ALEXANDRIA, Va.-NCUA said it has pumped an unprecedented $1.6 billion into credit unions through the Central Liquidity Facility, just as Congress has opened the spigots on the emergency loan fund.
Over the last month, more than 80 CUs have tapped into the emergency lender, which had made only three loans in the previous seven years, and none since 2005.
NCUA Chairman Michael Fryzel said increasing the capability of the CLF was his first priority upon taking the helm at the credit union regulator this summer. "I knew we had a lot of liquidity in the fund, but in my mind, it had never been promoted," said Fryzel, in an interview with CUJournal.
The next concern for Fryzel is the state of the corporate credit unions. With growing unrealized losses being reported by the corporates, the new NCUA chair called an emergency meeting of the agency's five regional directors at NCUA headquarters last month to review possible solutions. "We need to get a hold of how much bad assets are out there on their books," said Fryzel.
Among the other issues being reviewed is what the role of the corporates should be going forward and whether there are too many corporates, he added. The number of corporates has shrunk through mergers to 27, plus U.S. Central, down from 43 just over a decade ago.
On NCUA's side, it was critical to ensure that credit unions were specifically included in the massive bailout bill approved by Congress last month. "We're waiting to see how this is all going to shake out; how this is going to work," he said. "My position all along was, we need to have some input into all of this. That's why I made sure I was included on the advisory panel that's going to oversee the whole process."
He emphasized how important it was that credit unions get all of the same assistance that the banks get, that was especially critical that the increase in deposit insurance coverage to $250,000 per account, from $100,000, be extended to credit unions, so as not to put them at a disadvantage in the marketplace.
The expansion of loan demand from the CLF comes after NCUA convinced Congress to increase the borrowing limit on the fund from $1.5 billion to $40.5 billion to ease the ongoing liquidity crisis for credit unions in the financial crisis. The CLF borrows money from the Treasury's Federal Finance Bank and requires that all loans-it can only lend to natural person credit unions-are 110% collateralized.
It also comes as the U.S. Treasury expanded its bailout program last week by infusing $125 billion of new capital into needy banks in exchange for an equity stake. Another $125 billion of investments is planned in the coming months.
Credit unions, because of their cooperative structure, are not eligible for the capital infusion.
Natural person credit unions have typically sought to ease liquidity by borrowing from their corporate credit union, but many of the corporates are dealing with their own liquidity crunch, the result of growing losses on their investment portfolios.
Fryzel said he hopes the expanded borrowing capacity will help ease the stress on the many credit unions being squeezed by the credit crunch. "Now they see they can come here; maybe they feel more confident and that they're going to try it," he said. "This takes some pressure off some of the other sources of liquidity."
