ALEXANDRIA, Va. – Corporate credit unions, which have been largely ignored under NCUA’s liquidity proposal, are urging the agency to change the structure of the Central Liquidity Facility to give corporates direct access to the NCUA-operated lending fund.
“With a corporate typically having assets that are easier to use as collateral for borrowing, they could be much more effective helping their members with liquidity if they had access to the CLF similar to how they have access to the Fed’s Discount Window,” David Brehmer, president of First Carolina Corporate CU, wrote in a comment letter to NCUA on its proposed liquidity rule.
The NCUA proposal comes amid the shutdown of U.S. Central FCU, which was the corporate’s own major liquidity source and was the major owner of the CLF. The elimination of U.S. Central has effectively shrunk the lending capacity of the CLF from $50 billion to less than $2 billion.
But corporates, which have always been the first source of liquidity for natural person credit unions, are barred by law from directly accessing the CLF, a bar that almost crippled U.S. Central and the four other corporates as they were collapsing in 2008-2010. NCUA cleverly circumvented the bar by allowing creating a back-door mechanism, CU System Investment Program, or CU SIP. SIP allowed natural person credit unions to borrow from the CLF at a low rate on the condition that the funds were invested back into the corporates at a slightly higher rate.
Another corporate executive, Charles Furbee, president of Alloya Corporate FCU, also called on NCUA to give the corporates direct access to the CLF, something that would require legislation. “This would provide a further funding source for credit unions that are under the rule threshold as corporate funding would be backstopped by emergency CLF borrowing,” Furbee wrote in his comment letter on NCUA’s liquidity proposal.
In light of the closure of U.S. Central and its effects on the CLF, NCUA is proposing that large credit unions develop a guaranteed source of emergency liquidity with a federal, like the Fed’s Discount Window or a portfolio of federally guaranteed Treasury securities.
Most commenters on the proposal have called on NCUA to include the Federal Home Loan Banks among the sources of liquidity, but so far NCUA has rejected the idea because the FHLBs are private entities.
Most commenters also want NCUA to restructure the CLF in various ways, among them to speed up access to emergency loans from the current ten-day waiting period, grating designated authorities to CLG agents or correspondents to speed processing of loans; and eliminating the requirement that agents provide capital for all of their members.