In the wake of the IndyMac Bancorp failure credit unions across the country have been taking steps to reassure members about the safety of their deposits and the National CU Share Insurance Fund.
The biggest bust of a regulated thrift and the second-largest American financial institution ever to fail and the attendant media coverage of fistfights at IndyMac branches as customers lined up to remove their deposits has caused thousands of consumers to question the safety and soundness of their own financial institutionsâincluding credit unions.
And at press time there were reports that the beleaguered thrift is under investigation by the FBI for possible fraud in connection with home loans made to risky borrowers.
But not all of the consumer reaction to IndyMac was negative. Several credit unions in the Pasadena area saw an immediate positive benefit from the thriftâs demise as IndyMac customers brought their money to what they saw as a safer alternative.
The $3.6-billion, 3115,000-member Wescom CUâs branch traffic was up not just at its four Pasadena locations but throughout its service area, according to Deena Spicer, vice president of marketing and communications. âWe are benefitting from the changes at IndyMac,â she said. âA lot of our branches are close to an IndyMac branch. In just three days, weâve received $2 million.â
Dina Lopez, marketing director for Pasadena Service FCU, said her CU is also looking to cash in on the âflight to quality.â âNot to be a predator, but we want to help people who will be without a bank account,â she offered. âWe are planning to run newspaper ads to let people know we are here, because people will be looking for another financial institution.â
Jan Cowell, president and CEO of single-sponsor Parsons FCU, here, likewise reported an influx of deposits. âWe had a lot of people in [July 14], filling out forms to transfer money out of IndyMac and into the credit union,â she said. âAs I said to my board, the good news is: our members are coming to us; it is a flight to quality. The bad news is: what do we do with the money? It is hard to make loans right now. Still, it is good our members are rushing to us, because they could go somewhere else.â
Safety And Soundness Still A Concern
Even so, members are concerned about the safety and soundness of their credit unions. As was the case with many of the CUs Credit Union Journal interviewed for this story, Wescom fielded numerous inquiries from its members regarding share insurance coverage.
âMany of our members are calling about insurance, so on Monday morning [July 14] we placed a statement on our website letting them know their money is insured,â said Spicer. âThe statement explains who NCUA is, because it doesnât have the same name recognition as the FDIC, and how much accounts are insured up to by the NCUSIF.â
What happened at IndyMac is also causing consumers to question how much they have in their accounts and how much of that is insured (see related story). Pasadena Service FCUâs Lopez said her credit union has been getting âlots of phone calls and visitsâ from members who want to know if their money is safe. âThey want to know how much they are insured up to. We are reassuring them as much as we can. We have brochures with NCUA information regarding deposit insurance, and we are running low, which tells me people are coming in.â
Cowell said Parsons FCU has observed ânervousâ people double-checking their account status and asking questions about share insurance.
Concerns Spread Beyond Pasadena
Itâs not just credit unions in IndyMacâs hometown of Pasadena seeing members react to the thriftâs failure. Across the Golden State, CU members sought information about accounts and insurance. About 40 miles away from Pasadena at Arrowhead CU in San Bernardino, Larry Sharp, CEO, said the first days following the failure were âinteresting.â
âWe had a lot of members who were listening to the radio and watching TV and seeing the discussions about IndyMac customers and the impact on them,â he said. âThis led to an unusual number of inquiries to the call center and to our branches. Members had lots of questions for us about insurance, especially from larger depositors to make sure they have adequate insurance on their accounts. Some members asked to see our financials, and we were happy to give those to them.â
Arrowhead CU has prepared a short forecast for the rest of the year, which it plans to put on its website along with a capsule summary of the CUâs financials, Sharp reported, noting that the CUâs deposit brokerage product had received a large number of referrals in response to the failure.
Arrowheadâs delinquencies are approximately $19 million, and its reserves are over $100 million, âso even if we wrote off everything that is delinquent, we still would be at $81 million,â Sharp declared. âWe still are profitable, despite the job losses in the area. Our ROA probably will be about 0.40 at the end of the year. Still profitable, despite riding out a financial storm, and with good reserves as well. This is reassuring to our members.â
In Northern California, Palo Alto-based Addison Avenue FCU fielded âa handfulâ of inquiries from its members, according to John McGowan, director of risk management.
âThey are asking two things: questions about our insurance coverage, and asking us to explain how we are not similar to IndyMac,â he said.
Addison Avenue is working to make sure its staff and members are informed regarding the safety and soundness of the CU, McGowan said. âWe are preparing a statement to be published to our staff and to our members. There are several key messages: our capital ratio is much higher than most banks; we did not do exotic subprime mortgages at all, so our mortgage portfolio is boring with long-term, fixed-rate loans; and, we have diversity in our loan portfolio. All of these messages help us understand the differences between us and banks that were concentrated heavily in exotic, subprime real estate loans.â
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