting firm. When banks and credit unions know their deposits will be around for months, they lend, CEO Michael Moebs said in a press release (Professional Services Close-Up March 16). He said banks have restricted their lending because of a significant consumer shift toward short-term deposits and banks' efforts to increase capital to asset ratios. The deposits have shifted to checking and money market deposit accounts at financial institutions from traditional sources such as retail certificates of deposit (CDs) and jumbo CDs. Last year, retail and jumbo CDs dropped to 22.4% of total deposits from 31.7% in 2007. Money market mutual funds declined to 23% from 26.2% for that period. CDs with longer terms have low rates driven in part by bank efforts to reduce long-term deposits to increase capital-to-asset ratios, said the Moebs analysis (Investment News March 15). Credit Union National Association Chief Economist Bill Hampel said that there's more to the shift than an institution's desire to curtail growth. "In addition to banks and credit unions moderating growth to maintain capital ratios, households are also using the money they might otherwise have placed in deposits or money market mutual funds to pay down debt, because deposit interest rates are much closer to zero right now than existing loans are," Hampel told News Now. The Fed's Flow of Funds report indicated that checking account deposits rose for both interest and non-interest types to 7.7% of total deposits in 2010 from 5.2% in 2007. Money market mutual funds deposits fell to 23% last year, compared to 26.2% in 2007. It also noted that total of insured and uninsured deposits dropped $800 million--to $12.3 trillion at the end of 2010. In 2007, those deposits weighted in at $13.1 trillion. Moebs attributed the drop to the recession and reduced earnings by workers, said Investment News.


RSS print
News Now LiveWire
.@CreditYOUnion captures voices of #100MM loud, proud at @GAUnitedCU See #NewsNow Thursday for more
13 hours ago
Ill. @GovernorQuinn signs patent troll law http://t.co/ugWf8zHpCm via @CrainsChicago
14 hours ago
.@MBAMortgage : Mortgage apps increased 2.8% from one week earlier for week ending Aug. 22.
15 hours ago
Franchise businesses may face higher breach risk with POS systems HT @briankrebs http://t.co/LGE46DUk15
15 hours ago
About 1 in 3 consumers use plastsic for in-person purchases of less than $5, according to @CreditCardsCom survey.
17 hours ago