Credit unions urged to join CLF to maximize liquidity available to credit unions, share insurance fund

The federal regulator of credit unions issued a letter to the industry Thursday emphasizing the importance of as many credit unions as possible subscribing to its liquidity facility to maximize support to all credit unions, individually and through support for the fund that insures credit union member deposits, amid the coronavirus (COVID-19) pandemic.

Preliminary, unaudited financial information for the Central Liquidity Facility (CLF) administered by the National Credit Union Administration (NCUA) show the facility’s borrowing authority topping out at $7.5 billion as of this Feb. 29, up about $500,000 from a year earlier. “Regular” membership totaled 279, and the facility had no loans out and no borrowings.

Thursday, in Letter to Credit Unions 20-CU-08, NCUA Chairman Rodney Hood noted that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed March 27, increases the CLF’s borrowing capacity through this Dec. 31 from 12 times its subscribed capital stock and surplus to 16 times that amount. As the NCUA explains, this means the CLF can, through Dec. 31, borrow $16 for every $1 of capital and surplus in order to meet system needs.

CLF members, the letter notes, may borrow for their own liquidity needs and earn a quarterly dividend on their capital stock. Moreover, CLF stock subscriptions provide the credit union system as well as the National Credit Union Share Insurance Fund (NCUSIF) “a vital contingent source of funds to assist with system-wide liquidity events, which may be necessary in addressing the impact of the COVID-19 pandemic on individual credit unions, groups of credit unions, and the Share Insurance Fund,” it stated.

“We encourage all credit unions, natural person and corporates alike, to consider this important opportunity to join the CLF and bolster the system’s access to liquidity,” states the letter. “By working together, credit unions can help ensure the credit union system has access to sufficient liquidity.”

In addition to more borrowing authority, the CARES Act temporarily relaxes the requirements on agent membership, making such membership more affordable for corporate credit unions; changes the definition of “liquidity needs” to include the needs of any credit union, not only natural-person credit unions; and provides more clarity about the purposes for which the NCUA Board can approve liquidity-need requests by removing the phrase “the Board shall not approve an application for credit the intent of which is to expand credit union portfolios.” This gives the NCUA Board more flexibility and discretion to approve applications for CLF members that have made a reasonable effort to first utilize primary sources of funding, the agency said, and removes doubt about whether a credit union’s portfolio may expand if it borrows from the CLF to meet liquidity needs.

The agency announced an interim final rule Monday that implements CARES Act revisions for the CLF. Thursday’s letter summarizes the changes and explains the process for a credit union seeking membership in the facility.

Letter to Credit Unions 20-CU-08

Feb. 29, 2020, CLF financial highlights

RR: Enhancements approved for liquidity arm of credit union regulator in wake of CARES Act (April 4, 2020)

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