ALEXANDRIA, Va.—A year after the wind-down of U.S. Central FCU-the industry's ultimate source of liquidity-the NCUA Board voted Thursday to require all credit unions over $250 million to contract for a federally backed source of emergency liquidity, either the Central Liquidity Facility or the Federal Reserve's Discount Window.
But NCUA rejected industry pleas to include in the final rule an option of membership in one of the 12 Federal Home Loan Banks or a portfolio of marketable securities.
NCUA said it rejected the FHLBs as an acceptable source of emergency liquidity because they are not obligated to meet emergency liquidity needs in the same way the CLF or the Fed are designed to do.
It also said a portfolio of marketable securities is not acceptable because it has proved to be insufficient in a crisis.
The new rule will require all credit unions to have a policy identifying optional sources for emergency liquidity, and the biggest credit unions to have a federally backed source.
Owen Cole, director of NCUA's Division of Credit and Capital Markets, said the liquidity rule was prompted by the failure of U.S. Central, which not only loaned emergency funds to the corporates, which made it available to natural person credit unions, but also owned the stock of the Central Liquidity Facility, the NCUA-managed emergency loan fund that provided critical aid during the financial crisis.
"Today, NCUA remains concerned about largely diminished liquidity resources used for risk management," Cole said in explaining the rule to the NCUA Board.
The new liquidity rule raises the question of the future of the CLF, which had a borrowing capacity of as much as $40 billion and provided emergency funding for not only U.S. Central and the other failed corporates, but hundreds of natural-person credit unions.
The new rule shows NCUA's intention to get all credit unions eligible to borrow from the CLF, either on their own or through a corporate credit union agent.
It is unclear, however, what ownership structure will replace the U.S. Central role.
Stress Tests
The NCUA Board also proposed for comment a rule that will require a handful of the biggest credit unions, those over $10 billion in assets, to develop and maintain a capital adequacy plan and to submit to annual stress tests, like the ones the Federal Reserve conducts for the biggest banks.
The rule will only apply to the biggest credit unions, for now, because they pose the greatest risk to the National CU Share Insurance Fund. There are currently four credit unions (Navy FCU, North Carolina SECU, Pentagon FCU and BECU) over $10 billion, with a fifth (SchoolsFirst FCU) poised to exceed the threshold any day.
The Board also approved a final regulation requiring all credit unions to submit their quarterly financial report and all documents to NCUA electronically.
A few dozen tiny credit unions continue to submit their reports manually. "There's no reason why all credit unions are not able to comply with this rule," said NCUA Chairman Debbie Matz.
Diversity Policies
The Board also reviewed a proposed interagency policy statement that would require all federally regulated entities to draft and follow diversity policies with respect to minorities and women.
Six federal financial regulatory agencies, including NCUA are proposing joint standards for assessing the diversity policies and practices of the institutions they regulate.
The proposed standards are intended to promote transparency and awareness of diversity policies and practices within financial institutions. The policies, however, would not be enforceable.
