Conference 7.286::dcu

�While I have not checked lately, the DCU is barely competitive at all with 
�commercial operations.  
    
    In terms of what?  The Worcester Telegram & Gazette publishes interest
    rates for savings and checking accounts at a variety of institutions
    throughout central MA.  The last time I checked, DCU's interest rates
    were not only competitive, but were better than most commerical
    offerings.

    
    	Re: competitiveness
    
    	The interest rate on RSVP is high enough compared to the other two
    banks that I use (1 S&L, 1 Bank) that I've recently moved some funds
    into DCU.  Its a nice change.
    
    							-craig

    
    RE: .0
    
    Right now the primary emphasis is on rebuilding DCU's equity (capital
    ratio) that was brought disturbingly low due to the fraud.  The capital
    ratio had dipped below 4% which was not goodness for the credit union. 
    A $400 million operation needs more buffer for long term stability (and
    survival should something disastrous occur).
    
    The good news is that DCU is experiencing a banner year in terms of net
    income due in large part to the massive re-mortgaging going on.  Our
    capital ratio will increase at a very good rate.  As the capital ratio
    approaches the desired levels, I would hope to see a gradual shifting
    of the income back to areas that all members see in their day-to-day
    dealings with the credit union, namely better rates, maybe even bonus
    dividends (which appear to have become extinct in credit unions).
    
    My personal view is that DCU must balance its operational needs with 
    the needs of the membership.  Every decision must be viewed not only
    from the DCU bottom line, but from the vantage point of how members
    will be affected.  My personal goal is to have a credit union that
    every eligible person *wants* to join and do business with because
    we're the best.  I believe it is possible to have a very successful 
    credit union that has a large customer base on which the credit makes 
    a *reasonable* amount of income.  I'm a firm believer in providing value 
    while not being greedy.  A large, loyal customer base is what I believe
    will best serve the credit union.
    

	If I can recall that long ago, I seem to remember dividends
	being paid in proportion to what folks had in their accounts, 
	and also seem to recall a dividend in the form of a rebate
	paid to people with loans. The last ticked me off because,
	being debt-averse, I didn't have any loans, and felt I was 
	being punished for my thrift.

	I'd urge that any potential dividends be used to reduce the
	cost of those products used by the widest range of members.
	That encourages more use, as well, which should result in even
	better performance in future.


					Tom_K

    I just got my quarterly statement from another credit union and the BoD
    dropped the rate on their credit card from 13.9% to 11.9% on the entire
    balance.  95% new auto loans are now 7.5% and 100% new auto loans are
    7.9%.
    
    I guess this credit union knows what to do with the 'Dividend'.
    
    Bob

	Hope the DEFCU BoD doesn't do this. It rewards borrowers but not
	savers. I'd hope the DEFCU BoD would divide any future dividend
	among borrowers and savers, at the very least. We should be 
	encouraging thrift, not debt.

					Tom_K

    
    RE: .6
    
    Tom, you are both right and wrong.  While it is preferrable to be
    debt-free, a credit union could not survive without borrowers.  It is
    the loans made to the membership that makes money to cover expenses and 
    make a "profit".  Without that interest income, the credit union
    couldn't pay you very good interest rates.
    

    
    	Re: .6 and .7
    
    	Sad to say (from my perspective of also being debt-averse), Phil is
    right.  Without all those folks who carry credit card balances or car
    loans or mortgages, etc., the banking industry would cease as we know
    it.  Well, maybe not, the federal gov't seems to do a good job of
    borrowing money... ;-)
    
    	"Returning dividends" really means narrowing the gap between
    interest paid (savings rates) and interest earned (interest paid to
    DCU).  I would hope that this range would be narrowed not by moving
    just one of the "ends", but rather by moving both ends of the equation
    inwards.  Lowering both the interest rates charged and increasing the
    interest rates paid is the only fair thing I can think of.
    
    							-craig

There are several things that combine to set interest rates.  Two of
the major factors have been mentioned in .6-.8 but these replies
oversimplify by only considering one factor in isolation.

If a credit union is making a good profit then it returns a dividend
by moving saving and borrowing rates closer together.  A loss is made
up by moving the rates apart.

If a credit union has an excess of savings then it moves both sets of
rates lower; if it has an excess of borrowing then it moves both rates
higher.

In a situation, where a good profit is being made and there is excess
savings then a credit union might lower borrowing rates while leaving
saving rates unchanged.  This returns a dividend and improves the
mismatch between savings and borrowing.

Of course, there other factors that effect interest rates: inflation,
the FED rediscount rates, government participation in the bond market,
etc.  All these factor add extra complexity.  This complexity makes
any simple explanation inaccurate.

	OK, I'll buy that having attractive rates on loans is a good thing.
	I'd still hope that any future profit would be distributed on some
	equitable basis to all DEFCU members, not just those with loans.


					Tom_K

Re: .10
	That certainly makes sense to me. I'm in favor of it.

    
    
    Tom, Was the amount refunded to borrowers an actual dividend i.e. from
    profit from all operations or was it an actual rebate figured from
    within the loan business before it was rolled into the DCU overall
    business?  If it was the latter then that's a reasonable thing to do
    since it was only paid from the money paid in by borrowers.  No?
    
    Steve
    

>    Tom, Was the amount refunded to borrowers an actual dividend i.e. from
>    profit from all operations or was it an actual rebate figured from
>    within the loan business before it was rolled into the DCU overall
>    business?  

	Dunno.

>   If it was the latter then that's a reasonable thing to do
    since it was only paid from the money paid in by borrowers.  No?
    
	Sure.

		Tom_K

    
    	Re: .12
    
>   Tom, Was the amount refunded to borrowers an actual dividend i.e. from
>   profit from all operations or was it an actual rebate figured from
>   within the loan business before it was rolled into the DCU overall
>   business?  If it was the latter then that's a reasonable thing to do
>   since it was only paid from the money paid in by borrowers.  No?
    
    	I'd disagree since you can't claim that the profit from the "loan
    business" is solely from the money paid in by borrowers.  Even if the
    loan business was segmented out for reporting purposes, that area would
    have to factor in its costs -- namely the money paid to depositors to
    generate the pile of cash being lent out -- to determine what its
    profit is.  If/when the loan business is profitable, it could be as
    easily argued that it is because interest rates were too high or that
    the savings rate paid out was too low.  I still believe the dividend,
    if and when distributed, should be divided among both borrowers and
    lenders.
    
    							-craig