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Written Notice for Existing Accounts (disturbing notification from my Credit Union)
My Credit Union, via US Postal Service | August 7, 2009 | My Credit Union

Posted on 08/07/2009 9:18:25 PM PDT by RegulatorCountry

Written Notice for Existing Accounts

The Credit Union will make a change in the way it reports your Account balance as part of an aggregate total to the Federal Reserve Bank (FRB). This change will not affect your available balance, dividend earnings on dividend bearing accounts, NCUA insurance, statement or any other feature of your Account. This will allow us to substantially lower our reserve requirement balance at the FRB and increase the amount of funds available for loans and investments, thereby increasing our ability to serve our members. Credit Union Checking, Savings and Money Market Accounts will now be structured into checking and savings sub-accounts for regulatory accounting purposes. The Credit Union may periodically transfer finds between these two sub-accounts. Your dividend calculation on dividend bearing accounts will stay the same on both sub-accounts. If your Account does not earn dividends, the savings sub-account will not earn dividends. If you need further assistance, please contact our Member Center at 1-800-***-****.


TOPICS: Business/Economy; Government
KEYWORDS: banking; creditunion; creditunions; ncua
Lowering reserve requirements for Federally insured credit unions as a whole, or is my credit union an exception?

Knowledgeable comments, please? I don't like what I'm reading here, hidden subaccounts transferred without my knowledge, lowered reserves, etcetera.

The notification was typed out exactly as it appeared in print, bolding as per original, with the exception of the contact toll-free number being asterisked out.

1 posted on 08/07/2009 9:18:25 PM PDT by RegulatorCountry
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To: RegulatorCountry

This is not a good move. Having higher reserves and tighter lending policies is why credit unions are in generally much better shape than regular banks.


2 posted on 08/07/2009 9:21:43 PM PDT by Secret Agent Man (I'd like to tell you, but then I'd have to kill you.)
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To: Secret Agent Man

It doesn’t inspire greater confidence in me, that’s for sure.

I’m not in the habit of posting notices from my financial institutions on public forums, but unless someone can explain this in terms more favorable that is evident in the notice itself, I’m very concerned.

I check the ratings for all my financial institutions monthly. This CU is not small, not large, headquartered in IL. They have been the very model of responsibility in the past, from my understanding of the data I’ve monitored since the spring of last year.


3 posted on 08/07/2009 9:29:21 PM PDT by RegulatorCountry
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To: Secret Agent Man

I am a member of NFCU. I think that they are horrible.


4 posted on 08/07/2009 9:31:55 PM PDT by quikdrw (Life is tough....it's even tougher if you are stupid.)
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To: quikdrw

I’ve always thought NFCU was wonderful! Been with them 20+ years, encourage my kid to bank with them.


5 posted on 08/07/2009 9:34:27 PM PDT by Shimmer1 (Navy blue)
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To: RegulatorCountry

Sounds like they are pretty desperate. You might be able to get info on them here: http://webapps.ncua.gov/ncuafpr/


6 posted on 08/07/2009 9:37:11 PM PDT by PAR35
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To: quikdrw

Were you notified similarly, of a change in structure of accounts for reporting purposes to the Federal Reserve Bank, and of a lowering of reserve requirements?


7 posted on 08/07/2009 9:38:51 PM PDT by RegulatorCountry
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To: RegulatorCountry

I am not an expert, but I think you’re confusing reserves with the fed, with reserves for potential loan losses. They want to disaggregate the checking and savings accounts because one account requires them to post more non-interest earning assets at the Fed. Making this change will allow them to put more of the assets to work earning money.


8 posted on 08/07/2009 9:39:14 PM PDT by babble-on
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To: PAR35

I’ve been monitoring them closely since things started looking a little crazy in the spring of 2008. I’ve not seen anything to indicate a problem.

I don’t like getting this thing on a Friday, either. But, that could have been coincidental.


9 posted on 08/07/2009 9:40:49 PM PDT by RegulatorCountry
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To: babble-on

I understand fractional reserve banking reasonably well, and still find this disturbing. I’ve got the majority of my personal, readily available cash reserves with this particular CU.

