Why 70% Of CU Deposits Could Quickly Walk Out the Door—And What One Firm Is Doing About It

By Ray Birch

ALPHARETTA, Ga.–A new program aimed at expanding credit union funding sources is providing access to term member deposits through the capital markets.

CU Capital Market Solutions (CMS) has introduced the Capital Market CD (CMCD program), unlocking what the company says is a new, consistent source of funding for credit unions.

Robert Colvin, CU Capital Market Solutions president and chief strategist, believes the credit union industry is facing structural funding challenges many institutions have not fully recognized. Needing an innovative solution, Colvin and his team created the CMCD program, which Colvin said is designed to provide credit unions with a reliable, recurring source of member term deposits, with issuances planned quarterly.

Colvin pointed out credit unions are increasingly supporting long‑term mortgages, securities, and commercial loans with deposits that can disappear overnight, creating balance‑sheet pressures.

“At the same time, the stable retirement savings that once provided funding have shifted to mutual funds, brokerage platforms, and insurance products, highlighting the important need for CMCD,” Colvin said.

The inaugural CMCD transaction settled June 5 and, according to Colvin, opens an entirely new channel through which credit unions can raise term member deposits (>2yrs).

How the Program Works

The new  program operates through an affiliate, CU Deposit Funding Co.

In the inaugural transaction, the company purchased three-year term-share certificates from participating credit unions across the country. Those certificates then became collateral backing notes that were sold into the capital markets. Investors purchase the notes, while the proceeds flow directly onto participating credit union balance sheets in the form of term-share deposits.

CMS describes the structure as creating a direct link between institutional investment dollars and credit union funding needs.

"CU Funding Company purchased the CDs. The CDs are then used as collateral to back notes that are sold to the capital markets," Colvin explained. "Capital market investors who purchase these notes are secured with certificates of deposits issued by credit unions."

The transaction effectively allows retirement and institutional investment money to find its way back into credit unions, even though consumers may no longer hold those funds directly in credit union certificates.

Colvin pointed to the evolution of retirement investing over the past three decades as the driving force behind the concept.

"If you have a 401(k) or retirement account at Fidelity or Schwab, that money is probably not sitting in a CD at a financial institution," he said. "This is a method of bringing that money back."

A Deposit Base That Has Changed Dramatically

The larger issue, Colvin argued, is that credit union funding structures no longer resemble the assets they support.

According to data cited by CMS, slightly more than 1% of credit union funding at year-end carried a term greater than three years. At the same time, approximately 94% of funding had a maturity of less than one year.

More concerning, Colvin said, roughly 70% of credit union deposits are held in checking, savings and money market accounts that can be withdrawn at any time.

"Seventy percent of a credit union’s funding base could walk out the door on any day," he said.

On the asset side of the balance sheet, however, the picture looks very different.

Colvin estimates that approximately 60% of credit union assets consist of mortgages, securities and commercial loans with terms extending well beyond five years.

That creates what he views as a growing mismatch.

"You've got all these long-term assets supported by primarily with overnight money," Colvin said. "That retirement money that once supported long-term assets is long gone."

The result, he added, is significant interest rate and liquidity risk.

Lessons From Silicon Valley Bank

Colvin said technology has fundamentally altered how quickly deposits can move between financial institutions.

Consumers no longer need to visit branches, complete paperwork or wait days for funds to transfer. Instead, money can be moved instantly through digital banking platforms and fintech applications.

The pace of innovation is accelerating, he noted, with stablecoins and other payment technologies poised to make movement of funds even faster.

As evidence, Colvin pointed to the collapse of Silicon Valley Bank. During that crisis, an estimated $142 billion left the institution in just two days.

"That is a material change from where we were 10 or 20 years ago," Colvin said. "Those days are gone."

The concern extends beyond credit unions, he added. Community banks face many of the same challenges because they are also funding long-term assets with increasingly short-term deposits.

"It's not just credit unions that have this problem. It's financial institutions," Colvin said.

Creating 'Stable Money'

CMS believes the Capital Market CD can provide what Colvin calls some of the most stable funding available to a credit union.

Unlike traditional retail deposits, the investors behind the program are separate LLCs established specifically for the transaction. The deposits are non-callable and remain in place until maturity.

"They can't get divorced. They can't die," Colvin said in describing the legal entities holding the deposits. "This is the most stable money that a credit union has because it is absolutely non-callable until the term of the certificate."

CMS believes credit unions should work toward building a base of stable funding equal to at least 10% of their deposit structure.

Colvin noted that following the 2008 financial crisis regulators imposed funding requirements on the nation's largest banks to encourage greater reliance on stable funding sources. He believes similar concerns now apply throughout the financial services industry regardless of institution size.

"The conditions are ripe for significant problems," he said. "That's why we introduced this product."

Why Credit Unions Can't Simply Raise CD Rates

One question often raised, Colvin acknowledged, is why credit unions cannot simply offer higher rates on certificates to attract long-term funding.

The answer, he said, is that many institutions have already tried.

Credit unions frequently discover that higher-rate certificates simply cause existing members to move money from savings accounts into CDs rather than bringing in meaningful amounts of new funding.

"We've had examples of people saying, 'I could offer almost any rate and put a three-year term on it and I get no takers,'" Colvin said. "I get people moving money from savings accounts, but I don't really get new money."

The underlying challenge is that consumers increasingly use credit unions for transactional banking while maintaining retirement assets elsewhere. The same is true for community banks.

"People put money in financial institutions to pay monthly bills and have cash available,"

Colvin said. "Their long-term retirement money is no longer there."

The Regulatory Hurdles

Bringing the product to market required years of work with regulators and ratings agencies.

The first major hurdle involved federal share insurance.

Because the structure relies on multiple LLCs holding deposits, CMS sought confirmation from NCUA that each LLC would be treated as a separate insured depositor.

CMS approached the agency and explained that individual deposits would need to be segmented into amounts that remained within federal insurance limits.

According to Colvin, NCUA ultimately issued a letter recognizing the separate entities for insurance purposes.

"That was the critical first step," he said. "If that doesn't work, then this doesn't work."

The next challenge was obtaining ratings that would attract institutional investors. CMS worked extensively with both Moody's Ratings and Fitch Ratings to educate analysts about the structure. Eventually, both firms assigned their highest sovereign-equivalent ratings to the notes, according to Colvin.

The inaugural transaction was underwritten by Piper Sandler.

Who Can Participate?

Approximately 2,500 credit unions with more than $50 million in assets are currently eligible to participate in the program. There is no cost to join the program, Colvin said. Credit unions simply sign a participation agreement allowing CMS to notify them when a new issuance is planned.

The company expects to access the market at least four times annually beginning next year and could potentially expand to six issuances if demand is strong.

The next offering is expected during the third quarter of 2026, followed by another in the fourth quarter.

When an issuance is planned, CMS provides participating credit unions with expected pricing based on a spread to Treasury securities of similar duration. Institutions can then indicate interest before final commitments are collected and the transaction is priced.

Individual credit unions may participate for amounts ranging from $250,000 to as much as $25 million per issuance. Regardless of size, all participating institutions receive their funding on the same day and at the same rate.

For Colvin, the broader objective is straightforward: reconnect credit unions with a pool of long-term  deposits that has largely disappeared from their balance sheets over the last several decades.

CMS refers to the concept as building a bridge between credit unions and the capital markets.

"We've built a bridge from the balance sheet of the credit union to accessible funds in the capital markets," Colvin said. "All we're trying to do is bring that money back."

For more information on the CMCD program, click here.