During times of crisis, a broad spectrum of motivations can drive the banking public to panic about cash access. The reasons people feel compelled to pull large sums of money from their trusted financial providers range from the downright silly to the painfully serious. Regardless of the logic, however, mass withdraws can have significant ramifications for financial institutions of all sizes.
Because the U.S. financial system has experienced incidents of cash hoarding several times throughout history, including the 2008 financial crisis, regulators are well aware of the risks. And, they are making moves in the midst of the COVID-19 pandemic to mitigate them.
Needless to say, credit unions still want to be proactive in the prevention of a mass cash withdrawal situation. Here are several moves of your own to consider:
Over-communicate messages of safety and soundness
Through as many channels as possible, share with members the many ways their cash is safer tucked in tight at your institution. Keeping large sums of cash “under the mattress,” so to speak is incredibly dangerous, particularly in a heightened state of uncertainty.
Talk with members frequently about the fact their deposits in federally insured credit unions are insured by the National Credit Union Share Insurance Fund up to $250,000 per individual depositor. Calculating per-account and per-member amounts can be complex, so point members (and CU staff) to the NCUA’s Share Insurance Estimator to calculate the exact amount of insured funds across all of their accounts.
Give members alternatives for cash access
Not all members asking for large sums of money are worried about a catastrophic event; some just want reassurance they can access their cash amid local government restrictions on business operations and citizen quarantining.
For your tech-savvy members, this may not be as acute a concern. Others may need additional support downloading your app, navigating your online banking platform or finding and engaging with a virtual teller. Engage frontline staff, who may welcome the additional duties if branch closures have reduced their hours, in the promotion of things like ATMs, 24/7 online access, as well as drive-through and by-appointment services, such as safe deposit box and night deposit availability.
Be aware of and adhere to all advanced-notice requirements
Depending on the amount of money a member is requesting, you may ask for advanced notice. For share savings and/or money market accounts, credit unions are permitted to require up to seven days’ notice. Your bylaws and account agreements may state additional notice requirements. Investigate those documents and share what you determine with frontline staff so everyone is aware and can communicate the rules to members.
Reclassify share and money market accounts
Effective March 26, the Federal Reserve Board is reducing the reserve requirement ratios to zero percent, consequently eliminating reserve requirements for all depository institutions, including credit unions.
If a large number of your members have a heightened desire for greater access to their deposits, you may consider reclassifying the credit union’s share and/or money market accounts as transaction accounts. That’s because Reg D’s six-transfers limit from savings and money market remains in place. If your credit union chooses to reclassify those accounts as transaction accounts, members would be free to move their money between accounts as they wished. What’s more, the credit union can make the decision to do this now without incurring increased reserve requirements (thanks to the aforementioned zero-percent reserve ratio from the Fed).
Before you consider this preventative action, understand there is zero guidance on this from the Fed. Be sure to consult your external CPA to determine if the credit union would, in fact, benefit from a temporary (or permanent) loosening of the limits.
In addition to the above suggestions, consider talking with your legal counsel about other ways to minimize your credit union’s risks for releasing such large sums of cash. And, as you work to satisfy individual member needs while protecting the larger cooperative, remember to continue observing BSA requirements and filing all appropriate CTRs!