I still wouldn’t like it, but would be less alarmed if this is across the board, for all Federal Credit Unions.

Has anyone else received similar notification?


10 posted on 08/07/2009 9:44:05 PM PDT by RegulatorCountry
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To: RegulatorCountry

Since they are member owned, they can’t sell stock to raise capital. It sounds like they are misstating the nature of the accounts to reduce their reserve requirements. And I wouldn’t consider that to be a good thing. While I’m not suggesting that they are doing anything illegal, it doesn’t sound like something they would be doing if they didn’t have to.


11 posted on 08/07/2009 9:46:28 PM PDT by PAR35
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To: PAR35

The legalities of such would mean that all Federal Credit Unions would be released to do the same, though, would it not?


12 posted on 08/07/2009 9:49:48 PM PDT by RegulatorCountry
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To: RegulatorCountry

Where can one check the ratings?


13 posted on 08/07/2009 9:52:47 PM PDT by berdie (Philosophies of the school room in one generation will reflect the government philosophy of the next)
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To: berdie

I’ve been going through bankrate.com, but the NCUA link on this thread should send you to a source as well.


14 posted on 08/07/2009 10:01:07 PM PDT by RegulatorCountry
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To: RegulatorCountry

Thanks!!


15 posted on 08/07/2009 10:02:53 PM PDT by berdie (Philosophies of the school room in one generation will reflect the government philosophy of the next)
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To: RegulatorCountry

Transactional accounts such as checking accounts have a relatively high reserve ratio - 9/1. Time-deposit accounts like money markets and CDs are not subject to reserve requirements. What it looks like the Fed and your credit union are doing is trying to boost lending by shifting what they classify transactional and time deposit.

For example: You have $100,000 in your credit union checking account. This enables the credit union to make a $90,000 loan, based on a 9/1 reserve ratio. Don’t worry though, they aren’t actually lending $90,000 out of your $100,000 - the $90,000 is on top of the $100,000 and is brand new money. However, they are limited to a $90,000 loan because the reserve money was in a transactional account. If it were in a time-deposit account the credit union could make loans in a much greater amount.


16 posted on 08/07/2009 10:04:43 PM PDT by Fingolfin
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To: RegulatorCountry

I know a lot more about banks and thrifts than I do about CUs. So I don’t want to go too far with my assumptions. I don’t know if this is a policy decision from the regulator, or if one CU has a really sharp lawyer that’s spotted a loophole (or thinks that he has).

I’d make sure I wasn’t over the $250K limit (not a problem for me) and I’d consider helping them with their reserve requirements by moving some money to another CU if I could do so without hurting myself.


17 posted on 08/07/2009 10:05:37 PM PDT by PAR35
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To: Shimmer1
I despise them. My mother-in-law was with them for 40 years. After she died, one account was suppossed to be closed and the check sent to my wife.

Two weeks went by and no check. When my wife called them about it, the customer service rep was very rude to my wife. Their response was “we are not responsible for the postal system”.

After three months, a customer service representative finally admitted that the check had never been entered in to their system, so it could not have been printed. Even after that, it took 3 more months to get that check. I have always wondered how much of that was from fanciful accounting.

I sent a registered letter to the president of NFCU about that situation. I got the reciept back, no other communication.

18 posted on 08/07/2009 10:09:15 PM PDT by quikdrw (Life is tough....it's even tougher if you are stupid.)
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To: Fingolfin

I have no loans with this CU and am not likely to seek any loans. I also have a Visa ther with zero balance, at an attractive rate. I have a decent amount of money on deposit there.

I can see why the institution would want to do this, but, as a “member,” part owner really, with funds “invested” in this particular institution, wouild you say that the risk to my deposits stays the same, increases or decreases, as a result of these changes?

It’s apparent to me, that the risk increases, with no increase in reward, in my particular situation.


