LAKE FOREST, Ill.—It’s time credit unions “ransack deposits” from the major banks.
That’s the recommendation from one economist, who says with T-bond rates now almost even with deposit rates, consumers shying away from the stock market will likely turn even more to credit unions.
Those consumers will likely be pulling deposits out of the large banks, which are not paying attention to basic savings rates, says Michael Moebs, economist and CEO at Moebs $ervices. What all that means, added Moebs, is credit unions and community banks have an opportunity to steal away dollars and account holders.
And, as CUToday.info reported, one expert suggests a liquidity crisis may be coming.
“Now is the time for credit unions and community banks to take market share from the large banks. Deposit rate pricing is key now,” stated Moebs.
Moebs $ervices’ research on interest rates from more than 3,000 banks, credit unions and thrifts provides insight into pricing deposits and bonds, Moebs said.
“The secret sauce is one of the strongest relationships in years between deposit marketplace rates backed by deposit insurance and the active CME market for U.S. Treasury bonds,” asserted Moebs. “It’s a combination of factors. Big banks are overflowing with liquidity, so they could not care less about savers and small investors. Large banks have opened their cupboards to credit unions and community banks to ransack deposits.”
Moebs added consumers are holding onto money as much as possible because of job worries due to the pandemic.
“The consumer wants deposits to reflect T-bond rates to help during this crisis time until the economy recovers,” said Moebs. “While deposits are insured, the stock market is not.”
The Key Changes
Moebs rate chart (below) is built on price actions happening since COVID-19 started.
“The key is the changes,” said Moebs, who noted the chart shows how T-bond rates have fallen many more times during the COVID-19 crisis than basic savings rates. “The chart is for 154 days since the base week of Jan. 6 through June 8.”
According to Moebs. the chart shows rates for all types of products have been changing more often during the health crisis, including:
- Savings and shares moved three times in the 154 days – the norm is once every six months
- Interest checking rates normally move once a year, but moved three times in this period
- Money market deposits move once in a quarter, but six changes in 154 days
- CDs moved 75 times in the 154 days and normally would have moved less than 40 times
- Coinciding with the deposit movements are the market movement of U.S. Treasuries
A Mirror
Michael Moebs
“All these movements mirror what was happening with government actions to contain the coronavirus,” said Moebs. “Yet, five-year T-bonds dropped sharply from the week of January 27, falling 40% from a high of 1.62% to 0.65% in the week of March 9. This is when deposits rates started to hook up and mirror T-bonds.”
Moebs pointed out the Great Recession brought Fed fund rates close to and even below deposit rates. Yet, deposit rates stayed well below Treasury bond rates. COVID-19 has brought down T-bond rates to deposits.
“The sharp fall in oil prices helped too,” Moebs added.
How Long Can it Last?
Will this close link between the T-bond rates and deposit rates last?
“Much is tied to COVID-19 and related efforts to open the economy, get therapeutic drugs, avoid a relapse of COVID, and a vaccine. Again, let’s not forget oil prices and related oil demand or usage,” Moebs said.
This “transitory period,” offered Moebs, allows a depository with capital and deposit gathering efficiency to steal away deposits from large banks.
How can this be done?
“Remember, savers and investors still shy of the stock market view deposit insurance and U.S. Treasuries the same,” said Moebs who urged credit unions that can afford it to offer competitive deposit pricing to T-bonds. “COVID-19 is driving savers to think short term, so tiering deposit levels such as money markets is important. Finally, remember pioneers got arrows in their backs, but pioneers also got the best land and later oil leases. Access the risk but act now as the economy starts to open to win market share and achieve growth goals.”
