The Brexit Effect on Credit Unions

by Genesis Gonzalez
Published in Community, Lending
The Brexit Effect on Credit Unions

It has been over 240 years since Paul Revere rode to Lexington, Massachusetts and shouted one of the most infamous sayings, “The British are coming! Though his ride is well-noted in the history books, it was the words heard around the world “The British are leaving” that have many wondering who’s next.

Historic to say the least, surprising an understatement, and uncertainty waning on the minds of many. On Friday, June 24, 2016, 17.4 million Britons voted to server ties with the European Union (EU). In a 52 percent to 48 percent vote, Britain’s move to leave the EU deems the first time any country has left. Motivated by a desire to remove Britain from Brussel’s authority and a fear of immigration over population, many voters were quick to turn for a “leave” from the EU.

In fact, the referendum originated as a result of a promise made in 2013 by Prime Minister David Cameron. Though the aftershocks of Britain’s leave are plenty – (U.S. market is down 3 percent and David Cameron’s pending resignation) – it’s important to understand how this leave will affect your credit union and your members, if any.

Immediate Affects

The global market was one of the first to be impacted. It was apparent the British pound quickly dove to its lowest level since 1985. As with any domino effect, the U.S. financial market took a hit on Friday with the Dow down 600 points and many 401(k) accounts taking a hit.

There is concern regarding the financial impact for the average U.S. consumer at this time. Though it may take up to two years for Britain to exit from the EU, the uncertainty of financial stability looms on retirement accounts and mortgage rates.

For those looking to retire over the next decade, there is the advantage for portfolios to recover. However, those who are looking at retirement within the next five years, are encouraged to consider their savings, insurance, etc. to adequately prepare to deal with the volatility.

Due to the uncertainty of the global economy, the Federal Reserve is expected to remain cautious and wait before preceding to raise its benchmark interest rate this year. Mortgage rates, which were projected to rise this year, may actually fall due to Friday’s announcement. Since the announcement, the average rate for a 30-year mortgage fell slightly by 0.1 percent. A drop in mortgage rates may present an opportunity for many to refinance.

Credit Union Impact

Everything at this point is still up in the air. As previously noted, mortgage rates are expected to fall, the Federal Reserve is refraining from any sudden movements, and to boot, the U.S. dollar will strengthen over time in comparison to the pound.

But, how will this specially impact credit unions?

According to CUNA, the negative impact from Brexit will be minimal and short-term. To say exactly when and what will occur is the million dollar question. CUNA advises that many members will be cautious during this time and use of savings accounts will rise.

In addition, Curt Long, the chief economist at NAFCU, asserts that credit unions are “likely to see a repeat of the second half of last year when market volatility led to a surge in share growth.” The important thing to note during this period is the learning curve. Though short-term and negative effects are expected, everyone is going through similar motions of what to expect and how to handle it.

Next Expectations

There’s always a positive to a negative, right? Among the buzz of Britain’s historic leave, there is still the notion that this particular move will not deter from the relationship that the U.S. and U.K. have so strongly built over the years.

“While the UK’s relationship with the EU will change, one thing that will not change is the special relationship that exists between our two nations,” states President Obama.

Over the years, the United States has relied on the support of its allies such as Britain, Germany, and France – in particular the ongoing efforts in the Middle East. There is talk that the prospect of other European allies leaving the union is possible, however the focus is to remain committed to the UK despite this departure.

On a lighter note, a trip to Europe may be feasible for a lot more travelers. With the dollar holding its advantage over the plummeting pound, it could be more affordable for more tourists to experience travel, food, and entertainment discounts while abroad.

All in all, we should prepare for every aftershock that continues to come on the heel of Brexit. Let’s keep moving forward in our support of member expectations through monitored financial trends. Remember, “The British are leaving,” but the success of our credit unions is built on the well-being of our members.

About the Author

Genesis Gonzalez