fi-linx

Driving up to Lacey, WA for the Super Bowl yesterday, my mind wandered over work, as usual, and I began thinking about the massive amounts of capital that CU’s have laying around.  Deposit Reclassification’s main job is to free up non-interest earning assets and turn them into income generators for the CU or bank.  If all of the CU’s reclassified their deposits, they could earn an extra $154M which could be returned right back to our membership.  I recalled a Filene article a while back referencing the over-capitalization of the CU market, it said that CU’s were overcapitalized by $29B dollars.  Yes, that is $29 billiondollars!  Assuming CU’s actually invested their excess capital, that would be an additional $1.4B of income to the CU industry.  Imagine what credit unions could do with that much extra money!

With the economy in its current state, many people feel comforted by the fact that we do have the excess capital.  It will give CU’s something to fall back on if something really hits the fan.  But what is an adequate amount of capital?  The NCUA says 7%, but last I heard the average CU had about 11% or 12%.  Are CU’s doing a disservice to their members by hoarding all of this money on their balance sheets?  Or are they just exhibiting extreme risk avoidance?