The presidents of the 12 Federal Home Loan Banks are urging NCUA Board Chairman Debbie Matz and Member Michael Fryzel to consider the banks as an option for the regulator's pending final emergency liquidity rule.

The proposed rule requires credit unions with more than $100 million in assets to establish emergency liquidity relationships with one of two providers: the NCUA's Central Liquidity Facility or the Federal Reserve's Discount Window.

“The FHLBank (sic) System has demonstrated time and again that it can and will provide liquidity to its member institutions even in times of financial emergency and distressed economic circumstances,” the bank presidents wrote in a Jan. 31 letter, which was also delivered to NCUA Executive Director Mark Treichel and Director of Examination and Insurance Larry Fazio.

“The FHLBanks played a leading role, beginning in 2007, in providing liquidity to their member financial institutions. During the fiscal crisis that began that year, the FHLBanks reliably supported their credit union members,” the letter said.

CUNA Deputy General Counsel Mary Dunn said Monday its “questionable” the NCUA Board will change its final emergency liquidity rule to include Federal Home Loan Banks.

However, she said during a press call the NCUA understands the 900 credit unions currently using FHLBs for liquidity “feel very strongly about that relationship and don't see why the agency, on an arbitrary basis, should exclude them.”

NCUA Public Affairs Specialist John Fairbanks said the NCUA is reviewing all comments regarding the proposed rule and added that staff members plan to present options and recommendations to the NCUA Board sometime this year. He would not say if the NCUA was considering adding FHLBs to the final rule.

The FHLB letter said the banks provided liquidity to Members United Corporate FCU and U.S. Central FCU during the liquidity crunch that occurred in 2007 and 2008. Both corporates struggled to provide collateral for borrowings because of the reduced value of their collateral, mortgage-backed securities. Both corporates were placed into conservatorship by the NCUA. U.S. Central was later liquidated and Members United was recapitalized and became Alloya.

CUNA Chief Economist Bill Hampel said because failed collateral was an issue during the last liquidity crisis, CUNA has discussed with the NCUA the potential to require credit unions that use an FHLB as a source of emergency liquidity to keep more than adequate capital, so that after a substantial haircut, the FHLB would not be restricted on its lending.

The FHLB presidents said in their letter that regulations state they can make advances to members without positive tangible capital if the member's insurer requests the advance in writing and the FHLB transmits that request to the FHFA.

“The FHLBanks are committed to working with the NCUA to memorialize our understandings regarding the role of the FHLBanks in providing liquidity to their credit union members in a memorandum of understanding,” the letter said.

Dunn said she thinks the MOU proposal has potential. Additionally, she said “whether the CLF will be a viable source remains to be seen because the future of the CLF is far from certain” due to a hesitation by credit unions to capitalize the fund.

Instant Insights /

FHLBs Tell NCUA They Can Provide CUs with Emergency Liquidity

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