Clock is Ticking as NCUA Takes Action on Liquidity Access for Credit Unions

Six thousand credit unions, including a majority of those based in Oregon and Washington, are about to lose access to emergency borrowing programs due to the upcoming closure of U.S. Central Federal Credit Union.

U.S. Central has served as the agent for most credit unions to access emergency liquidity from the Central Liquidity Facility (CLF). The CLF provides liquidity to credit unions that experience unusual or unexpected liquidity shortfalls. U.S. Central owns most of the stock of the CLF, and once it is redeemed during the closure process, all member credit unions will lose access to the CLF through U.S. Central.

The issue drew considerable comment from credit union executives last week in Denver during a National Credit Union Administration (NCUA) Listening Session conducted by NCUA Chairman Debbie Matz.

“This is an important event for all members of NWCUA to be aware of regardless of size, and it is critical that action be taken by each credit union to address the loss of access to the backstop liquidity resource via U.S. Central,” said Northwest Credit Union Association (NWCUA) President Troy Stang.

The NCUA will be conducting a webinar on Tuesday, Aug. 14, at noon to discuss the upcoming changes in the ownership of the CLF as well as proposed NCUA rules that will govern how each credit union must address their potential liquidity needs.

The redemption of stock by U.S. Central will have a material effect on the lending ability of the CLF as well. Under law, the CLF is permitted to borrow up to 12 times its total subscribed capital stock and surplus to meet credit union liquidity needs. Once U.S. Central redeems its stock, the CLF balance sheet of $3.85 billion will be reduced to a meager $155 million. That slices the CLF lending capacity from $46 billion to only $1.86 billion.

The NCUA is proposing a rule that would require all credit unions between $10 million and $99 million in assets to establish an emergency liquidity plan. Credits unions with at least $100 million in assets must establish an ability to borrow in the event emergency liquidity is needed. This can be accomplished by joining the CLF directly, which requires the credit union to subscribe to stock of the CLF in an amount not less than one-half of 1 percent of the credit union’s unimpaired capital and surplus. Half of that amount must be deposited with CLF, while the other half may be retained by the credit union but is subject to call by the board.

The other option is to arrange access to the Federal Reserve’s Discount Window. However, one NCUA official noted than only 6 percent of federally insured credit unions meet Fed eligibility requirements to secure this option.


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Posted in Advocacy News, Compliance News, CUNA, Federal, NCUA.