Liquidity needs can change quickly. Even just a few months ago, credit unions were flush with cash and were searching for ways to invest their excess liquidity. But for many credit unions, things have changed as the Fed has begun to raise rates more aggressively than we’ve seen in decades. This has created challenges for some credit unions as cash balances have fallen from record pandemic highs.
Needless to say, working in investments or any aspect of finance is difficult right now. Every day is a constant guessing game of where you might find additional liquidity, what will impact your current liquidity and where you can find resources that will give your institution some semblance of financial stability. But there’s a secret out there, and guess what? It’s not just for investors. It’s SimpliCD.
Most of you are probably familiar with the SimpliCD program and the ability it gives you to invest in jumbo CDs offered by banks and credit unions across the country. But did you know you can also issue certificates through the program in a very efficient and cost-effective way? These statistics can shed some light:
- SimpliCD issuers have a total of $3.3 billion in outstanding deposits issued through the program.
- The largest issuer on the SimpliCD platform has $220 million of deposits outstanding. The smallest issuer has $100,000 outstanding.
You see, SimpliCD provides a way for credit unions to issue jumbo CDs to other credit unions in the U.S., giving them the ability to bring in millions of dollars of funding in a short period of time. But if your liquidity needs are smaller than that, SimpliCD can still help. And, best of all, there are no fees for using the program.
The Steps to Finding Your SimpliCD Solution
Once you’ve decided you need additional liquidity and you want to issue jumbo certificates of deposit, what are the next steps? Here’s how to proceed with SimpliCD to help you find the perfect solution for your credit union:
Determine Your Numbers – Amounts & Terms
The first step is to decide how much liquidity you want to bring in and at what terms. Vizo Financial has experts who are well-versed in all things SimpliCD and can help guide you through the process of choosing the best path for your credit union. We do that by providing rate indications for issuing at different terms and shed some light on which terms are most popular with investors in the current environment. When issuing with SimpliCD, you can issue for a single term or for multiple terms at once. This allows you to stagger maturities to meet expected cash-flow needs.
After determining your cash-flow needs, the next step is to get the required internal approvals to bring in jumbo CDs. This may mean getting board approval before issuing for the first time or it could be as simple as seeking approval from management. While not required, we also suggest letting your examiner know of your intent to issue and get their buy-in based on certain regulations and their specific guidance. For example, NCUA Regulation 701.32 states that a federally chartered credit union may receive payments on shares from public units, political subdivisions and non-member credit unions. The maximum amount of all public unit and non-member shares shall not, at any given time, exceed 20 percent of the total shares of the federal credit union or $3 million, whichever is greater. Regulations for state chartered credit unions vary by state, but many adopt the federal guidelines. It is also recommended that you have a policy that states you can issue jumbo certificates of deposit to other credit unions and lists any restrictions you want to place on the process. This policy can be a separate document or can be added to another policy that already addresses liquidity or investments.
Sign the Agreement
The next step is to sign the SimpliCD issuance agreement, a one-page form that allows you to issue CDs through the SimpliCD program. This form, along with a copy of your wiring instructions on credit union letterhead, is all that’s required for you to begin issuing through SimpliCD. This step can be completed quickly and can be done on the same day you start bringing deposits in. To make the process even speedier, you can complete this form at any point prior to issuing so it’s already in place should a funding need arise.
Establish Dates & Conditions
Once all the steps have been completed and the agreement has been signed, you can begin bringing in deposits through the SimpliCD program. Someone from SimpliCD will get in touch to confirm the amounts you want to bring in and the terms you want to use. One important part of this is determining the date you want to settle the deposits. You can choose to settle each day for the amounts credit unions purchased that day. Or, conversely, you could choose to settle all deposits at a future day in order to make the process easier for you and your accounting team. For example, if you started the process to bring in $5 million of new money on a Monday, rather than settling at the end of each day, you could choose to have all deposits for the week settle on Friday. This would allow you to issue one large deposit for the entire amount brought in rather than having several smaller deposits settling throughout the week. After determining how much you want to issue and for what terms, SimpliCD will send details of the offering out to their network of over 3,500 credit union investors across the country.
Collect & Track
The final step will be receiving the funds brought in through SimpliCD. This typically means having the deposits sent to your account at Vizo Financial. SimpliCD will track the individual investors in your credit union CDs using a process that has been vetted by the NCUA. SimpliCD will also debit your account at Vizo Financial when interest payments are payable to investors (normally on a monthly basis) and will distribute these payments to individual investors. When your deposits are getting ready to mature, SimpliCD will reach out to remind you when the funds will need to be paid back to the investors. If liquidity is no longer needed, you can return the investor deposits. If additional liquidity is still needed, you can issue again under whatever terms fit your needs at that time.
Check Out SimpliCD!
With so many factors converging at once to impact liquidity, it’s probably safe to say that your credit union’s needs are shifting at a rapid pace. And as a portfolio strategist, I see all the challenges our movement is facing because of these impacts. SimpliCD isn’t just a tool for meeting your current liquidity needs – it’s a tool that offers the flexibility to change as your liquidity situation does. Put the notion aside that SimpliCD is just a resource for investors. On the contrary, it’s an incredibly dynamic option for credit unions to find their footing in today’s ever-changing financial landscape, and I encourage you to check it out.
Scott Wood is Vizo Financial’s portfolio strategist. He is a NASD-registered representative, responsible for assisting the investment and liquidity needs of member credit unions.