CUFSS, the Credit Union Financial Support System, is on the watch list. Reasons: mutual self-help on ADI liquidity is fading away. There's even a 'going concern' question aired.
Police Bank gave notice in September that it is to quit CUFSS, following Big Sky Building Society, P&N Bank, Australian Military Bank, Queensland Teachers Mutual Bank and CUA out the CUFSS door.
CUFSS has 63 members drawn from the Australian banking sector's mutual odd lot of nearly 80 credit unions, three mutual building societies and mutual banks.
With the current trend, CUFSS's future is not assured.
For now, though, it'll still be going strong in 2018, according to CUFSS Limited CEO Gary Eggert, in an interview with Banking Day.
Eggert told Banking Day that Police Bank (which is often called Police Bank NSW, being one of several ADIs with a police legacy) would leave CUFSS in November 2017.
Big Sky calls an end to its association with CUFSS this coming January, becoming the second exit in less than a year. P&N Bank left in July 2016.
Two foreground factors are the cost of sticking with CUFSS and the availability (encouraged by APRA) of RBA liquidity backstops in their place.
"The two in process now have access to RBA repo arrangements, which APRA requires them to have," Eggert said.
Getting set to repo mortgages with the RBA costs up to A$500,000 along with people and time, Eggert said.
It's an avenue followed by most of the dozen or so credit unions with more than a billion in assets, and is on the project list of most with more than $500 million in assets.
At smaller ADIs the cost of satisfying yet another APRA-linked priority is just one more expense to cater to. Or shirk. Or spread, via merger.
The CUFSS monitoring and industry self-supervision is one facet of Australia's credit union legacy that will be lost if CUFSS folds. Which it is not about to- just yet.
Eggert said: "the bottom line: it's business as usual at CUFSS."
But in the 2016 annual report, the board of CUFSS foreshadow that, "based on a strategic review, CUFSS has a finite future and has begun a process to engage members about the future of the company."
Over the next twelve months CUFSS will engage members "in determining the company's future."
It said in the report that this would involve roadshows and ultimately a discussion and possible resolutions at the 2017 Annual General Meeting.
This review is sufficient for the board and auditors to acknowledge a question mark over CUFSS Limited - if not the scheme itself - as a going concern.
In careful language the CUFSS directors explained their predicament this way: "The board has determined that the Members of the company will determine CUFSS future.
"In view of the recent decline in members subscribing to the industry support framework administered by CUFSS Limited, the company continues to discuss the future options past the short term.
"At the time of finalising the financial statements, it is expected that CUFSS Limited will be able to pay its debts as and when they fall due over at least the next 12 months and therefore continue to operate as a going concern subject to any potential decisions on future operations."
CUFSS, Eggert said, has "a monitoring requirement and an asset pool to meet limited liquidity costs that might happen in the system.
"A larger country wide [event]. CUFSS was never there for that. Then it becomes an APRA and RBA problem."
Eggert explained that CUFSS acted once in 2008, amid the GFC crescendo, to refinance A$854,000 in funding for a small ADI, which he did not name.
For now, it remains on call.