NCUA's CDRLF Could Do More Through Secondary Capital Loans

The National Federation of Community Development Credit Unions takes a keen interest in the NCUA Community Development Revolving Loan Fund. We led the fight to create the CDRLF from 1974-79, as well as the battle to keep it alive and useful for low-income credit unions throughout the 1980s, when it was targeted for extinction or irrelevance. As Sarah Snell Cooke's June 14 article, "Community Development Revolving Loan Fund Makes a Difference for LICUs," notes, the CDRLF can be quite helpful for credit unions. Certainly, low-income credit unions appreciate the grant window of the CDRLF, which, although modest in size, is fairly accessible for many credit unions. The loan component of the CDRLF, however, deserves separate attention. At 1% interest, the price of the loan is right. The Federation had a lengthy battle in the 1980s to reduce it from a peak of more than 7%. And certainly, credit unions like Bethex have made good use of their loans. But looking at NCUA's balance sheet, less than one-third of the CDRLF's $16.3 million in assets are currently loaned out. A credit union that demonstrated this kind of performance would likely be lectured by its examiners about how "you shouldn't be running an investment club." The Federation's own Capitalization Program also offers long-term deposits to low-income credit unions; our rate is somewhat higher than NCUA's, but still below-market, and we typically have up to 80% of our available funds out on deposit. We think it's worth a look at why NCUA's CDRLF underperforms, despite its favorable terms. We'd also like to suggest revising the CDRLF loan operation to increase its impact on low-income credit unions. Low-income credit unions-the sole target audience for the CDRLF-are eligible to receive equity-like secondary-capital loans, which can improve their net worth ratio, enabling them to grow more aggressively, or to manage their balance sheets more effectively in times of economic distress. If NCUA were to restructure its program to provide secondary-capital loans instead of the liquidity loans or deposits that they currently offer, they might see a healthier, more robust low-income credit union sector, fewer mergers and liquidations, and a more persuasive picture to present to Congress, which appropriates funds for the CDRLF and has oversight responsibilities. Clifford Rosenthal Executive Director National Federation of Community Development Credit Unions New York, New York