After the sale of U.S. Central Federal Credit Union’s electronic banking services to Co-op Financial Services, National Credit Union Association on Dec.22 said it will move forward with plans for an orderly wind-down of the other U.S. Central services in 2012.
Those services, which the association has run since its March 2009 takeover of U.S. Central, include international wires, automated settlement and its automated clearinghouse product, Apex.
“Since members of U.S. Central Bridge made the business decision not to pursue a new charter to maintain payment services, we anticipated this outcome,” said association board Chairman Debbie Matz. “The proposals we received from other bidders did not meet [association’s] responsibility to minimize service disruptions and impose the lowest possible cost.”
Each corporate credit union, if it has not already done so, now needs to begin the process of transferring to a vendor that will replace U.S. Central’s Apex system to continue uninterrupted payment services to member credit unions.
Another critical function of U.S. Central is serving as the agent group representative to facilitate credit-union access to the Central Liquidity Facility. Because of U.S. Central’s ownership of $1.9 billion of Central Liquidity Facility stock, all credit-union members of corporates can access the facility for liquidity purposes.
As the Federal Credit Union Act bases the facility’s borrowing authority on its subscribed capital stock and surplus (retained earnings), U.S. Central’s stock subscription plays a large part in the facility reaching its borrowing authority of $50 billion.
As a temporary entity, U.S. Central cannot hold the facility stock indefinitely. Because credit unions must have long-term access to emergency liquidity–and that facility stock will need to either be purchased directly by credit unions or by other corporates as agents for their members–the association’s board took two actions in December.
The board approved a change to Part 704 permitting corporates to deduct Central Liquidity Facility stock investments from their assets when calculating capital ratios. Further, the board approved an advance notice of proposed rulemaking that would require federally insured credit unions to have access to a backup federal liquidity source for use in times of financial emergency and distressed economic circumstances. The notice provides several options for how credit unions could meet this requirement, including membership in the facility.
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