ALEXANDRIA, Va. – Two years after the credit union system was brought to its knees by the financial crisis, NCUA is reviewing the adequacy of emergency liquidity planning by credit unions.
The main focus is the future of the Central Liquidity Facility, the emergency loan fund that is run by NCUA but owned by U.S. Central FCU. With NCUA is in the process of winding down U.S. Central, the question is how will the CLF evolve and what will take its place.
NCUA said it is working with surviving corporate credit unions to take over the ownership role with CLF that has been played by U.S. Central for years.
But even with the CLF, which is able to provide as much as $50 billion on short notice, the emergency liquidity sources for credit unions amid the failures of the five corporate credit unions proved inadequate during the neediest times. Records released recently by the Federal Reserve show the troubled corporates tapped into several of the Fed’s emergency short-term loan programs for billions of dollars in emergency loans and ultimately that wasn’t enough. Dozens of other credit unions access the Fed’s discount window during those perilous days. Many of the same institutions also accessed their Federal Home Loan Bank for emergency credit during that time.
NCUA said yesterday it sees the changing role of the corporate system, which is the first source of credit union liquidity, as a major impetus to review the emergency liquidity situation.
The CLF played the key role in stemming the 2008-2009 liquidity crisis among credit unions, during which the corporate system, the first line of liquidity, teetered. First it was used to keep U.S. Central and WesCorp FCU afloat funneling billions of dollars of low-interest loans from the Treasury’s Federal Financing Bank. Between December 2008 and March 2009 NCUA borrowed $18.4 billion through the special Treasury bank, the agency said in a report issued yesterday. “By having ready access to contingent liquidity through CLF, NCUA was in a position to inject a critical amount of emergency liquidity into the credit union system. These liquidity injections helped stabilize confidence and gave NCUA time to work through the financial difficulties arising from the failure of the system’s largest corporate credit unions,” said the report.
As a result, NCUA said it is planning a new rule that will require for the first time that credit unions have one or more federal liquidity program lined up in case of emergency. Among those would be membership in the CLF or one of its corporate credit union agents; membership in the Fed’s discount window program or maintaining a certain amount of assets in liquid Treasury securities.
NCUA in a so-called advanced notice of rulemaking issued yesterday asked credit unions to submit their perspectives on emergency liquidity; the future of the CLF and what kind of emergency plans should be required.
