ALEXANDRIA, Va. – NCUA said yesterday it transferred $1.8 billion on deposit with the emergency loan fund, the Central Liquidity Facility, from the failed U.S. Central FCU and bought U.S. Treasury securities with the funds.
The transfer was directed by the Treasury, which has been providing the credit union movement an emergency $40 billion line of credit through the CLF for the past year.
The transfer is part of the planned privatization of the CLF, which has pumped almost $20 billion into credit unions since last August. Owen Cole, president of the CLF, said during a webinar yesterday, NCUA is considering transferring the stock of the CLF from U.S. Central, which has been operating under NCUA conservatorship since March 20, to credit unions or credit union groups.
NCUA plans to discuss the future of the emergency loan fund with credit union groups over the coming months before determining a new ownership structure, said Cole
The CLF, created in 1974, is a so-called government sponsored enterprise which is owned by U.S. Central, but managed by NCUA. Under its structure, NCUA deposits all funds into U.S. Central, which U.S. Central uses to pay its owners a quarterly dividend.
But the interrelationship, especially since the failure of U.S. Central, has drawn concern from the Treasury Department. "It’s a circular issue of U.S. Central buying stock in the CLF and putting the stock back into U.S. Central as a deposit," said Cole, who denied the transfer of funds was due to diminished confidence in U.S. Central. "It’s an operational issue driven by accounting."
Under the CLF’s unusual structure, U.S. Central holds $1.75 billion worth of CLF stock on behalf of other corporates and is responsible to match that amount in the case of an emergency, so-called on-call stock. The CLF is allowed to borrow 12 times that so-called capital from the U.S. Treasury, an amount equal to about $40 billion.
Since the spread of the financial crisis to credit unions last summer NCUA has increasingly used the CLF to prop up the credit union system. During that time the CLF has provided more than $2 billion in emergency loans to natural person credit unions, provided more than $600 million for credit unions to make low-interest mortgage refinancings, pump as much as $8 billion into the corporate system, and another $10 billion in emergency loans to U.S. Central and WesCorp FCU, also taken under conservatorship on March 20.
