WASHINGTON — Congress was forced last week by an impasse on the omnibus spending bill in the Senate to extend emergency funding for the Central Liquidity Facility and other government agencies.
The current $41-billion limit on funding for the CLF, the emergency loan fund for credit unions, was set to expire, but was extended until Wednesday to give senate leaders time to hash over the bill and hold a vote, eventually passing the bill late last week. It now goes to President Obama for his signature.
The spending bill would extend the $41-billion CLF limit until the end of September, enabling NCUA to continue using the fund to finance assistance for troubled credit unions.
Congress raised the CLF funding last September when NCUA made it clear it would need additional funds outside of the $7 billion National CU Share Insurance Fund to adequately provide assistance for troubled CUs.
Without Congressional action the funding for the CLF would have reverted back to $1.5 billion, where it stood for more than a decade. The new bill will extend the emergency funding to the Sept. 30 end of the current fiscal year.
NCUA sought the extension of the funding, hoping to convince Congress later on to extend the higher limit until the end of 2010.
NCUA was withholding comment on the CLF funding until after the Senate had acted.
"House passage is the first formal step toward enactment," said Ryan Donovan, senior lobbyist for CUNA, after last week's vote. "The bill will now move to the Senate where we will be encouraging senators to approve the house-passed CLF language."
"We are grateful for Congress giving the credit union community continued flexibility and options during this crisis that they did not cause," said Fred Becker, president of NAFCU, which lobbied for the extended funding for the CLF.
The CLF, which was created 30 years ago to provide emergency liquidity for credit unions, has been almost dormant for the past decade as other sources of credit union liquidity, like the corporate credit unions and the Federal Home Loan Banks, have proved to be more attractive. But pressure on both entities has prompted NCUA to turn back to the CLF.
As a result, NCUA has made the CLF the focus of credit union assistance in recent months. Soon after Congress approved the additional funding, for example, more than 100 credit unions tapped into the fund for about $2 billion of short-term loans. Then NCUA approved a plan, known as CU Housing Affordability Relief Program, to funnel low-cost CLF loans to credit unions to help them refinance their members' at-risk mortgages.
More recently, NCUA has been using CLF funds to provide back-door funding to the corporates through the CU System Investment Program, which provides low-cost funding to help the corporates hold on to underwater securities.
The CLF is an unusual entity. It was founded as a government-sponsored enterprise. So it is actually owned by the corporate credit unions-virtually all of its capital stock is owned by U.S. Central FCU-but it is managed by NCUA. NCUA, in turn invests the CLF funds in U.S. Central, which pays a quarterly dividend to NCUA, which then pays the shareholders-mostly U.S. Central-a dividend on their CLF stock.
Because of the government tie, the CLF is allowed to borrow at low rates from the U.S. Treasury's Federal Financing Bank. The rate these days is generally 1.25%. Prior to the September action by Congress, the CLF was authorized to borrow up to $1.5 billion from the FFB. Last week's action will authorize the higher level of $41 billion until the end of September.
