Not too long ago, Main Street America did not know Silicon Valley Bank existed.
But now they’ve watched a series of bank runs in real time.
Conventional wisdom holds that depositors will pull their money from regional and smaller banks — credit unions among them — and park their funds at the marquee names, including J.P. Morgan and other behemoths.
PSCU President and CEO Chuck Fagan said that conventional wisdom is wrong. Owing to a combination of reassurance from CU CEOs and trust that’s been built up over decades, credit unions’ members are largely staying put.
“Though there may be doubts in the market,” Fagan told PYMNTS’ Karen Webster, “it’s my hope that trust wins out because of the past history and performance of the credit unions.”
There are some inherent positives baked into the CU model, said Fagan, that lend themselves well to reinforcing that trust.
As Fagan said, “the credit union industry is very collaborative. That’s been a positive — there are pockets of CEOs that have gotten on calls together” to craft strategies to communicate to members that their deposits will be fine.
“A lot of the messaging,” he said, “has been about how sound the credit union industry is — and how, consistently, year over year, the industry has been a safe environment for consumers.”
There are reasons many of those consumers are safe and sound — he said most CUs rarely have single depositors that would have funds in their CU that would be above the FDIC-protected $250,000 threshold. Those accounts may be a pittance to, say, Bank of America or Citigroup. Still, as Fagan noted, they represent a significant chunk of the average CU’s individual or enterprise member’s net worth.
Risks remain, and nobody’s out of the woods yet. Fagan noted to Webster that social media is a huge impetus to the bank runs seen in March: A series of Tweets can send bank/CU account holders scurrying for the exits. And so, said Fagan, “the credit unions, in their messaging, have to talk about their long histories and their stability.”
In the less-than-common event that an account holder (individual or enterprise) does have more than $250,000 in an account, it’s imperative that the CU make sure they have plans for any exposure and keep members informed that they often have additional insurance in place.
Looking ahead, Fagan told Webster that he expects there will be some changes across the banking industry that will, of course, touch CUs too.
Audits, for one thing, will likely change.
“There will be renewed focus from regulators on liquidity — which might mean that capital ratios will go up, or perhaps there will be more short-term investments as opposed to long-term investments,” said Fagan.
Regulators will also examine risk tied to any concentration of deposits (SVB, by way of example, reportedly crystallized those pitfalls by having Roku as a customer, with roughly $500 million in deposits).
Regulators will now look to ensure that no one or group of depositors will have the power to spark a bank run.
In the meantime, said Fagan, CUs have weathered the shocks to the system quite well. “I haven’t seen anything widespread,” he said, “or where a credit union has been shocked at pullouts.”
We likely have not seen the last of what Fagan termed “industry adjustments.”
“But credit unions,” he said, “are able to say to everyday Americans that ‘we have your back and we’re going to be here tomorrow.’ ”