Catalyst News

Can Rapid Deposit Growth Threaten Lending?

by Catalyst Corporate | Apr 20, 2021

New Catalyst Strategic Solutions white paper examines strategies for reducing the impact of liquidity.

Stimulus packages designed to counter the economic downturn caused by the COVID-19 pandemic have led to a surge of deposits that may complicate credit unions’ ability to serve members. That’s the assessment of Mark DeBree, CFA, Managing Principal of Catalyst Strategic Solutions, in a new think-piece entitled: Rapid Deposit Growth Can Threaten Lending.

DeBree notes: “While credit unions were busy supporting members during the downturn, balance sheets swelled at speeds never seen before. Since the early days of the pandemic, the size and quickness of deposit growth has placed enormous pressure on capital levels.”

However, DeBree offers four suggestions to credit unions looking to mitigate the unintended consequences of trillions of dollars in economic relief.

One suggestion is for credit unions to consider accessing secondary capital. “If your credit union has a low-income designation (LID), you can seek approval to raise secondary capital funds. This approval allows credit unions to raise external funds that can be counted towards net worth,” DeBree said. “This could be an excellent option for credit unions with existing loan demand and the ability to effectively deploy more funds.” 

To learn more, view the white paper here.