House committee lifts CLF cap to $3 billion

WASHINGTON - A flurry of last minute lobbying efforts by NCUA and credit union trade associations was enough to get the arcane $600 million Central Liquidity Facility cap lifted by a House committee. The House Appropriations Committee passed an amendment to its appropriation bill raising the CLF cap from $600 million to $3 billion, with a provision that allows NCUA to expand beyond the $3 billion cap in an emergency situation as deemed by NCUA. The lifting of the cap was somewhat of a surprise because the House Appropriations Committee went against the VA-HUD and Independent Agencies Subcommittee recommendation of keeping the cap at $600 million. "I've been battling this for seven years. Credit unions deserve a greater backup liquidity than they currently have access to," said NCUA Chairman Norm D'Amours. "Quite frankly I wish we were able to get twice the amount, but the good news is we got five times the current cap," said D'Amours. D'Amours had meetings with House Banking Committee Chairman Jim Leach (R-Iowa) and VA-HUD and Independent Agencies Subcommittee Chairman James Walsh (R-N.Y.) the day before the amendment was passed. The amendment also goes against a previous recommendation that the Treasury Department be given the authority to determine if the cap should be lifted in an emergency situation. That power is now in the hands of NCUA. "We were very persistent. This agency gets a lot of criticism. I think here's a case where I would hope the agency would be be recognized for its dogged efforts," said D'Amours. Doug Duerr, president of NASCUS, said NCUA, D'Amours especially, deserves credit for staying focused on lifting the cap. "Who better to make a case than NCUA, the administrator of the CLF?" said Duerr. Duerr said NCUA, combined with state regulators, made a powerful combination. "State regulators come from the perspective of having as many liquidity options as possible. We know by experience that credit union losses can predominantly be back-stopped by liquidity," said Duerr. Duerr said setting the cap at $3 billion is the equivalent of giving the old $600 million cap a cost of living increase. The $600 million cap was set back in 1988 when the CLF was first formed. Y2K opened the collective eyes of the industry and regulators to the need for lifting the cap, said Duerr. D'Amours seconded that, saying Y2K was the break the industry needed to bring attention to the CLF cap. John McKechnie, vice president of legislative affairs for CUNA, said when the first cap was set the credit union industry only had $60 billion in assets. "The consistent message we felt we conveyed was that the $600 million figure was no longer appropriate for an industry that now has $411 billion in assets," he said. From a lobbying perspective, swaying Walsh to recommend the $3 billion cap was key, McKechnie said. CUNA encouraged Leach to send a letter to Walsh outlining whey the cap needed to be lifted. CUNA President Dan Mica talked with Leach about the cap just days before the vote occurred, said McKechnie. NAFCU sent a letter to Walsh late in the game to try and clear the air on one issue of concern the subcommittee raised in its discussion of lifting the CLF cap. The subcommittee felt that credit unions may have borrowed from the CLF in the fourth quarter of `99 for purposes of arbitrage, which is prohibited by the Federal Credit Union Act. "To the extent members of the subcommittee believed it was necessary to restrict the CLF's borrowing authority to guard against arbitrage, we now see that not only is the practice prohibited by statute, but that thorough investigation by GAO concluded that credit unions did not engage in the practice of arbitrage," stated NAFCU President Fred Becker in the letter to Walsh. Becker said that lifting the cap was one of NAFCU's top five priorities this year. "The reason it should be lifted is credit unions need liquidity. Credit unions live within a fairly closed system of borrowing. CLF provides that safety net or fuse for the breaker," said Becker. One argument for not lifting the cap was that it was so rarely used in the past. Duerr compared that argument to a homeowner not having home owner's insurance because they may never have a fire. "You still have to have it," he said. At press time, the House markup still had to go to conference, but D'Amours said he would be very surprised if the cap wasn't approved. -pgentile@cutimes.com