It's another annual rite of spring that the NCUA and the credit union lobby trudges to Capitol Hill to ask lawmakers to approve a borrowing limit for the Central Liquidity Facility, the emergency loan fund administered by NCUA known as the CLF.
And in another annual rite, staffers and some lawmakers question whether the fund, to some an anachronism, is still necessary. More than one source on Capitol Hill expressed doubt at the need for a fund that has been almost never utilized over the past decade, as alternative liquidity sources have emerged for credit unions, like the corporate network, the Federal Home Loan Bank System and the Federal Reserve's discount window. In fact, through the first quarter of this year the CLF did not make a single loan and has gone entire years without lending any money.
The structure of the fund is arcane as it amounts to little more than a pass-through for U.S. Central CU, which actually owns 95% of the stock in the credit union-owned lending facility. In turn, the CLF deposits most of its funds with U.S. Central, then pays a quarterly dividend to its stockholders based on the dividends it earns from U.S. Central. As a result, 95% of those dividends paid by U.S. Central go right back to U.S. Central.
Even the stock structure is an arcane one in which stockholders have pledged $1.8-billion in capital, but only half of that is actually held by the CLF, with the other half "on call" in case of an emergency. Of course, in a liquidity emergency, U.S. Central would likely be tapped by its own members and be hard-pressed to comply with a call. All of these issues have been expressed by congressional staffers who do the background work for their bosses when contemplating CLF funding.
In arguing for continuation of the CLF, Dick Johnson, the retiring president and CEO of WesCorp FCU, who headed the corporates' CLF Interface Committee for years, likes to say "you don't shut down the firehouse just because there's no fires." But the emergence of other fire houses over the past decade provides credit unions with more than adequate protection for the next conflagration.
Washington, D.C. Bureau Chief Ed Roberts can be reached at robertscuj aol.com.