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Credit Unions are Looking Pretty Good

Financial conglomerates and much of the banking sector are certainly not out of the woods yet.  The financial sector is still facing huge losses in the commercial real estate market.  But the banks don’t seem too worried about it.  Is it because they know that tax payers will bail them out again?  Or are they going to turn to a much less controversial source for more capital cushion - their customers?

This past week there were reports that the Fed is really worried about the commercial real estate market.  They are concerned that banks don’t have enough in reserves to absorb the losses from the commercial loans - basically they don’t have enough capital.  This could mean that we will be re-living the financial crisis sometime in the near future.

But, this next financial storm may be different.  It will not be politically or economically feasible for another taxpayer bailout.  The banking sector will turn to a more captive source - their customers.  It is happening now.  This is from John Dizard in the Financial Times:

As one New York commercial real estate banker explained to me: “We’re going to pay for the losses by screwing our solvent customers. I just today rolled over a CRE [commercial real estate] loan with a good customer. The spread went from 60 basis points over Libor to 400.

“He couldn’t argue with us; after all, where else could he go? All of us are using the same loan pricing formulas, which for the good customer give you a spread of 300 to 400 over.”

We are hearing stories everyday about credit card fees and rates increasing. 

How can banks re-build their reserve or cushion on the backs of customers?  Easy.  Banks have enjoyed cheap money - very low rates - provided to them by the Fed and low-cost customer deposits.  They are essentially borrowing at extremely low rates and lending it to their customers (particularly credit card customers) at much higher rates.  They are experiencing huge margins (difference between borrowing rates and lending rates) which are bringing in tons of money for the banks. 

So, banks are going to punish their good customers to increase their reserves/cushion against the pending loan losses.  We don’t have to take this abuse from institutions that may have been reckless in their lending practices.  It may be good time to make that switch to a credit union.

Credit unions provide an excellent value for their customers.  Fees and rates are often lower at credit union than at bigger banks.  Credit unions are “not-for-profit” entities that may be more responsive to their customers needs.  There is no “profit motive”.

Let’s stick it to the financial conglomerates and take back our country - make the switch.

Good luck.

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