19 posted on 08/07/2009 10:11:51 PM PDT by RegulatorCountry
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To: PAR35

I’ve been with these folks since I graduated college, over two decades ago. They issued my very first credit card, and approved me to buy my very first new car. I’ve stuck with them despite no longer being employed by the company through which membership was available, back when limitations such as this were required. I’m sentimentally attached. This bothers me.


20 posted on 08/07/2009 10:15:25 PM PDT by RegulatorCountry
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To: RegulatorCountry

You’re right, the risk does increase. I guess the degree of risk is based on the quality of loans they make off of this newly available money.

Your credit union might have been very conservative with high lending standards in the past. The general push from the Fed is for it’s member banks (and credit unions) to make more loans so they might be targeting good institutions like yours.


21 posted on 08/07/2009 10:32:39 PM PDT by Fingolfin
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To: RegulatorCountry

There’s nothing here to suggest that the Fed has lowered reserve requirements, nor have I seen anything anywhere else to suggest this has occurred — it would be front page news if it happened. The whole business of calculating reserves and reserve requirements is insanely complex. It sounds like your credit union discovered that its internal accounting procedures were artificially increasing its reserve requirement and is remedying the situation with a change to its internal accounting procedures. There are lot of things in current economic news that are worth worrying about, but this isn’t one of them.


22 posted on 08/07/2009 10:48:17 PM PDT by GovernmentShrinker (Vote for a short Freepathon! Donate now if you possibly can!)
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To: Fingolfin

It would appear that hey’ve effectively been asked to lower their lending standards, correct? And are doing so via creative accounting methods involving transfers of hidden accounts, of which I will not be aware.

Don’t like it at all. Not sure what to do about it at this point, though.


23 posted on 08/07/2009 10:50:34 PM PDT by RegulatorCountry
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To: GovernmentShrinker

Sounds like two sets of books, to me. If I learn of other CU’s issuing similar notifications, I’ll be less concerned about it.


24 posted on 08/07/2009 10:53:59 PM PDT by RegulatorCountry
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To: PAR35; RegulatorCountry
I don’t know if this is a policy decision from the regulator, or if one CU has a really sharp lawyer that’s spotted a loophole (or thinks that he has).

I really doubt that it's either of those. Much more likely is that a new inside or outside accountant noticed that this CU wasn't exploiting a loophole that practically every other CU in the country has been exploiting for a long time. Fixing that makes sense, since failing to fix it simply lowers the CU's profitability, and thus reduces the interest it can afford to pay to its member-investors.

25 posted on 08/07/2009 10:56:50 PM PDT by GovernmentShrinker (Vote for a short Freepathon! Donate now if you possibly can!)
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To: GovernmentShrinker

Believe me, I will be asking pointed questions, come Monday morning, regarding commensurate reward for increased risk, pertaining to these creative accounting methods.


26 posted on 08/07/2009 11:01:41 PM PDT by RegulatorCountry
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To: RegulatorCountry

Any financial institution necessarily has multiple “sets of books”. The various assets and liabilities they have must be classified differently for reporting to different audiences. Regulators insist on a certain set of classifications, accounting firms which will audit financial statements require a different set, the IRS requires another different set, and customers require yet another different set.

If this change is pursuant to a recent regulatory change or regulatory advisory, then you may see other CUs issuing similar notifications. But it may well just be that they’re cleaning up an internal inefficiency that they’ve recently become aware of, in which case you probably won’t see other CUs issuing similar notifications.


27 posted on 08/07/2009 11:09:15 PM PDT by GovernmentShrinker (Vote for a short Freepathon! Donate now if you possibly can!)
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To: RegulatorCountry

There’s nothing here to suggest that they’ve “lowered their lending standards”. Nothing. They need to use their capital efficiently in order to operate with optimal financial efficiency, which benefits YOU. Having extra capital unnecessarily tied up in regulatory red tape is not a good thing. If they start actually relaxing their criteria for making loans, then you should be concerned, but that’s not what’s being described here.

