We’re not talking about rolling your eyes or using foul language. We’re talking about the RUDE ratio:
Reserves + Corporate Undivided Earnings
Daily Average Net Assets
As you can see from the equation above, the RUDE ratio looks at
the sum of reserves and corporate undivided earnings as a percentage of daily
average net assets. In a natural-person credit union, this is called the net
worth to assets ratio.
Corporate credit unions keep a very close eye on this safety-and-soundness measure, as the NCUA requires a two percent RUDE ratio. Natural-person credit unions also track this ratio, using it as a due diligence metric on the corporate(s) they belong to.
As shown by the graph below, the RUDE ratio at corporate credit unions has risen significantly in the past two years and now stands at the highest level of the past four years:
How are they becoming RUDE-er?
The reason for the rise in the RUDE ratio can be seen in both reserves and undivided earnings, with undivided earnings growing even faster than reserves over the last several years. The graph below shows both on a steady incline since 2001. The fairly consistent growth of both equity categories also illustrates that changes in the RUDE ratio are typically driven more by the ups and downs of total corporate assets—both seasonal and cyclical—than by volatility in the aggregate equity of the corporate network.
This data was pulled from Callahan’s Corporate Peer-to-Peer software. This tool is very effective for natural-person credit unions looking to evaluate the health and business strategies of the corporates they do business with. To learn more, click here.