The NCUA determined that pulling the Central Liquidity Facility funds from U.S. Central would be the only way to continue helping it and the credit union system at large.
After the CLF capital infusion to U.S. Central and subsequent conservatorship earlier this year, the NCUA looked at the generally accepted accounting principles and decided that the entities' funds were so intertwined that the CLF and U.S. Central would have to provide consolidated financials under the current structure.
Historically credit unions have voluntarily subscribed to the CLF. The CLF in turn sold the stock to U.S. Central and then left the funds in the wholesale corporate on deposit.
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The NCUA consulted with Treasury, which never particularly liked the CLF's capital structure, on the decision, according to Owen Cole, NCUA's director of capital markets and planning. NCUA will now use the CLF funds to purchase Treasury securities, and U.S. Central will remain the primary beneficiary of the proceeds.
Cole emphasized that the decision was strictly based on the accounting issues, and that U.S. Central is in a fairly strong liquidity position right now. The move is not a statement of the agency's faith in the safety and soundness of U.S. Central, he stressed. If the change had not been made, Cole added, the funds in U.S. Central would have been counted as contra-equity against the CLF, zeroing out its equity and therefore borrowing authority from Treasury.
However, U.S. Central will lose about $1.8 billion in capital stock proceeds from the CLF.
The NCUA plans a webinar soon to explain the moves to the credit union system.
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