When interest rates are low or falling, as they have been since
June of 2000, credit unions often see an influx of loans and shares.
For that reason, credit unions must apply prudent allocation techniques
so that if interest rates rise, they won't be locked into low liquidity
or small returns.
Since much of their increased loan activity has been refinancing,
credit unions have ended up with very little balance sheet loan
growth. For credit unions that have had significant balance sheet
loan growth though, an effective technique is to use new borrowings
to extend liabilities. By doing this, credit unions ensure that
they will have adequate funding for a long period of time instead
of relying on short-term share accounts that could decrease if the
The graph below demonstrates that credit unions have been increasing
their borrowings despite the double digit share growth they've had
since June 2001.