Once-secret documents released by the Federal Reserve Board Wednesday revealed that U.S. Central was a major beneficiary of the Fed's emergency Term Auction Facility, just as the corporate credit union giant was teetering.
The records show the one-time $52 billion-asset corporation tapped into the facility, created by the Fed as the nation's financial system began to seize up, for a 28-day loan of $2.5 billion in August 2008. The annual rate on the loan, collateralized by asset-backed securities held by U.S. Central, was 2.38%.
The facility was one of a half-dozen special lending facilities created by the Fed in the dark days of the 2008 meltdown in the financial markets, which collateralized everything from commercial paper to mortgage securities to Treasuries in order to lend out some $9 trillion to institutions all over the world, the records show.
U.S. Central continued to tap into the facility, borrowing up to $5 billion on Sept. 11, 2008, at 2.45%. The final short-term loan from the Fed's facility was made on Sept. 25, 2008, just days before Congress authorized the National Credit Union Administration to make emergency loans to firms through the Central Liquidity Facility.
The Fed borrowings were then replaced by a $5 billion loan from the CLF at a far more advantageous rate, below 1%. At the time, growing losses at U.S. Central made it increasingly expensive for the corporate giant to borrow in the public markets by selling short-term commercial paper, or at the Federal Home Loan Bank of Topeka, where it had a $7 billion line of credit.
U.S. Central used the $5 billion CLF loan to ease its liquidity crunch until NCUA took it over in March 2009. The congressional action also enabled NCUA to lend $5 billion to WesCorp FCU, as dwindling liquidity eventually contributed to the failure of the one-time $34 billion-asset California corporation.
The $5 billion CLF line was later supplemented by a $1 billion capital note from NCUA that U.S. Central soon ran through, and later by up to $7 billion of specially created notes that helped liquefy U.S. Central and WesCorp.
The participation of U.S. Central in the Fed's short-term program was very unusual. Only two other credit unions, Service Credit Union of New Hampshire and Marine Credit Union of Wisconsin, are listed among the more than 10,000 loans provided during the two-year period.
Service tapped into the Fed's facility for a 28-day loan of $12 million at 0.25% at least four times, and for $14 million once. Marine borrowed an initial $10 million at 0.25%, then as much as $28.3 million at the same rate.
