ALEXANDRIA, Va. – NCUA said last week 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 credit unions 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 The Credit Union Journal.
The expansion of loan demand from the fund 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 is planning to expand its bailout of the banks this week by infusing capital into needy banks in exchange for an equity stake. 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."
