Onsite Coverage: Without U.S. Central, CLF Borrowing Ability Drops 96%
ALEXANDRIA, Va. — U.S. Central FCU is such a key player in providing Central Liquidity Facility access to credit unions, once the corporate is closed in October and its CLF stock is redeemed, the CLF’s subscribed capital stock and surplus – and therefore, borrowing capacity – will drop 96%, Director of Examination and Insurance Larry Fazio told the NCUA Board on Tuesday during the governing body’s monthly meeting.
The CLF is permitted to borrow up to 12 times its total subscribed capital stock and surplus, according to the National Credit Union Central Liquidity Facility Act.
As of May 31, 2012, the CLF counted $3.85 billion in stock and surplus, which equates to $46 billion in borrowing ability. Without U.S. Central, which serves as the only agent group representative that can access CLF, remaining CLF stock and surplus is only $155 million, for a borrowing authority of $1.86 billion, Fazio said.
Approximately 6,000 credit unions will lose the ability to borrow from CLF after U.S. Central closes, Fazio told the board.
That loss of borrowing ability is what prompted the proposed rule announced Tuesday that all credit unions with more than $10 million in assets develop an emergency liquidity plan. Additionally, credit unions with more than $100 million in assets much establish the ability to borrow from the CLF or Federal Reserve in the event of a liquidity emergency.
Corporate credit unions may facilitate CLF membership for its members by performing such services as assisting with credit applications, serving as a collateral custodian and administrator, and assisting with credit reporting requirements.
However, credit unions would still be responsible for subscribing to CLF stock in an amount not less than one half of 1% of the credit union’s unimpaired capital and surplus.
Corporates may also serve as a CLF agent as U.S. Central did, but the institution must subscribe to CLF stock for all of its members that aren’t regular CLF members.
The third option to meet the proposed liquidity rule would be for a credit union to establish borrowing access through the Federal Reserve’s Discount Window, which requires Fed reserve requirements such as a transaction account or non-personal time deposits.
As of March 31, 2012, only 6% of federally insured credit unions met this eligibility, Fazio told the board.
The NCUA will produce an informational webinar for credit unions on the CLF and the proposed liquidity rule Aug. 14, as well as a question-and-answer sheet that outlines requirements and options.
NCUA Chairman Debbie Matz said she is seeking comment from credit unions with more than $10 million in assets but less than $100 million regarding the liquidity plan requirement.
Matz said she is particularly interested to know if credit unions of that size could write their own plan, or if they would need to hire a consultant. Ultimately, Matz said she wants to appropriate address the compliance requirement to ensure that the burden doesn’t outweigh the benefit of the proposed rule.