The presidents of the 12 Federal Home Loan Banks are urging NCUABoard Chairman Debbie Matz and Member Michael Fryzel to considerthe banks as an option for the regulator's pending final emergencyliquidity rule.

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

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

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

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

However, she said during a press call the NCUA understands the900 credit unions currently using FHLBs for liquidity “feel verystrongly about that relationship and don't see why the agency, onan arbitrary basis, should exclude them.”

NCUA Public Affairs Specialist John Fairbanks said the NCUA isreviewing all comments regarding the proposed rule and added thatstaff members plan to present options and recommendations to theNCUA Board sometime this year. He would not say if the NCUA wasconsidering 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 theliquidity crunch that occurred in 2007 and 2008. Both corporatesstruggled to provide collateral for borrowings because of thereduced value of their collateral, mortgage-backed securities. Bothcorporates were placed into conservatorship by the NCUA. U.S.Central was later liquidated and Members United was recapitalizedand became Alloya.

CUNA Chief Economist Bill Hampel said because failed collateralwas an issue during the last liquidity crisis, CUNA has discussedwith the NCUA the potential to require credit unions that use anFHLB as a source of emergency liquidity to keep more than adequatecapital, so that after a substantial haircut, the FHLB would not berestricted on its lending.

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

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

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