WASHINGTON - It took NCUA Chairman Norman D'Amours 45 minutes on March 28 to testify and field questions from the House Subcommittee on VA, HUD, and Independent Agencies of the Committee on Appropriations on why the Central Liquidity Facility appropriations cap of $600 million that was lifted during the Y2K data conversions should not be rolled back. By the time he finished, D'Amours' point was clear - "a borrowing cap imposed in the appropriations process is unnecessary because CLF borrowing is limited by the Federal Credit Union Act." Appearing before three members of the subcommittee-Reps. James Walsh (R-N.Y.), chairman; Marcy Kaptur (D-Ohio) and Virgil Goode Jr. (I-Va.)-along with D'Amours were other NCUA officials including Carolyn Jordon, executive director; Herbert Yolles, president, Central Liquidity Facility and deputy director, examination and insurance; Owen Cole, vice president, CLF; and Joyce Jackson, director, Office of Community Development Credit Unions. D'Amours wasted no time making his point - "We believe that the cap on the CLF's borrowing authority should be omitted from the Appropriations bill, as it was for fiscal year 2000 in the supplemental law...Keeping the borrowing limit at the fiscal year 2000 level has no budgetary or scoring impact." Under the Federal Credit Union Act, the CLF's borrowing is limited to 12 times its subscribed stock and surplus. The $600 million-fiscal year 2000 level, which Congress first imposed in 1980, not only exceeded that formula, it wasn't adjusted to reflect the growth in CUs and increase in the CLF's subscribed stock until 1999. The $600 million CLF cap is actually counterproductive to its intended purposes because it "severely restricts the CLF and would most likely prevent it from functioning as intended in the event of even a moderate liquidity strain...In the event of an unusual liquidity drain, the proposed cap could render the CLF unable to perform the function for which Congress created it," D'Amours testified. While financials came through the Y2K turnover with no liquidity scares, "we should not conclude from this experience that a higher borrowing cap is unnecessary," said D'Amours, noting that since the timing of the Y2K event was foreseeable and anticipated-and most liquidity emergencies happen with little or no warning- it's actually a bad example "for gauging the likely magnitude of an actual liquidity emergency." "Rather, we have concluded from the Y2K experience that the CLF's unhindered capacity to borrow and lend is importantly tied to the public's perception of the health of credit unions," D'Amours said. "The confidence generated by an adequate liquidity resource strengthens the stability of the system and may actually obviate or mitigate the need for a costly liquidity build up on the part of credit unions." In comparison, the Chairman continued, "The imposition of an inadequate borrowing cap on the CLF, however, could prevent it from fulfilling its statutory mission to promote credit union stability by providing liquidity and could potentially destabilize member confidence during an abrupt, unanticipated emergency situation." CUNA Vice President of Legislative Affairs John McKechnie was present at D'Amours' testimony and came away with a mixed bag of good and not-so-good observations. On the upside, McKechnie said the members of the subcommittee showed there is a broad Congressional sentiment to keep CLF in business and as a steady guarantor of liquidity for credit unions. McKechnie cautioned though that Rep. Walsh signaled some skepticism about lifting the CLF cap entirely and reiterated the question that's been asked of NCUA frequently, that is given that CLF has not had any liquidity demands in the past, why is it so important that the cap be lifted? Walsh also made it clear, said McKechnie, that he intended to wait for the General Accounting Office (GAO) to release its congressionally-ordered study of the CLF before making his own recommendations and that he also planned to work closely with the House Banking Committee on the issue (mention of the GAO study was conspicuously absent from D'Amours' testimony, despite Walsh's comments that he intends to take the study into consideration.) "I feel upbeat about Congressional support for the CLF and that there is no longer any sentiment to have an artificially low $600 figure as a cap," McKechnie commented. "At the same time, they have not come to grips with what the figure should be...Clearly the House Appropriations Subcommittee plans to look to the (House) banking committee and the GAO report on the situation." In his own correspondence to Walsh urging the lifting of the CLF cap, NAFCU President Fred Becker Jr. too stressed the perception by credit union members that credit unions were well-prepared to respond to any liquidity needs triggered by the millennium date change "thanks to the responsible action of this Subcommittee in removing the (CLF) cap." "NAFCU believes that the best course of action is to allow the borrowing cap established by Congress at the time it created the CLF and contained in the Federal Credit Union Act to serve as the appropriate governor on NCUA's CLF borrowings," wrote Becker. "Any other limit would necessarily be an arbitrary `best guest'...Clearly, the individuals best suited to determine the borrowing needs of the CLF should an emergency arise are the federal officials charged by Congress with administering the CLF on a day-to-day basis. McKechnie said the next step is to monitor how the GAO study progresses and is received on the Hill, especially the signal it may send to members of the House Banking Committee. For now, credit unions have to stand by and hope that whatever the GAO finds is favorable to credit unions. -
ekingoff@cutimes.com
