[RegulatorCountry]

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.

[Secret Agent Man]

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.

[PAR35]

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

[babble-on]

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.

[Fingolfin]

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.

[GovernmentShrinker]

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.

[IllumiNaughtyByNature]

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.

[PAR35]

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

[Brad from Tennessee]

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.