Credit union regulator asks Congress to make permanent changes to liquidity fund (or a one-year extension, at least)

Congress should make permanent to the fund that backs up credit union liquidity temporary enhancements that were made in response to the coronavirus crisis, the members of the federal credit union regulator board wrote Monday.

However, if the changes cannot be made permanent, the board members allowed, Congress should consider at least a one-year extension.

All three members of the National Credit Union Administration (NCUA) Board – made up of two Republican appointees and one Democratic – signed the joint letter to Congress asking that the enhancements to the agency’s Central Liquidity Facility (CLF) be made permanent. The temporary changes were made via the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020.

Although those changes have been extended once already – in the year’s Consolidated Appropriations Act of 2021 (which actually became effective in December 2020) – they are scheduled to expire on Dec. 31, according to the NCUA Board members’ letter. The letter indicated that by if the changes are not made permanent, thousands of credit unions could lose access to the liquidity facility. (The CLF, owned by credit unions and managed by the NCUA, is a back-up source of liquidity for credit unions, working in a manner similar to the way the Federal Reserve’s discount window provides access to loans for eligible banks and other financial institutions.)

As of October 2021, 4,107 credit unions or 82% of all federally insured credit unions have access to the CLF, up from 283 as of April 2020, the letter states. “The growth in the number of CLF members is a testament to our nation’s credit unions coming together in a time of crisis to strengthen the national system of cooperative credit.”

The NCUA Board members asserted that the 2020 enhancements provide the agency with “a vital tool to ensure continued liquidity of the credit union system as it responds to the COVID-19 pandemic and beyond.” Permanence of the provisions, they stated, would provide regulatory certainty for federally insured credit unions and bolster the credit union system’s ability to respond to any future emergencies by serving as an essential shock absorber for credit unions and the National Credit Union Share Insurance Fund (NCUSIF).

The letter outlines four “critical amendments” extended by the CARES Act that the board wants made permanent:

  • Increase the CLF’s maximum legal borrowing authority;
  • Permit temporary access for corporate credit unions, as agent members, to borrow for their own needs;
  • Provide greater flexibility and affordability to agent members to join and serve smaller groups of their covered institutions than their entire memberships; and
  • Provide the agency board with more clarity and flexibility regarding the loans it can approve by removing the phrase, “the Board shall not approve an application for credit the intent of which is to expand credit union portfolios.”

The letter does provide for a temporary solution, however. “Should permanence of these provisions not be possible at this time, we request an extension of an additional year, at a minimum, for continued stability during the pandemic response,” the letter stated.

NCUA Board Calls on Congress to Make CLF Enhancements Permanent