WASHINGTON – The Senate on Saturday approved a stop-gap funding bill for the federal government which includes new borrowing authority for the Central Liquidity Facility, the emergency loan fund operated by NCUA.
The emergency measure comes after a plea by new NCUA Chairman Michael Fryzel who told Congress that pressures on traditional credit union liquidity sources, especially the corporate credit unions, have limited liquidity during the current financial crisis, especially for 2,166 credit unions that do not have access to the Federal Reserve’s discount window.
The congressional action will eliminate the $1.5 billion cap on CLF borrowing from the Federal Finance Bank and allow the emergency credit union lender to borrow as much as $41.5 billion if necessary.
The CLF is a so-called government sponsored enterprise that is managed by NCUA but owned by the corporate credit unions–the vast majority of the stock is owned by U.S. Central FCU. Because of the ready availability of loans from the corporates the CLF is almost never used–it has made only three loans in the last eight years and none since 2006.
But Fryzel told congressional leaders that the seizing-up of the credit markets has made liquidity extremely tight for credit unions, especially because of the situation at the corporates, which are holding some $10 billion in distressed mortgage backed securities.
NCUA, which originally supported the annual $1.5 billion borrowing cap for the CLF, reversed course and asked Congress just after Labor Day for the additional borrowing ability, according to John McKechnie, chief spokesman for the agency. "In August Chairman Fryzel noticed the trends in liquidity throughout the credit union system and he began to explore the expansion of the CLF with members of Congress," McKechnie told The Credit Union Journal. "After Labor Day we went to the Hill and began to discuss this with some of the leaders of the key committees."
The CLF was created in 1978 to provide an additional emergency source of liquidity at a time when credit unions did not have access to the Federal Reserve or to the Federal Home Loan Bank system. But since then, credit unions have not only obtained access to the Fed and the FHLBs but to the commercial markets.
