WASHINGTON - It was not the news the credit union trade associations had hoped to hear. Despite intense lobbying efforts with members of a House Appropriations Subcommittee and the House Banking Committee, the House VA-HUD and Independent Agencies Subcommittee May 23 voted to roll-back the Central Liquidity Facility (CLF) appropriations borrowing cap to the $600 million level that was first imposed in 1980 and was lifted last year to help credit unions meet any Y2K liquidity-related problems. CUNA Vice President of Legislative Affairs John McKechnie said the association went into the legislation mark-up yesterday guardedly optimistic that the borrowing level would be maintained at the statutory level of "12 times the subscribed capital stock and surplus of the Facility," according to the Federal Credit Union Act, that has been in effect since the fourth quarter 1999. CUNA's optimism was based on signals it received from members of Congress. For example, at a subcommittee hearing March 28 (CU Times, April 5) , Chairman Rep. James Walsh (R-N.Y.) was forthright that he wanted an index figure for CLF, rather than an artificial appropriations cap. Testifying at that hearing, NCUA Chairman stressed that, "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." Rep. Marge Roukema (R-N.J.), chairwoman and Rep. Bruce Vento (D-Minn.), ranking minority member of the House Subcommittee on Financial Institutions & Consumer Credit also were supportive of the $600 million cap not being reinstated. In their March 28 letter to Rep. Allan Mollohan (D-West Virginia), ranking member of the House Subcommittee on VA-HUD and Independent Agencies, they wrote that, "As members of the Banking Committee, we find no justification for going back to the $600 million cap. The legislative history of the CLF clearly shows that a static cap of $600 million was never intended." With so many heavy hitters in credit unions' corner, why did the subcommittee vote for restoration of the cap? McKechnie pointed the blame at the General Accounting Office's (GAO) preliminary report, "Central Liquidity Facility Lending To Credit Unions Prior to the Year 2000 Date Change." Requested by Reps. James Leach (R-Iowa), chairman and John LaFalce (D-N.Y.), ranking member of the House Banking Committee, the GAO was asked "to review the issue of the CLF as a liquidity provider, with the idea of presenting its recommendations to the Congress." Leach and LaFalce made it clear that, "We are more interested in the broad outlines of the CLF issue that" an in-depth accounting of CLF borrowing and lending activity. As part of this review, we would particularly encourage GAO to seek input from the various elements that make up the credit union system." "It was the information contained in the GAO's preliminary report, said McKechnie, "that changed the entire dynamics of the process. That tipped the scale, it was a defining part of the process, for better or for worse. "The fact that the GAO study was pending for the past six to eight weeks and was delivered after the six week deadline set by Rep. Leach made a lot of people in Congress cautious about CLF," McKechnie offered. As expected, the GAO's report did not include any recommendations or name a figure at which the CLF borrowing cap should be set. Among the information it did include was an overview of CLF lending during the last three months of 1999 and credit unions' borrowing behavior from CLF during that time compared to previous months. Among the findings: * CLF lending increased during the last three months of 1999; * Of the approximately 10,000 credit unions in the U.S., less than 1% obtained loans from CLF from Oct. through Dec. 1999. Of the 157 CLF loans made to CUs during the three month period, 149 of them were made directly from CLF to U.S. Central; eight were made without going through U.S. Central; five were made directly to a corporate CU for five of its member CUs, and 3 were made to a CU that was a direct member of CLF. Eighty-two percent of the CLF loans made through corporate CUs were made by First Carolina Corporate CU and Northwest Corporate CU. * The total amount loaned was about $666 million, and the largest loan outstanding on any given day was about $169 million. * During the fourth quarter 1999, 25 credit unions also borrowed about $772 million from the Federal Reserve's discount window (less than half of all CUs have access to the Fed's discount window.) In its conclusions, the GAO conceded that "whether CLF lending filled an important gap is more difficult to ascertain." It further noted that while corporate CUs indicated they were glad CLF lending was available to them, some indicated they could have funded the lending during the three month interval either out of their own balances or by borrowing from U.S. Central. Though disappointed in the subcommittee's vote, NAFCU Vice President of Government Affairs Bill Donovan described it as "a step in the legislative process." He said NAFCU intends to continue to work with members of the House Appropriations Subcommittee and friends of credit unions in Congress to modify the actions of the subcommittee. "NAFCU's goal continues to be that CLF should be governed solely by the enabling provisions of Title 3 of the Federal Credit Union Act. The act is explicit in that regard." Just the fact that the CLF was revisited by Congress this year did not upset Donovan. He explained that the appropriations process is an annual process and the cap has been revisited every year since it was first set in 1980. "We knew going into the FY2001 turn that they would take a look at it again," he said. Donovan admits the association has its work cut out, but he said the process has already begun. "A year ago there were many people who thought Congress couldn't be persuaded to lift the $600 million cap for Y2K preparedness, but NAFCU wasn't deterred. Our intention is to remain focused and move forward with a deliberate lobbying effort to preserve NCUA's existing authority over the CLF borrowing limit." -
ekingoff@cutimes.com