It’s like if you’ve got a an interest bearing savings account and also a non-interest bearing checking account that has no fees if you maintain a minimum balance. And then you realize you’ve been keeping more in the checking account than you need to in order to avoid the fees, because you hadn’t realized that the calculation was on the average balance over the whole month, and thought it had to stay above the minimum at all times to avoid the fee. If you fix this by moving the excess to your savings account where it will start earning interest for you, you’ve done a *good* thing. This is basically what your credit union is doing here — maybe because they’ve been late to realize something, or maybe because there’s been a change or clarification of the regulatory rules, but either way, it would be irresponsible of them not to maximize how their regulatory reserves are calculated.


28 posted on 08/07/2009 11:18:10 PM PDT by GovernmentShrinker (Vote for a short Freepathon! Donate now if you possibly can!)
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To: RegulatorCountry
IIRC, the banks were hording the minimum cash on hand from the previous bail out. (I could be corrected by someone smarter than I, and will appreciate it if i state something incorrect) The bail outs that were handed out were NOT passed on to the small biz and consumers, they were kept in reserve by the banks. I heard one mention that some banks went from 3% before the bailout to 30% cash in reserves after. This could be an adjustment from that in order to open credit lines since your bank feels a little more secure with its position?

It might be a good idea to ask them what their cash ratio is going from to what it will be.

29 posted on 08/08/2009 5:41:51 AM PDT by IllumiNaughtyByNature (If the Average nObama Voter is Anything Like Peggy Joseph, The Next 4 Years Will Be A Hoot!!!!)
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To: RegulatorCountry

A quick Google shows that Lockheed and Verity credit unions are doing this as well - so it looks like it might not be unusual.

Lockheed PDF
http://staging.lockheedfcu.com/content/released/High_Rate_Checking_Acct_Agmt_and_Disclosure_4_27_06_Final.pdf

Verity
http://www.veritycu.com/verity.cfm?tn=nw3col&menuid=526&navids=203,526&pageid=737


30 posted on 08/08/2009 7:07:45 AM PDT by PAR35
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To: RegulatorCountry
I read that Bank of America had been determining individual mortgage risk using software that analyzed the personal characteristics and history of customers then approved or disapproved the application. I believe they inherited the computer program from Bank of Boston when BOA absorbed them. The mortgage risk program allowed BOA to feel safe in increasing their leverage ratio from something like 1:5 to 1:12 on mortgages. Apparently there was a flaw in the software formula that didn't become apparent until the economy began to melt and panic.
31 posted on 08/08/2009 9:31:55 AM PDT by Brad from Tennessee (A politician can't give you anything he hasn't first stolen from you.)
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To: IllumiNaughtyByNature

This CU did not partake in TARP, to my knowledge, and I’ve been monitoring them and all my various financial insituttions for over a year, as I noted upthread.

I’ve actually moved my commercial accounts, from my now-essentially-inactive s-corp (casualty of the economy, I’m now employed by a former customer) to a privately-held, locally owned and very old bank & trust, dating to the Reconstruction era, specifically because it has not touched any of the bailout programs, and has purposely kept itself isolated from lending to certain segments all along, as a matter of prudence and fiduciary responsibility.


32 posted on 08/08/2009 10:43:01 AM PDT by RegulatorCountry
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To: PAR35

Thank you. This is oddly reassuring, even though it doesn’t exactly bode well for Federal Credit Unions as a whole. I’m usually very handy with a search engine, and didn’t come up with such results myself.


33 posted on 08/08/2009 10:46:16 AM PDT by RegulatorCountry
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To: Brad from Tennessee

Probably didn’t dawn on them, that real estate could ever actually fall in value. Which is odd, because Boston had quite the R/E bust in the early nineties, itself.


34 posted on 08/08/2009 10:49:00 AM PDT by RegulatorCountry
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To: RegulatorCountry
Yeah, I remember when Gov. King offered all the incentives to create a new Silicon Valley west of Boston creating an amazing boom. Then Dukakis reinstated taxes and regulations and chased a lot of business out. At the same time Dukakis took credit for King's “Massachusetts Miracle.”
35 posted on 08/08/2009 2:12:27 PM PDT by Brad from Tennessee (A politician can't give you anything he hasn't first stolen from you.)
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